Urbanization and Economic Growth

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Henderson (2005) and Henderson (2010) and other sources

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✔ The meaning of urbanization

✔ Defining “Urban” Area

✔ The process of urbanization

✔ The economic aspect of urbanization

✔ The meaning of urbanization

✔ Defining “Urban” Area

✔ The process of urbanization

✔ The economic aspect of urbanization

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The Meaning of Urbanization

“A spatial transformation of the economy, where the population moves through migration from an

agricultural, rural based existence to one where production occurs in cities of endogenous numbers

and size” (Henderson, 2005)

“A spatial transformation of the economy, where the population moves through migration from an

agricultural, rural based existence to one where production occurs in cities of endogenous numbers

and size” (Henderson, 2005)

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What do we mean by Urban?

✔ There is no international consensus on how to determine or identify when a settlement is ‘urban’.

✔ A simple, standardized definition of ‘urban’: based on population size and density criteria.

✔ Some other countries have multiple criteria, including size, density and administrative level, but also extending to

indicators of what could be considered urban employment (e.g. non-agricultural workers), facilities (e.g. higher-level schools), infrastructure (e.g. street lighting).

✔ However, as well as varying between countries, the countries’ definitions also change over time.

✔ There is no international consensus on how to determine or identify when a settlement is ‘urban’.

✔ A simple, standardized definition of ‘urban’: based on population size and density criteria.

✔ Some other countries have multiple criteria, including size, density and administrative level, but also extending to

indicators of what could be considered urban employment (e.g. non-agricultural workers), facilities (e.g. higher-level schools), infrastructure (e.g. street lighting).

✔ However, as well as varying between countries, the countries’ definitions also change over time.

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Four principal methods are employed to identify urban places:

1. Population size: this urban population threshold varies over time and space:

○ In Sweden, more than 200 inhabitants; whereas in the USA the population minimum for urban status is 2,500; in

Switzerland it is 10.000; in Japan rising to 30.000; etc.

2. Economic base: In India, for example, a urban settlement must have more than 75 per cent of the adult male population engaged in non-agricultural work.

3. Administrative criteria: The majority of towns and cities in the world are defined according to legal or administrative

criteria.

4. Functional definitions: The ‘functional urban regions’ which reflect the real extent of urban influence (the concept of the extended urban area)

1. Population size: this urban population threshold varies over time and space:

○ In Sweden, more than 200 inhabitants; whereas in the USA the population minimum for urban status is 2,500; in

Switzerland it is 10.000; in Japan rising to 30.000; etc.

2. Economic base: In India, for example, a urban settlement must have more than 75 per cent of the adult male population engaged in non-agricultural work.

3. Administrative criteria: The majority of towns and cities in the world are defined according to legal or administrative

criteria.

4. Functional definitions: The ‘functional urban regions’ which reflect the real extent of urban influence (the concept of the extended urban area)

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Definition of Urban Area in Indonesia

Change of Criteria in Defining Urban Villages and Non-urban Villages in Indonesia since 1961 to

2010

Change of Criteria in Defining Urban Villages and Non-urban Villages in Indonesia since 1961 to

2010

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Defining Urban Area in UK and US

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In USA:

✔ The concept of the extended urban area was first introduced by the US Bureau of the Census in 1910,

✔ Later developed into the Standard Metropolitan Statistical Area (SMSA) in 1960 and,

✔ Since 1983, the Metropolitan Statistical Area (MSA).

In USA:

✔ The concept of the extended urban area was first introduced by the US Bureau of the Census in 1910,

✔ Later developed into the Standard Metropolitan Statistical Area (SMSA) in 1960 and,

✔ Since 1983, the Metropolitan Statistical Area (MSA).

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Defining Urban Area in UK and US

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The Process of

Urbanization : System of Cities

✔ the evolution of the size distribution of cities

✔ what cities do – urban specialization and geographic concentration

✔ evidence that is more specific to the urbanization process in developing countries and issues

surrounding that process.

✔ the evolution of the size distribution of cities

✔ what cities do – urban specialization and geographic concentration

✔ evidence that is more specific to the urbanization process in developing countries and issues

surrounding that process.

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The Process: evolution of the city size distribution

✔ there is a wide relative size distribution of cities in large economies that is stable over time. Big and small cities coexist in equal proportions over long periods of time

✔ within that relative size distribution, individual cities are generally growing in population size over time;

and what is considered a big versus small city in absolute size changes over time

✔ while there is entry of new cities and both rapid growth and decline of cities nearer the bottom of the urban hierarchy, at the top city size rankings are remarkably stable over time.

✔ there is a wide relative size distribution of cities in large economies that is stable over time. Big and small cities coexist in equal proportions over long periods of time

✔ within that relative size distribution, individual cities are generally growing in population size over time;

and what is considered a big versus small city in absolute size changes over time

✔ while there is entry of new cities and both rapid

growth and decline of cities nearer the bottom of

the urban hierarchy, at the top city size rankings

are remarkably stable over time.

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the Process: evolution of the size distribution of

cities

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The Process: Geographic concentration and urban specialization

✔ Geographic concentration refers to the extent to which an industry k is concentrated at a

particular location or, more generally

concentrated at a few versus many locations nationally.

✔ Urban specialization refers to how much of a

location’s total employment is found in industry k

✔ Geographic concentration refers to the extent to which an industry k is concentrated at a

particular location or, more generally

concentrated at a few versus many locations nationally.

✔ Urban specialization refers to how much of a

location’s total employment is found in industry k

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The Process: Urban Specialization

✔ Kim (1995) looking at the USA examines how patterns of specialization have changed over time, found that states are substantially less specialized in 1987 than in 1860 but that

concentration has increased over time

✔ Kim (1995) looking at the USA examines how patterns of specialization have changed over time, found that states are substantially less specialized in 1987 than in 1860 but that

concentration has increased over time

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The Process: Urban Specialization

✔ Cities become more specialized and provinces less so. Therefore, the geographic unit of analysis matters

✔ City specialization is consistent with regional

diversity, when large regions are composed of many cities of different types.

✔ Smaller cities are much more specialized than larger cities in their manufacturing production. More

generally, Kolko (1999) demonstrates that larger cities are more service oriented and smaller ones more manufacturing oriented

✔ Cities become more specialized and provinces less so. Therefore, the geographic unit of analysis matters

✔ City specialization is consistent with regional

diversity, when large regions are composed of many cities of different types.

✔ Smaller cities are much more specialized than larger cities in their manufacturing production. More

generally, Kolko (1999) demonstrates that larger cities are more service oriented and smaller ones more manufacturing oriented

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The Process: Geographic Concentration

✔ What about concentration of industry – the extent to which a particular industry is found in a few versus many locations?

✔ Plants’ profit depend on area specific natural advantage and spillovers.

✔ Example of research: Beeson, DeJong and Troeskan (2001) look at USA counties from 1840–1990. They show that iron deposits, other mineral deposits, river location, ocean

location, river confluence, heating degree days, cooling

degree days, mountain location, and precipitation all affect the base 1840 county population significantly

✔ What about concentration of industry – the extent to which a particular industry is found in a few versus many locations?

✔ Plants’ profit depend on area specific natural advantage and spillovers.

✔ Example of research: Beeson, DeJong and Troeskan (2001) look at USA counties from 1840–1990. They show that iron deposits, other mineral deposits, river location, ocean

location, river confluence, heating degree days, cooling

degree days, mountain location, and precipitation all affect

the base 1840 county population significantly 18

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The Process: Geography

✔ They find climate and coast affect relative city growth rates; but market potential has big

effects as well, although they are nonlinear.

✔ Bigger markets provide more customers, but also more competition, so marginal market potential effects diminish as market potential increases

✔ They find climate and coast affect relative city growth rates; but market potential has big

effects as well, although they are nonlinear.

✔ Bigger markets provide more customers, but also more competition, so marginal market potential effects diminish as market potential increases

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The Process

✔ Urbanization, or the shift of population from rural to urban

environments, is typically a transitory process, albeit one that is socially and culturally traumatic.

✔ As a country develops, it moves from labor-intensive agricultural production to labor being increasingly employed in industry and services. The latter are not land-intensive and are located in

cities because of agglomeration economies.

✔ Thus urbanization moves populations from traditional rural

environments with informal political and economic institutions to the relative anonymity and more formal institutions of urban

settings. That in itself requires institutional development within a country. It spatially separates families, particularly by

generation, as the young migrate to cities and the old stay behind.

✔ Urbanization, or the shift of population from rural to urban

environments, is typically a transitory process, albeit one that is socially and culturally traumatic.

✔ As a country develops, it moves from labor-intensive agricultural production to labor being increasingly employed in industry and services. The latter are not land-intensive and are located in

cities because of agglomeration economies.

✔ Thus urbanization moves populations from traditional rural

environments with informal political and economic institutions to the relative anonymity and more formal institutions of urban

settings. That in itself requires institutional development within a country. It spatially separates families, particularly by

generation, as the young migrate to cities and the old stay behind.

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✔ The actual percent urbanized with full urbanization varies with geography, the role of modern agriculture in the economy, and national definitions of urban

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Issues concerning overall urbanization

✔ urbanization is the consequence of changes in national output composition from rural agriculture to urbanized modern manufacturing and service production.

✔ government policies bias, or influence urbanization through their effect on national sectoral composition.

✔ So policies affecting the terms of trade between agriculture and modern industry or between traditional small town

industries (textiles, food processing) and high tech large city industries affect the rural–urban or small–big city allocation of population. Such policies include tariffs, and price

controls and subsidies.

✔ urbanization is the consequence of changes in national output composition from rural agriculture to urbanized modern manufacturing and service production.

✔ government policies bias, or influence urbanization through their effect on national sectoral composition.

✔ So policies affecting the terms of trade between agriculture and modern industry or between traditional small town

industries (textiles, food processing) and high tech large city industries affect the rural–urban or small–big city allocation of population. Such policies include tariffs, and price

controls and subsidies.

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The form of urbanization:

the degree of spatial concentration

✔ Urbanization promotes benefits from

agglomeration such as localized information and knowledge spillovers and thus efficient

urbanization promotes economic growth.

Urbanization may “cause” economic growth, rather than just emerge as part of the growth (Sachs and Mellinger, 1999).

✔ The limited evidence so far suggests urbanization does not cause growth per se (Henderson, 2005) No econometric evidence linking the extent of urbanization to either economic or productivity growth or levels.

✔ Urbanization promotes benefits from

agglomeration such as localized information and knowledge spillovers and thus efficient

urbanization promotes economic growth.

Urbanization may “cause” economic growth, rather than just emerge as part of the growth (Sachs and Mellinger, 1999).

✔ The limited evidence so far suggests urbanization does not cause growth per se (Henderson, 2005) No econometric evidence linking the extent of urbanization to either economic or productivity growth or levels.

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The form of urbanization:

✔ Cross-section analysis of 24 countries argued that national economic development is characterized by an initial phase of internal regional divergence, followed by a phase of later

convergence (Williamson 1965)

✔ The urban version of this divergence–convergence phenomenon looks at urban primacy

✔ Conceptually the urban world is collapsed into two regions – the primate city versus the rest of the country, or at least the urban portion (Ades and Glaeser, 1995).

✔ The basic question concerns to what extent urbanization is concentrated, or confined to one (or a few) major metro areas, relative to being spread more evenly

✔ Cross-section analysis of 24 countries argued that national economic development is characterized by an initial phase of internal regional divergence, followed by a phase of later

convergence (Williamson 1965)

✔ The urban version of this divergence–convergence phenomenon looks at urban primacy

✔ Conceptually the urban world is collapsed into two regions – the primate city versus the rest of the country, or at least the urban portion (Ades and Glaeser, 1995).

✔ The basic question concerns to what extent urbanization is concentrated, or confined to one (or a few) major metro

areas, relative to being spread more evenly ²⁴

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The form of urbanization:

✔ The idea is that manufacturing is also first very concentrated in primate cities at early stages of development and then

decentralizes to more concentrated in rural areas.

✔ manufacturing is suburbanized from primate city to satellite cities (suburbanization of manufacturing ). Manufacturing deconcentrated to hinterland regions. This deconcentration coincided with economic liberalization, enormous and

widespread

✔ investment in inter-regional transport and infrastructure

investment, and fiscal decentralization [Henderson, Lee and Lee (2001)] and is consistent with core–periphery reversal in the new economic geography literature (Henderson, 2005)

✔ The idea is that manufacturing is also first very concentrated in primate cities at early stages of development and then

decentralizes to more concentrated in rural areas.

✔ manufacturing is suburbanized from primate city to satellite cities (suburbanization of manufacturing ). Manufacturing deconcentrated to hinterland regions. This deconcentration coincided with economic liberalization, enormous and

widespread

✔ investment in inter-regional transport and infrastructure

investment, and fiscal decentralization [Henderson, Lee and Lee (2001)] and is consistent with core–periphery reversal in

the new economic geography literature (Henderson, 2005) ²⁵

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Cities and Growth

✔ Simple indices of urban diversity indicate that smaller cities are very specialized and larger cities highly diversified. So the question is what is the role of large metro areas in an economy and their relationship to smaller cities.

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Cities and Development

✔ what we know about the conceptual and empirical links between development and urbanization.

✔ Rapid urbanization requires massive

population movements and enormous local and inter-city infrastructure investments in a modern context of heavy government

interventions in economies

✔ what we know about the conceptual and empirical links between development and urbanization.

✔ Rapid urbanization requires massive

population movements and enormous local and inter-city infrastructure investments in a modern context of heavy government

interventions in economies

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✔ First concerns the spatial form of

development. How much development should be focused in mega-cities, or huge urban

clusters, as opposed to being more spatially dispersed, a critical question facing China and India today?

✔ Second, what is the evolution of spatial

income inequality under massive rural-urban migration? Is inequality heightened today

✔ First concerns the spatial form of

development. How much development should be focused in mega-cities, or huge urban

clusters, as opposed to being more spatially dispersed, a critical question facing China and India today?

✔ Second, what is the evolution of spatial

income inequality under massive rural-urban

migration? Is inequality heightened today

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✔ Urbanization and economic development are closely intertwined. While urbanization per se does not cause development, sustained

economic development does not occur without urbanization

✔ In economic growth models, cities are viewed as the engines of growth for an economy—

dense interactive locations where knowledge is exchanged, innovations spurred, and

sophisticated skills developed (Lucas, 1988;

Black and Henderson,1999a).

✔ Urbanization and economic development are closely intertwined. While urbanization per se does not cause development, sustained

economic development does not occur without urbanization

✔ In economic growth models, cities are viewed as the engines of growth for an economy—

dense interactive locations where knowledge is exchanged, innovations spurred, and

sophisticated skills developed (Lucas, 1988;

Black and Henderson,1999a).

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✔ In developing countries, bigger cities are also typically the point of technology importation and adaptation, the consequences of which have not been rigorously explored.

✔ Theory and empirical evidence suggest scale and knowledge externalities may interact, so that scale benefits are enhanced by

knowledge accumulation—information spillovers are more beneficial the more educated the population.

✔ In developing countries, bigger cities are also typically the point of technology importation and adaptation, the consequences of which have not been rigorously explored.

✔ Theory and empirical evidence suggest scale and knowledge externalities may interact, so that scale benefits are enhanced by

knowledge accumulation—information spillovers are more beneficial the more

educated the population.

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✔ As a country develops economically, the largest cities become inefficient locations for standardized manufacturing locations for several reasons

✔ First, these cities become very expensive locations with high rents and labor costs. Infrastructure and skilled labor is in

greater relative abundance in other locations. And, finally, the business service sector is expanding, demanding the large

city locations, and outbidding manufacturing for central city lands in those cities.

✔ The first step is that manufacturing decentralizes to periurban and suburban locations of the largest cities, where rents and wages are cheaper, but firms still have access to the

infrastructure of the largest cities and often government offices to deal with red tape

✔ As a country develops economically, the largest cities become inefficient locations for standardized manufacturing locations for several reasons

✔ First, these cities become very expensive locations with high rents and labor costs. Infrastructure and skilled labor is in

greater relative abundance in other locations. And, finally, the business service sector is expanding, demanding the large

city locations, and outbidding manufacturing for central city lands in those cities.

✔ The first step is that manufacturing decentralizes to periurban and suburban locations of the largest cities, where rents and wages are cheaper, but firms still have access to the

infrastructure of the largest cities and often government offices to deal with red tape

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Cities and Development

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An Agenda for Urbanizing World

✔ Central to Ades and Glaeser (1995) and Davis and Henderson (2003) is the idea that national governments tend to favor certain regions or cities of a country, typically the national

capital region with a variety of advantages—

better access to capital markets, better access to import and export licenses, better fiscal

conditions, and disproportionately better provision of public goods.

✔ Central to Ades and Glaeser (1995) and Davis and Henderson (2003) is the idea that national governments tend to favor certain regions or cities of a country, typically the national

capital region with a variety of advantages—

better access to capital markets, better access to import and export licenses, better fiscal

conditions, and disproportionately better

provision of public goods.

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An Agenda for Urbanizing World

✔ The concern of the literature and of policy is that, for some countries, the high rural–urban income gaps are not just a part of some transition process, as rural labor moves to cities and the rural sector is upgraded.

✔ There is the direct evidence noted earlier of policies that are biased in favor in one or two cities or regions of a country

relative to others. Second are a set of local policies in favored regions which try to counteract the negative aspects of

national favoritism, by inhibiting the flow of people into the favored area. The latter is accomplished by making living

conditions for migrants into favored cities very unpleasant, as a deterrent to in-migration with a consequence of creating a divide within cities between long-term residents and migrants

✔ The concern of the literature and of policy is that, for some countries, the high rural–urban income gaps are not just a part of some transition process, as rural labor moves to cities and the rural sector is upgraded.

✔ There is the direct evidence noted earlier of policies that are biased in favor in one or two cities or regions of a country

relative to others. Second are a set of local policies in favored regions which try to counteract the negative aspects of

national favoritism, by inhibiting the flow of people into the favored area. The latter is accomplished by making living

conditions for migrants into favored cities very unpleasant, as a deterrent to in-migration with a consequence of creating a

divide within cities between long-term residents and migrants ³⁷

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An Agenda for Urbanizing World

✔ Third are national policies that directly try to regulate labor flows and conditions of rural versus urban residents. The last apply mostly to some former “planned”economies, most notably China; but their efficacy has

diminished under market reforms.

✔ Third are national policies that directly try to regulate labor flows and conditions of rural versus urban residents. The last apply mostly to some former “planned”economies, most notably China; but their efficacy has

diminished under market reforms.

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The Case of China

✔ China used its household registration (hukou) system to control initial rural–urban migration through much of the last 30 years. Control

involved two facets: first is “leave the land, not the village,” meaning allow rural

industrialization (town and village enterprises) but hold people in villages by having

nonagricultural jobs there, rather than having migration to urban industrial agglomerations

✔ China used its household registration (hukou) system to control initial rural–urban migration through much of the last 30 years. Control

involved two facets: first is “leave the land, not the village,” meaning allow rural

industrialization (town and village enterprises) but hold people in villages by having

nonagricultural jobs there, rather than having

migration to urban industrial agglomerations

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The Case of China

✔ Second, for the urbanization that inevitably occurred

especially in a context where capital was disproportionately allocated to cities (Jefferson and Singhe, 1999), control was used to ensure that urbanization was localized and diffuse, spread across many cities.

✔ Today in China, the ability of the hukou system to directly limit migration has been weakened. Instead, China has adopted an explicit policy similar to what may be implicit policies else, to limit migration to certain key cities,

especially the very largest and most favored cities, by making living conditions for migrants there unpleasant.

✔ Second, for the urbanization that inevitably occurred

especially in a context where capital was disproportionately allocated to cities (Jefferson and Singhe, 1999), control was used to ensure that urbanization was localized and diffuse, spread across many cities.

✔ Today in China, the ability of the hukou system to directly limit migration has been weakened. Instead, China has adopted an explicit policy similar to what may be implicit policies else, to limit migration to certain key cities,

especially the very largest and most favored cities, by making living conditions for migrants there unpleasant.

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The Case of China

✔ Migrants to the largest cities (those who are registered as citizen of a rural area) in China generally cannot obtain housing in the formal sector; they can’t rent in the formal sector. They are forced to rent in “urban villages” which are pockets of crowded housing in slum-like conditions, where land is still under rural governance. Usually such land is at the city fringes, although in cites like Beijing such villages are scattered throughout the city

✔ Second, their children have limited, expensive or no access to state schools and are forced into quasi-legal under-

ground schools, with poorly educated teachers, with the schools subject to closures (Kwong, 2004).

✔ Migrants to the largest cities (those who are registered as citizen of a rural area) in China generally cannot obtain housing in the formal sector; they can’t rent in the formal sector. They are forced to rent in “urban villages” which are pockets of crowded housing in slum-like conditions, where land is still under rural governance. Usually such land is at the city fringes, although in cites like Beijing such villages are scattered throughout the city

✔ Second, their children have limited, expensive or no access to state schools and are forced into quasi-legal under-

ground schools, with poorly educated teachers, with the

schools subject to closures (Kwong, 2004). 41

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The Case of China

✔ Finally, such migrants are generally excluded from health insurance, social security, job-

training programs, and the like.

✔ NEXT WEEK: DISCUSSION OF-OTHER CASES?

UPDATE CURRENT STATE OF URBANZATION IN DIFFERENT COUNTRIES?

✔ Finally, such migrants are generally excluded from health insurance, social security, job-

training programs, and the like.

✔ NEXT WEEK: DISCUSSION OF-OTHER CASES?

UPDATE CURRENT STATE OF URBANZATION IN DIFFERENT COUNTRIES?

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Thank You