Urban Growth, Uninsured Risk, and the Rural Origins of Aggregate Volatility
The level of urbanization has increased by over 5 percentage points per decade outside the developed world since 1960. Rapid urbanization was accompanied by fast economic growth and job creation in most parts of the world. However, notably Africa (and Latin America after 1980) has had a different experience: while growth in GDP per capita slowed significantly or even reversed, the rate of urbanization continued its fast pace. This paper aims to explain this by introducing an aggregate risk differential between the countryside and the city. Uninsurable expected risk will lead to rural-urban migration as a form of ex-ante insurance if households are liquidity constrained in incomplete markets and cannot overcome adverse shocks. Macroeconomic volatility finds its origins in risk-prone natural resource production including agriculture and has a robust positive effect on urban growth, especially when economic growth is slow. The effect stands up to the transitional view on urbanization of economies shifting from an agricultural to an industrial base.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.eui.eu/ECO/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2008/26. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rhoda Lane)
If references are entirely missing, you can add them using this form.