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New insights into urban concentration and economic growth

Urban concentration, according to the dominant view, brings with it an array of benefits which include reductions in poverty, pollution and inequality.

Apart from this, one of the most widely acclaimed one is economic agglomerations and productivity gains, which in turn, redound to faster and better national economic growth. The prevailing notion is that a more concentrated urban structure is best for economic growth, in particular at low levels of economic development.

But this notion might as well become an anachronism.

A study conducted by two researchers in the London of School of Economics (LSE) reveals that the dominant view regarding the direct relationship between urban concentration and economic growth might have been a sweeping statement.

LSE researchers Susanne Frick and Andrés Rodríguez-Pose dispelled this prevailing notion and argued that there is no uniform relationship between urban concentration and economic growth.

The fact is urban concentration has been beneficial for economic growth in high-income countries, but this effect does not necessarily hold true for developing countries.

Zurich urban concentration

The two LSE researchers argued that the widely held perception regarding the direct positive relationship between urban concentration and economic growth may have been built on thin ice.

They pointed out two factors why this perception must have gone wrong: limited information about how urban concentration has evolved across different countries in the world and the use of poor indicators of urban concentration.

They explained that most of the past studies on the topic analyze what drives the city size distribution within countries and few of them analyze patterns that are either cross-sectional or that which focus on a specific country or region.

The second factor is levels of urban primacy. According to them, the use of the concentration of a country’s urban population in the largest city or the share of the urban population living in cities above a certain size threshold are poor indicators of urban concentration.

Compiling datasets for a large number of countries using nuanced indicators, examining how urban concentration affected the economic growth of these countries from 1985-2010, and looking into the differences of the impact of urban concentration to the economic growth between developed and developing countries, Frick and Rodríguez-Pose arrived at the following insights:

  • Urban structures in developed countries are less concentrated compared to developing countries;
  • In developed countries, the average levels of concentration have remained relatively stable, but in developing countries, the change is more dramatic. Rapid urbanisation processes in the emerging world are behind this trend. The number of people living in cities doubled in middle-income countries between 1985 and 2010, and almost tripled in the least developed countries. This has resulted in the birth of new cities and rapidly growing urban populations across the spectrum of city sizes;
  • Finally, there are differences between the indicators in terms of their evolution. 

Implications for cities

Should policymakers of cities promote further agglomeration or go for the stimulation of development outside the primary urban areas?

The truth is there are more questions than answers to this highly debatable proposition. Just like any other classic question of regional economics, there are no easy and convenient answers to this question.

One thing is clear however, as deduced from the study: a more concentrated urban structure is not necessarily best for economic growth, in particular at low levels of economic development.

Urban concentration

Further, many countries in the developing world are likely to suffer more from congestion generated through increased concentration than benefit from it. Hence, promoting development outside of primary urban areas would be beneficial from an economic point of view.

On the other side of the coin, developed countries can benefit from urban concentration given the right urban infrastructure in place and an economy with strong industries.

Finally, development policies should always be context-based. As Frick and Rodríguez-Pose suggestmore specific, country-based research may be the way forward in order to set up policies that may foster and make best use of the economic potential of cities and urban agglomeration on a case by case basis.”

This statement always holds with a grain of truth: there is no-size-fit all policy. A “copy and paste” policy could bring more harm than good at the end.

 

Source: World Economic Forum, VoxEU

Photos: wisconsintechnologycouncil.com, vorerbangladesh.com, nomadcapitalist.com, worldfortravel.com

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