Urbanization and Rural-Urban Migration:

Theory and Policy

Chapter 7

Corso Economia dello Sviluppo

a.a. 14/15
20/04/2015
Matilde DAmelio: matilde.damelio@polimi.it

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-1

7.1 The Migration and Urbanization

Dilemma
By 2050 world population: 9 billion
In 2008 for the first time urban population
becomes more then rural one (Source: UNDP)
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

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-2

7.1 The Migration and Urbanization

Dilemma
In developed countries: rural urban migration has
been gradual and related to the industrialization
of the economy (agriculture became less and less
important) Lewis theory
In developing countries: massive migration not
necessarily related to drastic industrialization,
leading to high rate of unemployment

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-3

Index
Urbanization: Trends and Projections
Theoretical model of rural urban labor transfer
Policies forecasted for developing countries to
mitigate the phenomenon and solve related
problems

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-4

Figure 7.1 Urban Population and Per Capita Income

across Selected Countries
World Bank says:
Strict relationship between economic development and urbanization-rate

However
Todays poorest
countries are fare
more urbanized
then todays
developed countries
where they were at
a comparable level
of development

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-5

Figure 7.2 Urbanization across Time and

Income Levels

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-6

Figure 7.2 Urbanization across Time and

Income Levels
Even when shrinking income,
urbanizations occurs
Urbanization it is really correlated
only to economic growth?

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-7

Figure 7.3 Proportion of Urban Population

by Region, 1950-2050
1950: 275 million people
lived in cities in
developing countries
(38%)
2010: 3.4 billion people
lives in cities in developing
countries (3/4)
2030: 50% of population
will live in cities in Africa
and Asia

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-8

Figure 7.4 Megacities: Cities with Ten Million

or More Inhabitants
Developing world is going
to dominate the worlds
largest cities, including
Megacities
(>10 million people)
1975: 5 megacities (2 in
developed countries)
2009: 21 megacities (2/3
in developing countries)
2025: 29 megacities (5 in
high income countries)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-9

Figure 7.5 Estimated and Projected Urban and

Rural Population of the More and Less Developed
Regions, 1950-2050

Urbanization growth
is associated to an
overall and massive
population growth in
developing countries

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-10

Urbanization: Trends and Projections

Can cities support (economically, environmentally and politically)
this acute and rapid concentration of people?
- Cost reduction (economies of scale and proximity)
- Positive social and economic externalities ( skilled worker, cheap
transport, cultural and social amenities)
BUT
- High cost of congestion (pollution, crime, lack of human and
physical infrastructures, overcrowding, illegal housing)

Creation of massive slum settlements

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-11

Figure 7.6
Annual Growth
of Urban and
Slum
Populations,
1990-2001

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-12

Index
Urbanization: Trends and Projections
Theoretical model of rural urban labor transfer
Policies forecasted for developing countries to
mitigate the phenomenon and solve related
problems

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-13

7.2 The Role of Cities

Why urbanization historically associated to

development?
Agglomeration economies produce cost reduction,
they can be: Urbanization (general growth of a
concentrated geographic region) 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)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-14

Industrial Districts and Clustering

Quality of clusters, or Industrial Districts, is a key
to sectorial efficiency. This come from:
- governmental policies
- social capital (set of social institutions and
norm)
Unfortunately a majority of developing countries
have made only limited progress (most of them
still related to artisanal sector)
China: a country that has made huge strides in
generating industrial districts over the last decade
(see the case of China)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-15

Urbanization Costs, and Efficient

Urban Scale
But, cities also entail congestion costs: high costs of
living that requires high wage
1) High density high cost of real estate (beni immobiliari) and
it is much more costly to build vertically
2) High infrastructures (transport, sanitation, education etc.)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-16

7.3 The Urban Giantism Problem

Transportation are generally a heritage of colonialism and it is
generally a hub-spoken system: transportation is used to
extract and transport natural resources and to move troops.
This is why most of capital cities are not on the cost ->
LOCATION BIAS
In developed countries when the size of the city does not allow
to reduce anymore the cost other cities or other city centers
are development (generally in less costly areas) in order to still
benefit of economy of scale and proximity
in Europe, public sector coordinate new town and industrial
districts creation and the large development (e.g., IRELAND)
In developing countries, governments are not enough strong
and effective: or they do any good industrial district policies or
they concentrate all activities in the capital or oder urban
giants . FIRST CITY BIAS
Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-17

7.3 The Urban Giantism Problem

FIRST CITY BIAS
Developed countries:
- Toronto 15% national population (no)
- New York 6% np
Developing countries:
- Mexico city 20% np
- Lima 25% np
- Buenos Aires 33% np
First city bias:
The countrys largest or first place city receives a disproportional
large share of public investment and incentives for private
investment in relation to the countrys second largest city and other
small cities. As a results, the first city receives a disproportionatelyand inefficiently- large share of population and economic activity
Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-18

Table 7.1 Population of the Largest and SecondLargest Cities in Selected Countries (millions)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-19

7.3 The Urban Giantism Problem

Causes of Urban Giantism:
- Combination of hub and spoke system and location
of political power in the first city
- Protectionist policies: to avoid transportation costs
more incentive to concentrate in a city most of
economic activities.
Bread and circuses to prevent unrest (Figure 7.7:
stable democracies vs unstable dictatorships)
Easier to be close to political power in order to easily
have favor (corruption)
High security in the capital (mainly in countries affected
by conflicts)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-20

Figure 7.7 Politics and Urban Concentration

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-21

7.4 The Urban Informal Sector

Urban economy composed by formal and informal sector

Informal sector: unorganized, unregulated and mostly legally but

unregistered sector that comprise a large number of small-scale production
and service activities individually of family owned and use simple and laborintensive technologies.

People involved in informal sector are generally: less skilled, less educated
without access to financial capital

Most of informal activities are in slums and provide sufficient income just to
survive

Informal sector is a PANACEA for growing unemployment rate, mainly for

youth (Figure 7.9, a vast majority of migrants are between 15 and 24).
rural-urban creation exceeds the rate of job creation social services in urban

areas

Almost 50% of urban population work in informal sector (Figure 7.8)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-22

Figure 7.8 Importance of Informal

Employment in Selected Cities

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-23

Figure 7.9 Youth Unemployment Rates,

1995 and 2005

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-24

7.4 The Urban Informal Sector

Why institutions should recognize informal
sector and promote it?
Absorbs labor that formal sector cannot, creating lot of
jobs with low capital intensity (higher income than rural
areas, lower income then formal urban sector)
Generates income opportunity despite hostile
environment (e.g., no access to finance)
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 of development to poor, especially women
who are concentrated in the informal sector
Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-25

7.4 The Urban Informal Sector

What are the disadvantages of promoting
informal sector?
Promoting income and employment opportunities with
informal sector will increase the problem of rural-urban
migration and urbanization gigantism
Congestion costs (e.g., environmental pollution or
vendors)
Increasing density of slums

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-26

7.4 The Urban Informal Sector

How to regulate informal sector?
Be sure that when jobs will be available in the formal
sector people will move to it
Facilitate training in order to drive informal sector versus
activities more value added for the society
More credit more income (e.g., microcredit)
Access to improved technologies
Provide infrastructures and suitable locations for work
Promotion of informal sector in rural areas could redirect
the flow of rural-urban migration

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-27

7.4 The Urban Informal Sector

Women in the Informal Sector
New phenomenon: increasing number of
single woman migrating to urban areas
- few find job in the formal sector (less skilled
and educated)
- Less access to capital and training
- More problem of malnourishment, health
care, clean water and sanitation, education
polices should consider even them! (targeted
policies)
Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-28

Index
Urbanization: Trends and Projections
Theoretical model of rural urban labor transfer
Policies forecasted for developing countries to
mitigate the phenomenon and solve related
problems

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-29

7.7 Summary and Conclusions: A Comprehensive

Migration and Employment Strategy
Create a urban-rural balance
by developing rural areas (improving credit access,
investments, institutions, infrastructures)
Expand small-scale, labor intensive industries (in
rural and urban areas)
allowing the creation of jobs and potentially of
industrial districts leading to employment and economic
development
Choose appropriate labor-intensive technologies of
production
most of technologies are imported from developing countries
(dependency) research and adaptation should be developed at
local level, allowing the development of local enterprises and of
technological solutions that meet local needs and conditions
Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-30

7.7 Summary and Conclusions: A Comprehensive

Migration and Employment Strategy
Modify the linkage between education and
employment
is the massive expansion of high education the right
instruments to reduce migration and improve
employment?
At lease it should be redirected towards needs of rural
development
Reduce population growth
and all related problems such as poverty and inequality
Decentralize authority and tax revenues to cities and
neighborhoods
In order to improve quality of public services (more incentives)

Copyright 2012 Pearson Addison-Wesley. All rights reserved.

7-31