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How urban concentration affects economic growth

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  • Henderson, Vernon

Abstract

The author explores the issue of urban over-concentration econometrically, using data from a panel of 80 to 100 countries every 5 years from 1960 to 1995. He finds the following: 1) At any level of development there is indeed a best degree or national urban concentration. It increases sharply as income rises, up to a per capita income of about $ 5,000 (Penn World table purchasing parity income), before declining modestly. The best degree of concentration declines with country scale. Growth losses from significantly non-optimal concentration are large. Those losses tend to rise with level of development, peaking at a very high level (about 1.5 annual percentage points of economic growth). Results are very robust. 2) In a group of 72 countries in 1990, roughly 30 have satisfactory urban concentration, 24 have excessive concentration, and 5 to 16 countries have too little. 3) The list of countries with highly excessive concentration includes Argentina, Chile, Costa Rica, and Panama (in Latin America); the Republic of Korea and Thailand (in Asia); Congo (in Africa); and Greece, Ireland, and Portugal (in Europe). Many of these countries have explicitly unitary governments or federal structures have traditionally been severely constrained. 4) The list of countries with too little urban concentration includes Belgium (a small, split country) and special cases such as Czechoslovakia and the former Yugoslavia. 5) Urban concentration declines with national scale. It initially rises with income, the peaks at a per capita income of about $ 3,000, before declining. If the largest city in a country is a port, increased trade leads to increased urban concentration. Otherwise, increased trade leads to deconcentration as markets i the hinterland open up to trade. But trade effects are modest. 5) Similarly, more political decentralization (or increased federalism) only modestly reduces urban concentration. However, interregional transport infrastructure - especially dense road networks - significantly reduce urban concentration, an effect that rises with income.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2326.

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Date of creation: 30 Apr 2000
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Handle: RePEc:wbk:wbrwps:2326

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Keywords: Economic Theory&Research; Environmental Economics&Policies; National Urban Development Policies&Strategies; Urban Housing and Land Settlements; Public Health Promotion; Governance Indicators; Environmental Economics&Policies; Economic Theory&Research; Urban Housing and Land Settlements; National Urban Development Policies&Strategies;

References

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  1. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  2. Ades, Alberto F & Glaeser, Edward L, 1995. "Trade and Circuses: Explaining Urban Giants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(1), pages 195-227, February.
  3. Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  4. Henderson, J Vernon & Kuncoro, Ari, 1996. "Industrial Centralization in Indonesia," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(3), pages 513-40, September.
  5. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers, Santa Fe Institute 98-01-012, Santa Fe Institute.
  6. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  7. Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile, Central Bank of Chile 03, Central Bank of Chile.
  8. Wheaton, William C & Shishido, Hisanobu, 1981. "Urban Concentration, Agglomeration Economies, and the Level of Economic Development," Economic Development and Cultural Change, University of Chicago Press, vol. 30(1), pages 17-30, October.
  9. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  10. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, American Economic Association, vol. 64(4), pages 640-56, September.
  11. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  12. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(2), pages 252-284, April.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  14. Vernon Henderson, 1999. "Marshall's Economies," NBER Working Papers 7358, National Bureau of Economic Research, Inc.
  15. Richardson, Harry W, 1987. "The Costs of Urbanization: A Four-Country Comparison," Economic Development and Cultural Change, University of Chicago Press, vol. 35(3), pages 561-80, April.
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Citations

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Cited by:
  1. Lall, Somik & Shalizi, Zmarak & Deichmann, Uwe, 2001. "Agglomeration economies and productivity in Indian industry," Policy Research Working Paper Series 2663, The World Bank.
  2. Zeljko Bogetic & Issa Sanogo, 2005. "Infrastructure, Productivity and Urban Dynamics in Cote d'Ivoire, Africa Region Working Paper Series No. 86 (July 2005), The World Bank, Washington D.C," Urban/Regional, EconWPA 0510001, EconWPA.
  3. Nicole Madariaga & Sylvie Montout & Patrice Ollivaud, 2005. "Regional convergence and agglomeration in Argentina : a spatial panel data approach," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla05006, Université Panthéon-Sorbonne (Paris 1).
  4. Ronaldo A. Arraes & Vladimir Kühl Teles, 2003. "Differences in Long Run Growth Path Between Latin American and Developed Countries: Empirical Evidences," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gr c10, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Moomaw, Ronald L. & Alwosabi, Mohammed A., 2003. "Urban primacy, gigantism, and international trade: Evidence from Asia and the Americas," ZEI Working Papers B 20-2003, ZEI - Center for European Integration Studies, University of Bonn.
  6. Anthony J. Venables, 2006. "Shifts in economic geography and their causes," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 61-85.
  7. Barrientos Marín, Jorge & Lotero Contreras, Jorge, 2009. "Evolución y determinantes de las exportaciones industriales regionales: evidencia empírica para Colombia, 1977-2002," BORRADORES DEPARTAMENTO DE ECONOMÍA 008099, UNIVERSIDAD DE ANTIOQUIA - CIE.
  8. George Petrakos & Andres Rodríguez-Pose & Antonis Rovolis, 2003. "Growth, Integration and Regional Inequality in Europe," ERSA conference papers ersa03p46, European Regional Science Association.

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