VI B. Urbanization in Developing Countries

See Text, Chapter 7, pp 330-348

Note: The materials on the Urban Informal Sector was considered earlier in Section IV.D. The materials on migration are covered in

the next section, VI.C.

ECON 3508 November 25, 2015

Agenda:I. Urbanization Trends and Patterns in

Developing Countries

II.The Role of Cities: Why do Cities Grow? III. “Urban Giantism”IV.Are There Alternatives to Hyper-

Urbanization?

[Note: Material on the informal sector was covered earlier. Migration will be covered in the next section]

I. Urbanization Trends and Patterns in Developing Countries

• Rates of Urbanization – African Cities: rapid; often approaching or even

exceeding 6% per year;– Latin American Cities: decelerating; usually 1 - 2%

per year– Asian Cities: variable; 1 to 4% per year

• Urbanization process: – approaching completion in a few countries where

rural populations are approaching or are less than 10% of total; e.g. Argentina, Chile, Uruguay, Venezuela

– will continue rapidly in countries which are still largely rural, most especially in Africa

• Megacities in Developing Countries: description

Figure 7.4 Megacities: Cities with Ten Million or More Inhabitants

Figure 7.3 Proportion of Urban Population by Region, 1950-2050

Figure 7.2 Urbanization across Time and Income Levels

II. The Role of Cities: Why do Cities Grow?

Why do people move to and choose to live in cities?“The economics of industrial location”

1. “Agglomerative economies “(Providing cost advantages to producers)

• Urbanization (general) economies,– availability of necessary inputs, repair services, etc. – diversified range of all economic activities

• Localization (industry or sector) economies• Infrastructure;

– Cost Saving on firm-to-firm, firm-to-consumer transportation– Railway, telecommunication etc. access

• Skilled labour pools;

– Proximity to government services and bureaucracy; – Presence of financial institutions, educational

institutions; – Technological funnel effect– Firms locating near workers with skills they need– Workers locating near firms that need their skills– Firms benefit from knowledge spillovers in their and

related industries and institutions (colleges & universities)

2. Access to large local markets;

3. Consumers benefit from “urban amenities”

“Agglomeration Economies:” used in urban economics to describe the benefits that firms obtain when locating near each other ('agglomerating').

Include: - economies of scale - network effects.

Simply put, as more firms in related industries cluster together, costs of production may decline significantly (competing multiple suppliers, greater specialization and division of labor result).

Even when multiple firms in the same sector (competitors) cluster, there may be advantages because that cluster attracts more suppliers and customers than a single firm could alone.

Cities form and grow to exploit economies of agglomeration.

4. Note the normal hierarchical structure of institutional structures and urbanization patterns everywhere;

– ("Central Place Hierarchies")

5. Transportation System Structures: “Nodes” (“hub and spoke” systems vis-a-visa “webs”)

6. The "clustering" phenomenon (to be elaborated in class) (Michael Porter)

– "cumulative and circular causation”• Quality of clusters, or Industrial Districts, is a key to

sectoral efficiency

• Unfortunately a majority of developing countries have made only limited progress

Examples of Clusters:

China: Major advances in generating successful “clusters” over the last decade: “Mega-clusters of ‘Clusters’ ”

III. “Urban Giantism” and "First city dominance”Why do these occur?1. Colonial heritage in a few cases2. Agglomerative economies: 3. Political centralization and concentration of government

roles in the capital city

4. “Urban bias” generally and "first city bias" specifically in public policy of many sorts as well

5. Hub and spoke transportation system (rather than web) makes transport costs high for small cities

6. Perhaps Import Substituting Industrialization: producing for the home market behind protective barriers, leading to location of economic activities near the domestic market

7. Autocracy and dictatorship?? Perhaps necessitating extreme capital city bias (“bread and circuses” and benefits for first city)

Population of the Largest and Second-Largest Cities in Selected Countries (millions)

Figure 7.7 Politics and Urban Concentration

Urban living quality:– huge variations– slums, housing, water, sewage, transport– environmental contamination,

Costs of Excessive Urban Concentration– Congestion costs– Higher infrastructure costs of a gargantuan

urban complex (transportation, sewage, housing infrastructure generally)

– social dysfunction??

• Note:– Private Benefits for New Migrants to the cities; – Social Costs Generally for established Urban

Dwellers

In sum: Is Urbanization a “Good Thing”?Why and or Why not?

IV. Are There Alternatives to Hyper- Urbanization?Should there be?

Some Public Policies to reduce hyper-urbanization patterns:

1. promote rural development and agriculture with as much labour absorption or job creation as possible

2. decentralize government functions outside the capital and major cities

3. reduce all aspects of urban bias and “first city” bias;

4. emphasize secondary and tertiary cities: get urban growth out of the biggest cities

5. emphasize infrastructure in small cities, towns regions and rural areas

6. re-orientation of industrialization strategy: from ISI to export promotion?

7. promote regional development outside the central urban agglomerations