CityReads│City&Development: What We Know and What We don't Know
Urbanization and economic development are closely intertwined. This paper first summarizes what we know about city and development. Then it sets a research agenda based on the key issues of rapid urbanization in developing countries: spatial concentration and spatial income inequality.
Vernon Henderson, J. (2010). Cities and development. CITIES AND DEVELOPMENT - ResearchGate, 50, 1, 515–540.
Source：http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9787.2009.00636.x/epdf
IWhat We Know about Urban and Development
Urbanization and development go hand-in-hand, that urban scale economies in production are the basis for large cities to exist while diseconomies in living limit their sizes, and that there is an urban hierarchy where smaller cities tend to specialize in standardized production of different manufacturing and service activities,while bigger cities have more diverse economic bases, that are focused on high tech manufacturing and certain business services. But there are dynamic patterns in urban development as well. In early stages of economic development, large cities tend to be manufacturing oriented, but as development proceeds manufacturing decentralizes to the hinterlands and the largest cities become service oriented. Finally,the relative size distribution of cities has remainrock stable.
While urbanization per se does not cause development, sustained economic development does not occur without urbanization. Figure 1 plots the percent urbanized in 2004 for countries around the world against PPP GNI p.c. (purchasing power parity GNI per capita). The relationship is well understood: The level of urbanization and income per capita are highly correlated [R^2= 0.57]. And much of the variation around the regression line in the graph is explained by differences in definitions of urban across countries.
The association between urbanization and development is an equilibrium not causal relationship.
In sub-Saharan countries from 1970–2000 (World Development Report, 2000 (WDR)), urbanization occurs in the face of little or no per capita income growth. The WDR notes that this paradox may in part have been fueled by a push out of rural areas due to war and lack of upkeep of rural infrastructure. Correspondingly, econometric studies indicate that, while the form of urbanization causally affects growth, urbanization per se does not.
There are two interrelated conceptual issues as to why development is linked to industrial agglomeration in cities. First is localized external economies of scale. Study showed for a typical industry, doubling local own industry size leads to a 2–10 percent increase in productivity of worker. In addition, doubling city size for the same local industry size may also lead to increased productivity, especially for higher technology industries.
Knowledge accumulation theory suggest cities are viewed as the engines of growth for an economy—dense interactive locations where knowledge is exchanged, innovations spurred, and sophisticated skills developed.
Theory and empirical evidence suggest scale and knowledge externalities may interact. Some research finding suggests that cities increase in size over time with knowledge accumulation. For example, metro area sizes over the last 40 years have doubled, most predominantly in countries with rapid human capital accumulation.
Scale economies explain why industrial activity agglomerates in cities. On the other side are urban diseconomies and other factors that dissipate the benefits of agglomeration, which are why cities are limited in size. As cities get big, these economies may dissipate, costs of commuting and urban diseconomies will escalate, and the extent of a city’s market will be stretched, so real income per worker peaks and then declines with further increases in city size. The new economic geography literature stresses the regional size of the market as a limiting factor to a city’s size as well.
The idea of a scale economy-diseconomy trade-off leads to the notion of urban specialization.
Small and medium size cities in the U.S., Korea, Japan, and other countries are highly specialized.
These cities have 10–35 percent of their employment in just one subindustry that produces traded goods for export beyond the city. Why is there specialization? Empirical literature suggests that general standardized manufacturing activity benefits from agglomeration of the own industry, not so much from the general level of local agglomeration. Standardized manufacturing generally won’t want to locate in large metro areas with their high wage and rent costs. They will want to locate in small, specialized cities where own industry economies of scale are maximized. However, high tech industries may gravitate toward larger, more diverse metro areas. This difference in location of standardized versus high tech manufacturing is related to notions of the product cycle.
At the other extreme to smaller specialized manufacturing cities is huge metro areas that are truly global financial and service oriented cities. Such cities own a very small share of their employment is in manufacturing, and an enormous share is in key business and financial activities. Table 1 illustrates New York City’s dominance nationally in financial and business services. The presumption is such cities have high concentrations of business and financial services because:(1) these industries benefit the most in terms of within and cross-industry localized scale externalities; (2) in the realization of these, scale effects benefit the most from the high density buildings and employment found in these cities.
In between global cities and small and medium size specialized cities are an array of large metro areas which tend to specialize relatively but still have fairly diverse industrial bases. In these cities, the share of service activity tends to increase as metro area sizes increase. Au and Henderson try to put together the following notions: (1) cities are limited in size with inverted U-shape real income per capita curves against city sizes, and (2) in an urban hierarchy the share of manufacturing declines as city size increases. The author also presented the data of some cities of US, Korean and Japan in different period to illustrate that economy structure changes with the development of cities: In early stages of economic development, large cities tend to be manufacturing oriented, but as development proceeds manufacturing decentralizes to the hinterlands and the largest cities become service oriented.
Figure 2 divides world cities into 20 cells, where across each cell there is approximately an equal percentage increase in mean city size of the cell. Note the complete overlap of these size distributions in 1960 and 2000.
Besides, Figure 3 illustrated the world city size distributions. As is showed, most of the world’s urban population is housed in metro areas that are not megacities. Even restricting the comparison to metro areas over 100,000 population, megacities account for under 10 percent of the population among these larger cities. Figure 3 also shows China compared to the world, for reference in the next section. Note China’s urban population tends to live in cities that are smaller than in other countries.
Despite the massive urbanization of the last 50 years in much of the world, the incredible technological changes, and an enormously expanded role for government, the relative size distribution of cities has remain rock stable. And most of the world’s urban population lives in metro areas and cities well under 3 million population.
IIWhat We Don't Know about City and Development
Driven by a set of very basic unanswered questions about today’s urbanization in developing counties, we propose a research agenda for an urbanizing world. First concerns the spatial form of development. How spatially concentrated should urbanization be—how much development should be focused in megacities, or huge urban clusters, as opposed to spatially dispersed. Second, what are the determinants of spatial income inequality and what is the evolution of such inequality under massive rural-urban migration?
How Should Urban Population be Spatially Concentrated ?
Because of the limited availability of data, researchers until recently relied on a measure of urban primacy to describe spatial concentration.
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. Favoritism induces firms to locate in favored locations, drawing in workers seeking jobs. As a result, favored cities tend to be much larger than nonfavored ones.
This leads to questions: if favoritism leads to excessive concentration, what are the costs of that?
Henderson examines the effect of urban primacy on national economic growth. The paper finds that, for each national size and income level, there is an "optimal degree" of urban primacy, reflecting the agglomeration benefit-urban diseconomy trade-off as it plays out in terms of economic growth. Deviations from that optimal degree—up or down—are costly. A one standard deviation increase above the optimal level leads to a drop in annual growth rate by 1.4 percent, This analysis is limited by the fact that most data points are small countries, For large countries with potentially a number of major metro areas, the approach is more limited, both because primacy really describes the role of only the biggest city, and because the sample of large countries is very limited.
The U.S. has one huge "supercity," the New York metropolitan region which if one extends it over roughly contiguous urbanized areas into New Jersey, Pennsylvania and Connecticut has a population of 23 million. The next region, Los Angeles which might be described as the west coast supercity is 18 million , but after that things drop off with the next 13 regions ranging in population from 3.5 to 9.7 million, with most in the 5–6 million range. EU follows a similar pattern.
China and India are contemplating very different urbanization patterns where urbanization would occur mostly in a limited set of giant metropolitan regions. China has a low degree of concentration of population into large metro areas compared to the rest of the world. There is a report by the McKinsey Global Institute that provides China with scenarios: a widespread supercity approach where China would develop about 15 supercities, each with an average population of around 25 million. Another is more of a "hub and spoke" system of 11 giant urban network regions averaging 60 million each. For India, one proposal under consideration is that India would have over 60 percent of the projected urban population of 500–600 million living in 12 supercity regions, each averaging 25–30 million, with the largest ranging up to 70–80 million.
We know little about the efficacy of such size urban areas. The Tokyo region at 35 million is the largest such region in the world and it is in a highly developed country with a very specific geography. A New York, London, or Tokyo supports itself by specializing in financial and business services, as well as specialized activities such as fashion apparel, high profile publishing, and theater and the arts. Most other manufacturing and services activities seem to thrive in much smaller environments, with degrees of scale externalities that can only support limited agglomeration. Such plans seem to advocate something that is counter to what we believe may be sustainable.
There are three ways to approach the overall issue and to try to evaluate such proposals.
1) Compare national economic growth rates under one regime versus another—more spatially dispersed development versus development that emphasizes huge urban regions. But we have no sample of the latter.
2 )Estimate the inverted U that marks real income per capita against supercity or cluster size. Au and Henderson find that such inverted U’s peak well before supercity sizes, but then we don’t have estimates for cities which are highly business, IT, and financial service oriented.
3) Pull pieces together so as to assess the impacts: a. Explore scale externalities for such industries and how they interact with local knowledge accumulation; b. urban diseconomies: How do infrastructure costs and commuting or environmental degradation vary with supercity and urban cluster size? What transport infrastructure works best in huge regions? how to evaluate urban diseconomies is made more complicated by the high public policy component?
What Are the Determinants of Spatial Income Inequality?
Williamson hypothesis that as a country starts to develop interregional income inequality starts to rise, peaks and then declines. The notion is that this is part of the development transition. It is not just because population movements have closed the gap per se. The rural sector itself develops, and farming technology is transformed from labor to capital and high skill intensive. So the more the urbanization process is completed, the smaller the gap.
Figure 4 shows how per capita urban to rural consumption varies with the degree of urbanization in a country. Note the sharp decline to almost equality at high levels of urbanization. Figure 5 repeats this analysis looking at the regions within three countries. Again there is a sharp decline in rural–urban gaps. For India and China, two time periods are shown, where for India inequality also declined over time. China’s urban–rural gaps are huge. Second, those gaps have increased over time.
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. The rural-urban income gap is not a transition process of development. Some government may inhibiting the flow of people into the favored area by making living conditions for migrants into favored cities very unpleasant or by the "planned" economies.
China used its household registration (hukou) system to control initial rural–urban migration through much of the last 30 years. 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. Second, for the urbanization that inevitably occurred especially in a context where capital was disproportionately allocated to cities, control was used to ensure that urbanization was localized and diffuse, spread across many cities. Hence there is the high proportion of Chinese living in smaller size cities
Today in China, the ability of the hukou system to directly limit migration has been weakened.
Instead, China has adopted explicit policies to limit migration to certain key cities. This results in what is called the "double divide"—urban–rural and within cities. Migrants to the largest cities in China generally cannot obtain housing in the formal sector; they can’t rent in the formal sector; and can’t obtain a mortgage to purchase. They are forced to rent in "urban villages"; their children have limited, expensive or no access to state schools and are generally excluded from health insurance, social security, job-training programs, and the like. Will urban villages morph fully into favela-style communities not under city governance, which become havens for illegal activities and social unrest? we know less about the long-term consequences. We can also see enormous slum developments in India and countries in sub-Saharan Africa, and it raise a more general question: whether slum development is a natural part of development?
This interplay, where cities are favored by national governments in terms of capital market allocations and licensing but try to deter in-migration of those seeking the resulting job opportunities, seems a key aspect of urban development, but something we have only started to study.This interplay also seems related to the sub-Saharan paradox of the 1970–2000--rapid urbanization in the face of low or no national per capita income growth, along with the development of huge urban slums.In this case, urbanization may have been driven by bias—under-investment in rural infrastructure and spending of government resource revenues in national capital regions. Slums may be partly the result of overburdened institutions and urban management capabilities to try to discourage in-migration. How much does this double-divide contribute to national income inequality and what are the consequences for economic growth? We simply have no answers to these questions.