Todaro, Michael P. and Stephen C. Smith. 2009. Economic Development (11th Edition).

Boston: Pearson Addison Wesley.

CHAPTER 7:

URBANIZATION AND RURAL – URBAN

MIGRATION: THEORY AND POLICY

Wiscana Astri Prabaswari

18/434657/PTK/12220
DD 16 (MPWK 2018/2019)
THE MIGRATION AND URBANIZATION DILEMMA
• Basic Theory: People move from low MEGACITIES: CITIES WITH 10
MILLION OR MORE
productivity, low income traditional agriculture INHABITANTS

to higher productivity, higher income urban

employment.
• As a pattern of development, the more
developed the economy, the more urbanized.
• Greater urbanization is associated with higher
per capita income and economic growth.
• But many argue developing countries are often
excessively urbanized or too-rapidly urbanizing
• This combination suggests the migration and
urbanization dilemma.

ANNUAL GROWTH OF
URBAN AND SLUM
POPULATIONS, 1990–2001
THE ROLE OF CITIES
Why do cities exist?
Agglomeration economies:
• Urbanization economies (general growth of a concentrated geographic region)
• Localization economies (by particular sectors of the economy, such as finance or autos, as they grow
within an area – backward and forward linkages).

INDUSTRIAL DISTRICTS
• Benefits from spillovers are also agglomeration economies, part of the benefits of what Alfred Marshall
called “industrial districts,” and they play a big role in Michael Porter’s “clusters” theory of competitive
advantage.
• Not all of the collective efficiency advantages of an industrial district are realized through location
(passive collective efficiency), others are actively created by joint investments and promotional
activities of the firms in the district (active collective efficiency).
THE ROLE OF CITIES
EFFICIENT URBAN SCALE
• Localization economies do not imply that it would be efficient for all of a country’s industries to be
located together in a single city.
• There may be fewer gains in productivity for unrelated industries; Congestion costs; Real estate price
(why are banks in downtown and not machine plants?); Skyscrapers; Longer commutes for workers
(higher wages needed to compensate); Higher costs of infrastructure (sewage, water); Trade-off
between low rents/house prices but further away vs. high rents/prices close to city centre.
• City scale eventually determined by the relative strength of the agglomeration (positive) externalities
and the congestion (negative) externalities.
• Generally, differing efficient scales for different industrial specializations imply different city sizes
• The urban hierarchy model (central place theory). Plants in various industries have a characteristic
market radius that results from the interplay of three factors: economies of scale in production,
transportation costs, and the way the demand for land is spread over space.
THE URBAN GIANTISM PROBLEM
Most oversized cities are found in the developing world and suggests where policies of urban
decentralization may be most helpful.
In developed countries, other cores are often developed within the broad metropolitan region, enabling
the region as a whole to continue to receive benefits of agglomeration while lowering some of the costs;
or new cities may develop in entirely different parts of the country.
If one city in the country is very large – hard to coordinate dispersion of activity to other areas (no
incentive to single firm/industry to move).

FIRST-CITY BIAS
• The country’s largest or “first-place” city receives a disproportionately large share of public
investment and incentives for private investment in relation to the country’s second-largest city and
other smaller cities. As a result, the first city receives a disproportionately – and inefficiently – large
share of population and economic activity.
• Politics/policy (especially if capital city) and private investment may create ‘first-city bias’ (favoring
largest city).
THE URBAN GIANTISM PROBLEM
CAUSES OF URBAN GIANTISM
• Import substitution industrialization: less trade, incentive to concentrate in a single city largely to
avoid transportation costs.
• “Bread and circuses” to prevent unrest (evidence: stable democracies vs unstable dictatorships).
• Hub-and-spoke transportation system (the capital city will be located near the outlet of this system
on the seacoast) rather than web, which makes transport costs high for small cities.
• Compounding effect of locating the national political capital in the largest city.
• The availability of better opportunities, or jobs, wages, infrastructure, and other government
services concentrated in the capital city of many of today’s developing countries, attracts an ever-
growing migrant population, in turn leading to larger precautionary government spending as the fear
of political instability grows.
THE URBAN INFORMAL SECTOR
• With the unprecedented rate of growth of the urban population in developing countries expected to
continue and with the increasing failure of the rural and urban formal sectors to absorb additions to
the labor force, more attention is being devoted to the role of the informal sector in serving as a
solution for the growing unemployment problem.
• Some arguments in favor of promoting the informal sector:
 Generates surplus despite hostile environment.
 Creating jobs due to low capital intensity.
 Access to (informal) training, and apprenticeships.
 Creates demand for less- or un- skilled workers.
 Uses appropriate technologies, local resources.
 Recycling of waste materials.
 More benefits to poor, especially women who are concentrated in the informal sector.
THE URBAN INFORMAL SECTOR
IMPORTANCE OF INFORMAL YOUTH UNEMPLOYMENT RATES,
EMPLOYMENT IN SELECTED CITIES 1995 AND 2005
WOMEN IN THE INFORMAL SECTOR
• Formal sector jobs in many countries dominated by men so the only job opportunities for women are
in the informal sector (bulk of the informal sector labor supply), working for low wages at unstable jobs
with no employee or social security benefits.
• Many women run small business ventures or microenterprises that require little or no start-up capital
and often involve the marketing of homemade foodstuffs and handicrafts. Despite the impressive
record of these credit programs, they remain limited.
• Government programs to enhance income in poor households will inevitably neglect the neediest
households so long as governments continue to focus on formal-sector employment of men and
allocation of resources through formal-sector institutions.
• The legalization and economic promotion of informal-sector activities, could greatly improve women’s
financial flexibility and the productivity of their ventures.
• However, to enable women to reap these benefits, governments must repeal laws that restrict
women’s rights to own property, conduct financial transactions, or limit their fertility.
• The provision of affordable child care and family-planning services would lighten the burden of
women’s reproductive roles and permit them a greater degree of economic participation.
MIGRATION AND DEVELOPMENT
• Rural-urban migration has been dramatic, and urban development plays an important role in economic
development. Rates of rural-urban migration in developing countries have exceeded rates of urban job
creation and thus surpassed greatly the absorption capacity of both industry and urban social services.
• The impact of migration on the development process is much more pervasive than its exacerbation of
urban unemployment and underemployment.
• Rural-urban migration is most important because the population share of cities is growing, despite the
fact that fertility is much lower in urban areas, and the difference is accounted for by rural-urban
migration, also the potential development benefits of economic activity of cities, due to agglomeration
economies and other factors.
• Migration motives: rural-urban income differential; relocation due to marriage; joining family
members; famines/disease/violence. Could be also a form of insurance: settle some members in other
areas who can help financially in bad times.
TOWARD AN ECONOMIC THEORY OF RURAL-URBAN MIGRATION
SCHEMATIC FRAMEWORK FOR ANALYZING THE RURAL-TO-URBAN THE HARRIS-TODARO MIGRATION MODEL
MIGRATION DECISION

LM
WA  (W M )
LUS

Where:
WA is agricultural income,
LM is employment in manufacturing,
LUS is total urban labor pool,
WM is the urban minimum wage.
THE HARRIS-TODARO MIGRATION MODEL
The Todaro Migration Model has four basic FIVE POLICY IMPLICATIONS
characteristics: 1. Imbalances in urban-rural employment opportunities
• Migration is stimulated primarily by rational economic caused by the urban bias, particularly first-city bias,
considerations of relative benefits and costs, mostly of development strategies must be reduced;
financial but also psychological. 2. Urban job creation is an insufficient solution for the
• The decision to migrate depends on expected rather urban unemployment problem (a policy designed to
than actual urbanrural real-wage differentials where reduce urban unemployment may lead not only to
the expected differential is determined by the higher levels of urban unemployment but also to
interaction of two variables, the actual urban-rural lower levels of agricultural output due to induced
wage differential and the probability of successfully migration);
obtaining employment in the urban sector. 3. Indiscriminate educational expansion will lead to
• The probability of obtaining an urban job is directly further migration and unemployment;
related to the urban employment rate and thus 4. Wage subsidies and traditional scarcity factor pricing
inversely related to the urban unemployment rate. can be counterproductive;
• Migration rates in excess of urban job opportunity 5. Programs of integrated rural development should be
growth rates are not only possible but also rational encouraged.
and even likely in the face of wide urbanrural
expected income differentials.
CONCLUSION
Seven key elements of comprehensive migration and employment strategy:
1. Creating an appropriate rural-urban economic balance;
2. Expansion of small-scale, labor-intensive industries;
3. Eliminating factor price distortions;
4. Choosing appropriate labor-intensive technologies of production;
5. Modifying the linkage between education and employment;
6. Reducing population growth;
7. Decentralizing authority to cities and neighborhoods.

• While a much higher urban share of population is inevitable, the tempo and pattern of urbanization
will be key determinants of whether the deeper objectives of economic development are achieved.
Cities will increasingly become the main players in the global economy.
—Kofi Annan, former secretary general of the United Nations
and Nobel laureate for Peace

THANK YOU

Wiscana Astri Prabaswari

18/434657/PTK/12220
DD 16 (MPWK 2018/2019)