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Using a multi‐region, multi‐sector dynamic model of an economy with rural–urban migration fit to Turkish data, this paper explores the evolution of each region's output and factor allocation as well as inter‐regional disparities that emerge with migration. Migration or residence decision of households is endogenous with respect to regional cost‐of‐living differentials. Results show that migration slows down and dampens the shift of labour from urban manufacturing to services, despite the increase in demand for urban services. It is also established that rural–urban migration contributes positively to growth while the reallocation of labour within each region proves to be unfavourable. [ABSTRACT FROM AUTHOR]