Chapter 7
Urbanization
and Rural-Urban
Migration:
Theory and
Policy
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7.1 The Migration and Urbanization
Dilemma
• As a pattern of development, the more
developed the economy, the more
urbanized
• But many argue developing countries
are often excessively urbanized or too-
rapidly urbanizing
• This combination suggests the
migration and urbanization dilemma
• Urbanization: Trends and Projections
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Figure 7.1 Urban Population and Per Capita Income
across Selected Countries
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Figure 7.2 Urbanization across Time and
Income Levels
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Figure 7.3 Proportion of Urban Population
by Region, 1950-2050
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Figure 7.4 Megacities: Cities with Ten Million
or More Inhabitants
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Figure 7.5 Estimated and Projected Urban and
Rural Population of the More and Less Developed
Regions, 1950-2050
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Figure 7.6
Annual Growth
of Urban and
Slum
Populations,
1990-2001
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7.2 The Role of Cities
• Agglomeration economies: Urbanization (general)
economies, localization (industry or sector) economies
• Saving on firm-to-firm, firm-to-consumer transportation
• Firms locating near workers with skills they need
• Workers locating near firms that need their skills
• Firms benefit from (perhaps specialized) infrastructure
• Firms benefit from knowledge spillovers in their and
related industries
• (Also: consumers may benefit from urban amenities)
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Industrial Districts and Clustering
• Quality of clusters, or Industrial Districts,
is a key to sectoral efficiency
• Unfortunately a majority of developing
countries have made only limited progress
• China: a country that has made huge
strides in generating industrial districts
over the last decade (Findings Box 7.1)
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Urbanization Costs, and Efficient
Urban Scale
• But, cities also entail “congestion costs”
• Economically efficient urban scale (from point of view of
productive efficiency) found were average costs for
industries are lowest
• Generally, differing efficient scales for different industrial
specializations imply different city sizes
• More extensive (expensive) capital, infrastructure required
in urban areas
• Smaller cities may be expected in labor-intensive
developing countries
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7.3 The Urban Giantism Problem
• There may be general urban bias
• Cities are capital intensive so may expect large cities
commonly located in developed countries
• But urbanization in developing countries has taken place
at unexpectedly rapid pace
• Huge informal sectors in shantytowns, favelas
• Large fraction of workers outside formal sector
• Much urban growth is in mid-size cities, but urban bias
remains a serious issue in many developing countries
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7.3 The Urban Giantism Problem
• There may be First-City Bias (favoring largest city)
• Causes of Urban Giantism:
– Import substitution industrialization: less trade,
incentive to concentrate in a single city largely to avoid
transportation costs
– “Bread and circuses” to prevent unrest (evidence: stable
democracies vs unstable dictatorships)
– Hub and spoke transportation system (rather than web)
makes transport costs high for small cities
– Compounding effect of locating the national capital in the
largest city
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Table 7.1 Population of the Largest and Second-
Largest Cities in Selected Countries (millions)
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Figure 7.7 Politics and Urban Concentration
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7.4 The Urban Informal Sector
• Why promote the urban informal
sector?
– Generates surplus despite hostile environment
– Creating jobs due to low capital intensivity
– Access to (informal) training, and
apprenticeships
– Creates demand for less- or un- skilled workers
– Uses appropriate technologies, local resources
– Recycling of waste materials
– More benefits to poor, especially women who
are concentrated in the informal sector
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7.4 The Urban Informal Sector
• Policies for the Urban Informal Sector
• Women in the Informal Sector
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Figure 7.8 Importance of Informal
Employment in Selected Cities
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Figure 7.9 Youth Unemployment Rates,
1995 and 2005
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7.5 Migration and Development
• Rural-to-urban migration was viewed
positively until recently
• The current view is that this migration is
greater than the urban areas’ abilities to
– Create jobs
– Provide social services
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Figure 7.10 Components of Migration in
Selected Countries
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7.6 Toward an Economic Theory of
Rural-Urban Migration
• A Verbal Description of the Todaro Model
– Migration is a rational decision
– The decision depends on expected rather than
actual wage differentials
– The probability of obtaining a city job is
inversely related to the urban unemployment
rate
– High rates of migration are outcomes of rural
urban imbalances
• A Diagrammatic Presentation
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Figure 7.11 Schematic Framework for Analyzing the
Rural-to-Urban Migration Decision
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Figure 7.12 The Harris-Todaro Migration
Model
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7.6 Toward an Economic Theory of Rural-
Urban Migration (cont’d)
LM
WA = (W M )
LUS
Where
WA is agricultural income,
LM is employment in manufacturing
LUS is total urban labor pool
WM is the urban minimum wage
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7.6 Toward an Economic Theory of Rural-
Urban Migration (cont’d)
• Five Policy Implications
– Reduction of urban bias
– Imbalances in expected income opportunities is
crucial
– Indiscriminate educational expansion fosters
increased migration and unemployment
– Wage subsidies and scarcity factor pricing can
be counterproductive
– Programs of integrated rural development
should be encouraged
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7.7 Summary and Conclusions: A Comprehensive
Migration and Employment Strategy
• Create a urban-rural balance
• Expand small-scale, labor intensive industries
• Eliminate factor price distortions
• Choose appropriate labor-intensive technologies
of production
• Modify the linkage between education and
employment
• Reduce population growth
• Decentralize authority to cities and neighborhoods
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Concepts for Review
• Agglomeration economies • Present value
• Congestion • Rural-urban migration
• Efficiency wage • Social capital
• Harris-Todaro model • Todaro migration model
• Induced migration • Urban bias
• Informal sector • Urbanization economies
• Labor turnover • Wage subsidy
• Localization economies
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