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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.

Suggested Citation

  • Henderson, Vernon, 2000. "How urban concentration affects economic growth," Policy Research Working Paper Series 2326, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2326
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    References listed on IDEAS

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    1. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
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    Citations

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    Cited by:

    1. 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 0510001, EconWPA.
    2. Gustavo Correa Assmus, 2015. "Concentración regional de la población por Niveles de riqueza hídrica en Colombia," REVISTA CIFE, UNIVERSIDAD SANTO TOMÁS, February.
    3. 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.
    4. repec:gam:jsusta:v:7:y:2015:i:12:p:16076-16085:d:59907 is not listed on IDEAS
    5. Moomaw, Ronald L. & Alwosabi, Mohammed A., 2007. "Urban Primacy, Gigantism, and International Trade: Evidence from Asia and the Americas," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 439-460.
    6. Jorge Barrientos Marín & Jorge Lotero Contreras, 2011. "Evolución y determinantes de las exportaciones industriales regionales: evidencia empírica para Colombia (1977-2002)," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, June.
    7. Lall, Somik V. & Shalizi, Zmarak & Deichmann, Uwe, 2004. "Agglomeration economies and productivity in Indian industry," Journal of Development Economics, Elsevier, vol. 73(2), pages 643-673, April.
    8. Chang, Gene Hsin & Brada, Josef C., 2006. "The paradox of China's growing under-urbanization," Economic Systems, Elsevier, vol. 30(1), pages 24-40, March.
    9. 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 31st Brazilian Economics Meeting] c10, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. George Petrakos & Andres Rodríguez-Pose & Antonis Rovolis, 2003. "Growth, Integration and Regional Inequality in Europe," ERSA conference papers ersa03p46, European Regional Science Association.
    11. Nicole Madariaga & Sylvie Montout & Patrice Ollivaud, 2005. "Regional convergence and agglomeration in Argentina : a spatial panel data approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00193304, HAL.
    12. -, 2008. "Social Panorama of Latin America 2007," Panorama Social de América Latina, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1228 edited by Eclac, December.

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