1 The Urban Revolution Definitions of urban: 1. Within the jurisdictional boundaries of a city; 2.

Urban agglomeration those living in an area of a high density of residential structures; 3. Metropolitan area those linked by direct economic ties to the city center; 4. Greater Metropolitan Area a labor market or the area from which the urban area draws its employees. Issues with the numbers: 1. Population figures are mainly projections based on historical trends and are usually too high; 2. Little is known about variations within the cities as there are few maps and inventories of infrastructure; 3. Who owns title to what property? The dynamics of urbanization: 1. Migration from rural to urban the search for employment, or higher-paying employment better quality of life in health and education greater diversity of entertainment and life style influenced by family or villagers who went before 2. Natural increase about 60% 3. Reclassification of rural areas as urban as a result of population growth 84% of the worlds urban population lives in small and intermediate-sized cities; Others in megacities > 10million And gradually, metacities > 20 million (Tokyo, Mumbai, Sao Paulo, Mexico City by 2015) Many view the attainment of 50% urban global population as a positive development: 1. Many benefits accrue to individuals income differential government programs can be applied more efficiently economies of scale education is better simply because there are more highly educated people there to do the educating larger pools of health workers and greater specialization

2 desired and actual fertility are lower a. caring for children when parents work outside the home is more expensive b. urban housing is more expensive c. children have relatively less value in family income generation d. family planning and maternal care more accessible 2. Benefits at the national level: Natural result of industrialization and modernization Cities attract businesses and jobs and this concentration in turn encourages productivity growth Increased opportunities for division of labor encourages intraindustry specialization in specific activities Urban firms learn from each other, from their suppliers and can respond more quickly to consumer demands since they are closer With better educated people, institutions, cities become incubators for new ideas and technologies 3. Benefits to rural development: Remittances With less workers, wages could rise in rural areas Some evidence rural poverty declines relative to urban (Is it because the number of poor has gone up in the urban area because of the migration?) urbanization leads to a reduction in poverty by promoting economic growth Pessimists see it not as a natural process but as one that results from a bias toward cities in government policies and investment, a bias that presses people to migrate from the countryside in search of jobs: 1. Negative impact on the environment and quality of life traffic congestion: inadequate waste disposal systems environmental contamination higher in cities undercutting human health cities make demands on land, water, natural resources disproportionately high in relation to land area

3 2. Linked to increases in urban poverty: inequality within the cities is stark with housing costs so high, many resort to living in slums (in South Asia half of the urban populations live in slums; in SSA, 72%) Leads to malnutrition, child mortality, environmental disasters 3. Social problems: Crime and violent conflict By 2030 60% of those living in urban areas will be under 18 The Future Probably a positive contribution to economic growth Major factor in promoting better education and health Views of government: 14% are satisfied with the current urban-rural mix 73% have policies to slow down urbanization (rural employment schemes and denial of services to new migrants) 3% have policies to accelerate it Some policy options: Better approach is to empower women Construction of environmentally friendly cities Counteract urban sprawl with complexes of residential, commercial, cultural facilities Creating a simplified land titling system for property ownership Credit or subsidies for dwelling ownership Decentralization with city revenue generating, budget, accountability separate from the central government

Ravallion, Chen and Sangraula new Evidence on the Urbanization of Global Poverty Claim 1: The majority of the developing worlds population lives in rural areas, but the urban population share is rising and will soon exceed the rural share. About 75% of the developing worlds poor still live in rural areas (based on constant real value between countries and between urban and rural areas within countries). Poverty is becoming more urban but it will be several decades before a majority of the developing worlds poor live in urban areas. Urban-rural cost-of-living differences do matter, i.e., estimates of progress on both aggregate poverty count for the world and pace of poverty reduction are lower when taking this factor into account because the urban poor typically face a higher cost of living. In China, for example, the PPP rural poverty line in 1999 was 2.42 yuan/day while the urban was 3.32. Claim 2: The incidence of absolute poverty is higher in rural areas of developing countries. At both the <$1/day and <$2/day levels the proportion of the rural poor at those levels was double that of the urban. Claim 3: The urban sectors share of the poor is rising over time. The proportion of the poor in urban areas rose from 19% to 24% [19932002] but the urban share of the population as a whole rose from 38% to 42%. Nonetheless, it will be many decades before a majority of the developing worlds poor live in urban areas.

5 Claim 4: The poor are urbanizing faster than the population as a whole The poor are urbanizing faster than the population as a whole reflecting a lower-than-average pace of urban poverty reduction (along with the higher cost of living in urban areas). But this is offset by the more rapid progress against rural poverty From 1993-2002, 50 million people were added to the <$1 a day poor in urban areas but the total poor fell by 100 million thanks to a decline of 150 million in the number of rural poor the process of urbanization has affected rural poverty more than urban poverty. Claim 5: Population urbanization is a positive factor in overall poverty reduction. Empirical findings are broadly consistent with the view that the urbanization process has played a quantitatively important positive role in overall poverty reduction, by: providing new opportunities to rural out-migrants (some of whom escape poverty in the process), sending remittances back to their home community, and through the second-round impact of urbanization on the living standards of those who remain in rural areas; interesting, however, that there is a concurrent drag on the urban because newer migrants appear to be poorer than those who preceded them. The main channel linking population urbanization to poverty reduction is the rate of economic growth. This in turn is likely to lead to a faster pace of urbanization. Marked regional differences: Majority of LA poor live in urban areas whereas less than 10% in East Asia (due mainly to China) Pattern of overall poverty reduction with urbanization does not hold in SSA (slow rates of economic growth) Some areas show signs of increasing rural poverty (China, Eastern Europe, Central Asia)

6 Cities: Big or Too Big? The concentration of population accounts for the areas dynamism but at the same time causes: congestion environmental degradation housing shortages formation of ghettos governance of the metropolitan area becomes complex and difficult Difficulties of infrastructure planning and provision of adequate services Overlapping and blurred spending responsibilities and inadequate revenues controlled directly by the city Absence of timely information on city finances compounds the accountability problem Capital cities wield excessive political power creating tensions with surrounding neighborhoods Asymmetric federalism: perhaps should be assigned more rights to raise financing than other similar lower levels of government because they have greater spending needs but also greater potential revenues bases and human capital Strong devolution In China megacities have dual status municipal functions and responsibilities in addition to those of provinces Of course, there has to be some limit, e.g., if megacities have unlimited borrowing power this can come into conflict with national macroeconomic objectives Devolution plus clear separation of functions have the city do those things that need coordination at the metropolitan level (transportation, emergency planning) from those that can still be at the local level (schooling, trash collection) A key element in achieving greater accountability is to clarify which level of government is responsible for a given function, e.g., schooling where one level is involved with hiring of teachers and another, paying them.

7 Accountability megacities are probably better equipped to do performance-based budgeting and can marshal the human resources to carry out such functions.

8 Clusters Definition of: Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery and services, and providers of specialized infrastructures. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Many clusters include governmental and other institutions such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations -- that provide specialized training, education, information, research, and technical support. A clusters boundaries are defined by the linkages and complementarities across industries and institutions that are most important to competition they may cross state and national borders. Michael Porter, Clusters and the new Economics of Competition, Harvard Business Review, November-December 1998