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How urban concentration affects economic growth

  • Henderson, Vernon

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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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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  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. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
  3. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
  4. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  5. 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.
  6. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
  7. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
  8. Henderson, J Vernon & Kuncoro, Ari, 1996. "Industrial Centralization in Indonesia," World Bank Economic Review, World Bank Group, vol. 10(3), pages 513-40, September.
  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, vol. 58(2), pages 277-97, April.
  10. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  11. Ades, Alberto F & Glaeser, Edward L, 1995. "Trade and Circuses: Explaining Urban Giants," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 195-227, February.
  12. Vernon Henderson, 1999. "Marshall's Economies," NBER Working Papers 7358, National Bureau of Economic Research, Inc.
  13. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  15. 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.
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