Urbanization with and without Industrialization
Many theories link urbanization with industrialization; in partic- ular, with the production of tradable (and typically manufactured) goods. We document that the expected relationship between urbanization and the levelofindustrializationisnotpresentinasampleofdevelopingeconomies. The breakdown occurs due to a large sub-sample of resource exporters that have urbanized without increasing output in either manufacturing or in- dustrial services such as ï¬nance. To account for these stylized facts, we construct a model of structural change that accommodates two different paths to high urbanization rates. The ï¬rst involves the typical movement of labor from agriculture into industry, as in many models of structural change; this stylized pattern leads to what we term â€œproduction citiesâ€ that produce tradable goods. The second path is driven by the income effect of natural resource endowments: resource rents are spent on urban goods and services, which gives rise to â€œconsumption citiesâ€ that are made up pri- marily of workers in non-tradable services. We document empirically that there is such a distinction in the employment composition of cities between developing countries that rely on natural resource exports and those that do not. Our model and the supporting data suggest that urbanization is not a homogenous event, and this has possible implications for long-run growth.
|Date of creation:||Jan 2014|
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