Urban-Rural Migration and Economic Development

Development EconomicsLecture 9

Urbanization and Migration• Urbanization is a phenomenal movement of people from rural

countryside to grow urban areas• We know that demographic transition is taking place -

increasing population• Trends and Projections:

– Generally more developed an economy more people living in urban areas (high GNP higher urbanization see figure 8.1 – Denmark with high GNP is more urbanized)

– However, LDCs are getting urbanized at much faster pace than NDC at the comparable level of development in the past

– Some economists argue that urbanization is taking place without any links to increase in GNP

Urbanization and Migration• In 2001 around 3 billion people live in urban areas of which

two third live in LDCs• In 2025, 80% of urban originate will live in urban areas of LDCs

– An increase of 178% in Africa, Asia, and Latin America

• NDC cities have lower (1%) population increase than LDCs (6%) – see table 8.1

• Big cities will be added very soon – Karachi, Dhaka, Delhi, Manila will be seventh, ninth, thirteenth, and fifteenth largest cities in the world

• In 2015, only New York and Tokyo will be the largest cities of from NDCs

Delhi

World Urbanization

Percentage of Urbanized Population

The Challenge of Urbanization

• How these megacities of LDCs will come to terms with political, economic, and social challenges which concentration of people bring? – Cost-reducing agglomeration economies?– Overloading of housing and social services?– Population, become outpaces the growth in human and

physical infrastructure – make economies less efficient?– RISE OF SHANTYTOWNS? Inequitable distribution of land

and high cost of building a house

Shantytown in Manila

The Role of Cities• However, urban areas have played an important role in

development - engines of growth • Agglomeration (form into one cluster)Economies

– Advantageous for consumers and producers– Works through ‘urbanization economies’ i.e., general growth

of a concentrated region and ‘localization economies’ i.e, growth effects captured by particular sectors such as financial automobile

• Benefits: reduction in transportation costs; backward forward linkages; pool of skills; specialized infrastructure etc.

Industrial Districts • Alfred Marshal coined (made up) this term and also

used in Porter’s ‘clusters’ theory of competitive advantage

• Enables firms to contract out work to others and create ‘flexible specialization’ to bridge capacity gaps. – Business Dictionary .com defines :

"Flexible Specialization: Competitive strategy where a firm equips itself with multi-use equipment, multi-skilled employees, and innovative executives, in order to adjust very quickly to a fast changing marketplace and business environment."

Industrial Districts• This also enables ‘collective efficiency’ (Nadvi) to become

an asset for training facilities and lobbying with the government – making use of local ‘social capital’ i.e., social relationships– e.g., Silicon valley in California, Sinos Valley for shoe making in Brazil, Surgical

Instruments in Sialkot

• This indicates transition (carring on commercial activities)from cottage (informal sector) to advanced manufacturing techniques (formal sector) for ‘industrial competitiveness’.

• 15% output increase by moving a plant from a location shared by 1000 workers to 10000 workers

Efficient Urban Scale

• Related industries can benefit from agglomeration not all – Congestion problems: higher the urban density higher the

cost of real estate– High cost to build vertical structures (more a political show

than economic efficiency)– High cost of infrastructure facilities e.g., sewage etc.– High cost of living for workers even though they are earning

higher wages

• Limitations of transportation networks - a colonial heritage

Urban Giantism

• ‘Hub-and-spoke’ system– Transportation networks more to facilitate extraction of

natural resources– Movement of troops

• Edge-city – relocating to new adjoining areas in NDCs• In LDCs governments are less involved in dispersal of

economic activities and firms like to remain in ‘capital city or other ‘urban giant’ areas

• There is a ‘first city bias’ i.e., undue attention to the first city

Migration and Development• Rural-urban migration as process of structural change; labour

released from zero marginal productivity to increase the flow towards modern sector

• However, structural imbalances were created – Brain drain from rural to urban i.e., urban surplus labour – Cost of increasing employment in urban areas is high

• Migration in excess of jobs is a symptom and contributor to underdevelopment

• Social and economic policy that affects real incomes will change the migration process

Theory of Rural-Urban Migration• Todaro Model (see figure 8.8 for framework of migration decision)

– Assumption is that migration is an economic phenomena – People follow urban-rural differences in ‘expected income’

by participating in labour market opportunities – Longer-term benefits are calculated ; present and future

planning horizon makes a difference– Employment rate rather than unemployment rate is more

important in determining migration– Imbalance of economic opportunities is the main reason

• Thus, migration continues despite unemployment in the Urban areas

Comprehensive Migration and Employment Strategy

• Creating rural-urban economic balance• Expansion of small scale labour-intensive industries • Choosing appropriate labour-intensive techniques of

production• Modifying direct links between education and

employment• Reducing population growth• Decentralization of authority at the local levels

Singapore: Planned Urban Development