Human Capital and Urbanization – The Causal Effect of High School on Moving out of Rural Area

This paper identifies a major source of migration from rural to urban areas in Denmark. We estimate the causal effect of obtaining a high school degree on the decision to leave rural areas and move to urban areas. The net-migration from rural to large urban areas has increased significantly, leaving rural areas behind with a declining population and problems with retaining human capital. The main driver behind this is an increasing share of young adults migrating towards large urban areas. Because young people who migrate from rural areas to larger cities typically do not return, the location decisions of young people have long-run implications for regional inequality regarding human capital and regional economic growth. This paper answers the question on the causal effect of completing high school on out-migration from rural areas. The study is based on panel data from Danish administrative registers. When employing an IV-approach, we find that completing high school increases young adults’ probability of moving out of a rural area with 65 percentage point. Furthermore, we find that the causal effect of completing high school is heterogeneous across socio-economic background. The causal effect of completing high school is largest for young adults with low socioeconomic background.