Urbanization with and without - World Banksiteresources.worldbank.org/INTIE/Resources/Gollin... · Urbanization with and without Industrialization Douglas Gollin University of Oxford

Introduction Evidence Model Implications Conclusion

Urbanization with and without

Industrialization

Douglas Gollin

University of Oxford

Remi Jedwab (GWU)

Dietrich Vollrath (Houston)

WB-GWU Conference on Urbanization and Poverty Reduction

Douglas Gollin (Oxford) Urbanization with and without Industrialization

Introduction Evidence Model Implications Conclusion Question Motivation Approach Outline

Research Question

I Urbanization associated with structural change:Green revolution, industrial revolution → industrialization.

I In some parts of the world (Africa), urbanization without in-dustrialization. Where do these cities come from?



Where do these cities come from?

Traffic jam in Lagos, Nigeria (Source: Engineering Consultancy (Nigeria) Ltd).300,000 inh. in 1956, 11 millions today, empl. share of manufacturing: 3%.




Kinshasa, DRC (Source: Jean-Jacques Frouein, Visoterra).400,000 inh. in 1958, 9 millions today, empl. share of manufacturing < 10%.




Khartoum, Sudan (Source: Marco di Lauro/Getty Images).460,000 inh. in 1964, 5 millions today, empl. share of manufacturing: 7%.



Research Question

I Urbanization associated with structural change:Green revolution, industrial revolution → industrialization.

I In some parts of the world (Africa), urbanization without in-dustrialization. Where do these cities come from?

What we do:

1. Motivating evidence on urbanization w/o industrialization.

2. Structural transformation model where resource exports driveurbanization: Surplus income→ consumption cities, with mostlynon-tradable services.

3. Implications of this type of urbanization on long-run growth.



Motivating Evidence

I Urbanization associated with structural transformation:

I Decline of agriculture, rise of manufacturing, tradable services:

I Push: Green revolution (Schultz 1953, Matsuyama 1992, Gollin,Parente & Rogerson 2002, Michaels, Rauch & Redding 2011)

I Pull: Industrial revolution (Lewis 1954, Matsuyama 1992, Hansen& Prescott 2002, Galor & Mountford 2008, Lucas 2009)

I Urbanization promotes self-sustained growth:

I Returns-to-scale and agglomeration economies:

I Developed countries (Glaeser et al. 1992, Duranton & Puga2003, Rosenthal & Strange 2004, Henderson 2005)

I Developing countries (Overman & Venables 2005, Duranton2008, Henderson 2010, Felkner & Townsend 2012)

Virtuous circle between development and urbanization: Europe/US, Asia



Motivating Evidence

I Urbanization associated with structural transformation:

I Decline of agriculture, rise of manufacturing, tradable services:

I Push: Green revolution (Schultz 1953, Matsuyama 1992, Gollin,Parente & Rogerson 2002, Michaels, Rauch & Redding 2011)

I Pull: Industrial revolution (Lewis 1954, Matsuyama 1992, Hansen& Prescott 2002, Galor & Mountford 2008, Lucas 2009)

I Urbanization promotes self-sustained growth:

I Returns-to-scale and agglomeration economies:

I Developed countries (Glaeser et al. 1992, Duranton & Puga2003, Rosenthal & Strange 2004, Henderson 2005)

I Developing countries (Overman & Venables 2005, Duranton2008, Henderson 2010, Felkner & Townsend 2012)

Virtuous circle between development and urbanization: Europe/US, Asia



Urbanization and Industrialization for Developing Countries, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 119 developing countries: Asia(30), Africa (46), LAC (26) and MENA (17).



Urbanization and Industrialization for Developing Countries, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 119 developing countries: Asia(30), Africa (46), LAC (26) and MENA (17). NRX = natural resource exports in GDP (%)



Urbanization with Industrialization for Resource Poor Countries, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 49 resource poor developingcountries in 2000. NRX = natural resource exports in GDP (%)



Urbanization without Industrialization for Resource Rich Countries, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 70 resource rich developingcountries in 2000. NRX = natural resource exports in GDP (%)



Urbanization without Industrialization for Resource Rich Countries, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 70 resource rich developingcountries in 2000. NRX = natural resource exports in GDP (%)



This Paper’s Approach

I We take a theoretical approach and adapt a standard model ofstructural change to explain how natural resource exports:

1. Drive urbanization.

2. Give rise to a “different” type of urbanization (sectoral compo-sition), which may have implications for long-run growth.

I Empirical analysis using a sample of 119 developing countries:

1. Additional motivating evidence at the continental level.

2. Cross-sectional multivariate analysis (not intended to show cau-sation).



Outline

I Additional motivating evidence

I Conceptual Framework

I Implications for Growth

I Conclusion


Introduction Evidence Model Implications Conclusion Additional Motivating Evidence Multivariate Analysis

Outline




I Conclusion



Urbanization Rate for Four Groups of Countries, 1950-2010

Sources: WUP 2011. Data for 119 developing countries: Asia (30), Africa (46), LAC (26) andMENA (17). Averages are estimated using the population weights for the same year.



Urbanization with Industrialization in Asia, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 29 Asian countries.



Additional Motivating Evidence

I Africa has recently experienced dramatic urban growth:

I Urbanization rate:

10% in 1950 (≈ Asia)40% in 2010 (≈ Asia)Large cities (> 750,000): 40% of urban pop (≈ Asia)

I Is African urbanization different?

I Not in line with standard structural change models:

I Low food yields (Restuccia, Yang & Zhu 2008, Gollin 2010)I Small and/or unproductive manufacturing and service sectors

(Caselli 2005, McMillan & Rodrik 2011)

I The most urbanized African countries export natural resources:

I Significant resource endowments at independenceI Fuels, mining products or cash crops (cocoa, coffee, etc.)I High mark-up rates (inelastic international supply)I Jedwab 2012, Henderson, Roberts & Storeygard 2012



Additional Motivating Evidence

I Africa has recently experienced dramatic urban growth:

I Urbanization rate:

10% in 1950 (≈ Asia)40% in 2010 (≈ Asia)Large cities (> 750,000): 40% of urban pop (≈ Asia)

I Is African urbanization different?

I Not in line with standard structural change models:

I Low food yields (Restuccia, Yang & Zhu 2008, Gollin 2010)I Small and/or unproductive manufacturing and service sectors

(Caselli 2005, McMillan & Rodrik 2011)

I The most urbanized African countries export natural resources:

I Significant resource endowments at independenceI Fuels, mining products or cash crops (cocoa, coffee, etc.)I High mark-up rates (inelastic international supply)I Jedwab 2012, Henderson, Roberts & Storeygard 2012



Urbanization without Industrialization in Africa, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 46 African countries.



Urbanization without Industrialization in Africa, 2000




Urbanization without Industrialization in Africa, 1960-2000




Urbanization with Industrialization in LAC, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 26 LAC countries. Correlationrobust to dropping Guyana (GUY), Trinidad (TTO), Haiti (HTI) and Venezuela (VEN).



Urbanization without Industrialization in MENA, 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012. Data for 17 MENA countries. Correla-tion robust to dropping Lebanon (LBN), Jordan (JOR) and Yemen (YEM).



Cross-Sectional Multivariate Analysis

I Cross-sectional regression for countries c for the year 2000:

Urb.ratec,2000 = α+Mfgservc,2000β+Nrxc,2000γ+uc,t

Mfgservc,2000: Share of manufacturing and services in GDP (%)

Nrxc,2000: Share of natural resource exports in GDP (%)

I Population-weighted, area FE (Asia, Africa, LAC, MENA), ctrls:

I Urban definition: type (admin, threshold, threshold + admin,threshold + condition) and threshold

I Physical geography: area, small island, landlocked, droughts

I Economic geography: population, rural density (rural pop persq km of arable area), pop growth rate in 1960-2000

I Institutions: autocracy (av. combined polity score < -5), dummyinterstate or civil conflict since independence



TABLE 1: MULTIVARIATE CROSS-SECTIONAL ANALYSIS

Dependent Variable: Urbanization Rate in 2000 (%)

(1) (2) (3) (4) (5) (6)

Asia Africa

Natural Resource Exports 1.28*** 0.89*** 0.68*** 0.50*** -0.10 0.55***(% of GDP, 2000) [0.19] [0.17] [0.13] [0.11] [0.47] [0.10]

Manufacturing & Services 1.29*** 0.91*** 0.57*** 0.33*** 1.26*** 0.40***(% of GDP, 2000) [0.21] [0.23] [0.10] [0.10] [0.28] [0.19]

Area Fixed Effects (4) N Y Y Y Y YControls N N Y Y Y YCtrl Initial Conditions 1960 N N N Y N YObservations 119 119 119 114 30 46R-squared 0.53 0.68 0.82 0.90 0.81 0.71

Notes: Robust SEs in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 119developing countries across 4 areas: Asia (30), SSA (46), LAC (26) and MENA (17). Controls:urban definition, area, population, rural density, population growth, small island, landlocked,droughts, autocracy, conflict. Initial conditions: urbanization rate and resource exports in 1960.


Introduction Evidence Model Implications Conclusion Intro

Outline




I Conclusion



Conceptual Framework (Model in the paper)

I Structural transformation: decline in agriculture, rise of manu-facturing (and/or tradable services).

I Standard models of structural change:

I Labor push: a rise in food productivity (green revolution) in-creases food availability and release labor for the modern sector.

I Labor pull: a rise in mfg productivity (industrial revolution)attracts underemployed labor from agri. into the modern sector.

I Trade: comparative advantage in mfg (tradable services)→ mfgX and food M → acceleration of structural change.

I Production cities: trade → mfg exporting cities that arise be-cause of a specialization effect (in urban-based sectors).

I Urbanization without green revolution and industrial revolution?




I Resource production does not contribute to urban growth:

I Mineral production capital-intensive (e.g, oil 60% of GDP inAngola, only employs 10,000 nationals)

I Cash crops produced in fields (rural employment)I Model with four sectors: food, urban tradables (tradable mfg,

serv), urban non-tradables (non-tradable mfg, serv), resources

I Resource production has consumption linkages:

I Massive surplus generated for producing countries(10x more than aid and remittances)

I Relaxes the food constraint through food importsI Surplus income spent on urban goods and services (labor pull)I Urbanization through the rise of consumption cities

I Urban tradables and/or urban non-tradables?




I Resource production does not contribute to urban growth:

I Mineral production capital-intensive (e.g, oil 60% of GDP inAngola, only employs 10,000 nationals)

I Cash crops produced in fields (rural employment)I Model with four sectors: food, urban tradables (tradable mfg,

serv), urban non-tradables (non-tradable mfg, serv), resources

I Resource production has consumption linkages:

I Massive surplus generated for producing countries(10x more than aid and remittances)

I Relaxes the food constraint through food importsI Surplus income spent on urban goods and services (labor pull)I Urbanization through the rise of consumption cities

I Urban tradables and/or urban non-tradables?




I A subsistence economy urbanize without industrializing (unlikethe Dutch Disease model of deindustrialization).

I Stronger effects for mining/fuels vs cash crops.

I If no resource sector, the country industrialize and urbanizethrough the rise of production cities.

I Extension: Non-homothetic preferences accelerate urbanizationif the distribution of the rent is unequal.

I Extension: Government taxation accelerates urbanization (gvt’sEngel curve: civil servants, gvt region: primacy).

I Extension: No capital accumulation in the model. Consump-tion cities cannot evolve into production cities.


Introduction Evidence Model Implications Conclusion Other Stylized Facts Discussion

Outline




I Conclusion



Other Stylized Facts

I Stylized fact: urbanization associated with resource exports.

I In the model, the resource rich countries:

I urbanize because they are wealthier,

I import more food and tradables,

I their consumption cities have mostly non-tradable workers.

I The numerical simulations match the patterns found in thedata.

I For example, cities in resource rich countries associated withless employment in urban tradables? Outcome: employmentshare of manufacturing and finance, insurance, real estate andbusiness services for the urban areas in 2000.



Resource Exports and the Sectoral Composition of the Urban Areas 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012, IPUMS 2012, labor force and householdsurveys, censuses. Data for 65 countries. Mfg: manufacturing. Fire: finance, insurance, realestate and business services.



Resource Exports and the Sectoral Composition of the Largest City 2000

Sources: WUP 2011, FAO 2012, USGS 2012, WDI 2012, IPUMS 2012, labor force and householdsurveys, censuses. Data for 66 countries. Mfg: manufacturing. Fire: finance, insurance, realestate and business services.



Discussion: Implications for Growth?

I Literature on production cities: structural change→ cities withtradable workers → agglomeration economies → growth.

I Consumption cities → cities with non-tradable workers →second best type of urbanization (welfare-increasing).

I Productivity growth is slower in services, while unconditionalconvergence in manufacturing.

I Potential mechanisms? (i) lack of competition in non-tradablesectors (no global competitors), (ii) incentives for human K ac-cumulation, (iii) agglomeration economies, (iv) reforms (urbanmiddle-class vs. urban elite).

I In the long run, consumption cities could evolve into productioncities. Constraints? Trade, institutions?


Introduction Evidence Model Implications Conclusion Conclusion

Outline




I Conclusion


Introduction Evidence Model Implications Conclusion Conclusion

Conclusion

I Most developing countries have experienced urbanization withindustrialization (e.g, Asia, LAC). Urbanization in productioncities (tradable and non-tradable workers).

I Most resource rich countries have experienced urbanizationwithout industrialization (e.g., Africa, MENA). Urbanizationin consumption cities (mostly non-tradable services).

I This may have implications for long-run growth.

I Research agenda:

I Panel data analysis for 119 countries in 1960-2000.

I Can consumption cities evolve into production cities? Yes: US,Dubai, South Africa, etc. Constraints? Trade, institutions?


Documents

Urbanization with and without - World Banksiteresources.worldbank.org/INTIE/Resources/Gollin... · Urbanization with and without Industrialization Douglas Gollin University of Oxford