Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. This research argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
Urbanisation and per capita GDP are well correlated. According to a recent estimate by Gilles Duranton using cross-country data for 2012 (see Figure 1), each percentage point of urbanisation is associated with a five-percentage-point increase in GDP per capita, with urbanisation apparently explaining 60% of the variation in incomes.
Figure 1. Urbanisation and GDP per capita
But what causes what? Urbanisation could be a major outcome of the development process, or alternatively, rapid urbanisation could become a driver – or a facilitator – of growth.
- Data from developed countries suggests that urbanisation has been growth-promoting;
- Data for Africa, Latin America, and south Asia alone suggests that on the contrary, urbanisation is only loosely coupled with growth.
Developing countries are urbanising at rates of 2–3% per annum, but per capita incomes are increasing more modestly than in the past.
- The growth-inducing effects of urbanisation are even weaker if correlations are limited to African countries.
Urbanisation 2.0: In the developing world
A striking difference between the urbanising experiences of developed and developing economies lies in manufacturing. Typically, manufacturing might account for less than 15% of the GDP in medium and large cities in developing nations, and can be as little as 5% in many African cities (e.g. Lagos). It was often one-third or more of GDP in Western countries when their urbanisation was in full swing....
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