Urbanization and Economic Growth

http://blogs.plos.org/everyone/2014/10/20/urbanization-always-drive-economic-growth-exactly/

Downtown Los Angeles Historic Core
amoeba.com

Hello Everyone:

Yours truly is back today after having spent a really great day in Downtown Los Angeles.  The morning was spent at the Los Angeles City Personnel Department taking the Planner's exam, then I made a beeline for the Historic Core and treated myself to a delicious and very filling egg salad sandwich at Wexler's Deli in the Grand Central Market Place.  I took some pictures and posted them on my Instagram feed.  The day was capped off by shout outs from the National Trust on their Twitter feed and GCM itself. The National Trust mention my post on the Music Center's fiftieth birthday from Monday.  Thanks, always appreciate the mentions.  We love the National Trust, GCM, and Wexler's Deli.  This leads me to today's post on urbanization and economic growth.

Grand Avenue
Los Angeles, California

Does urbanization drive economic growth? This is the question that Alan Theg asked in his recent blog post for PLOS ONE titled "Does Urbanization Always Drive Economic Growth?  Not Exactly..."  Conventional thinking says cities are major engines of economic development.  The bigger the city, the greater the access to infrastructure and public education.  Big cities allow for more efficient distribution of social services.  They create large markets for business and international investment, and tourism from around the world.  They are places for non-agricultural, professional employment in such fields as law, finance, architecture, and engineering. Diversity of population and human interaction can produce new ideas and cross-cultural collaborations.  On the face of this, cities are shining places full of economic opportunity.

Correlation of urbanization and per capita GDP
blogs.plos.org

There is a link between a country's level of urbanization and the size of its gross domestic product.  The graph on the left presents data from 2011, demonstrating the strong positive correlation in developed countries with high GDPs and the high proportions of their populations living in cities and the the reverse.  Mr. Theg surmises, "Looking at this graph, it is small wonder, then that urbanization has become a widely adopted global development strategy." This has lead to national governments and international development agencies taking on aggressive programs of rapid urbanization intended to spur economic growth.  The formula is deceptively simple, attract people to the cities, "...then cash in on the forthcoming economic benefits of a largely urban population."  I say deceptively, because the formula is complex according to new research published in PLOS ONE.

Per capita GDP growth rate and rate of urbanization
blogs.plos.org

Researchers in China analyzed global economic data on the relationship between urbanization and per capita GDP between 1980 and 2011.  During the three decade study period, the percentage of the world's population increased "from just 39% in 1980 to 52% in 2011."  However, while there is a strong correlation between urbanization and per capita GDP, the authors discovered that no such correlation exists between the rates of urbanization and economic growth.  In short, accelerated urbanization does not alway result in accelerated GDP growth, evidenced by the graph of the left. In contrast to the the above graph, there is no clear pattern connecting the rate of urbanization and the speed of GDP growth.

"Defy the assumption"
blogs.plos.org

The authors also revealed that over the three decade study period, many countries, for example Gabon, had rapidly growing urban populations but low and sometimes negative economic growth (see the green graph). Conversely, countries such as Sri Lanka and Uzbekistan, saw people leave the cities for rural areas yet still experienced positive economic growth (see the white graph).  Thus, the examples of Gabon, Sri Lanka, and Uzbekistan do not support the hypothesis of accelerated urbanization equals increased economic growth.

The writers of the study argued that GDP growth has potential to create the conditions that organically drive rural-to-urban migration but the assumption that urbanization drives economic growth may be untrue. Using the examples of accelerated urbanization without positive economic growth (green graph), the author issue this caveat, "urbanization is not an automatic panacea" for economic woes.  Citing other studies, the authors suggest that rather than attempting to move people into the cities, governments and development agencies should turn their attention to creating a mobile workforce, securing greater access to goods and markets, and implementing government policies that support commerce and infrastructure investment.  These initiatives can make a larger difference in the short- to medium-term economic growth as opposed to random urbanization goals.  Although economic growth is an extremely complex process with more work remaining, the Chinese study is a reminder that we should not confuse causation with correlation, as Alan Theg writes, "just because two variables are closely related doesn't mean necessarily that one directly causes the other."