The Economist reports on new World Bank research on the economic power of urbanization and of cities:
[N]ew research published by the World Bank in its annual flagship World Development Report suggests that pessimism over the future of huge cities is wildly overdone. The bank argues that third-world cities grow so big and so fast precisely because they generate vast economic advantages, and that these gains may be increasing. Slowing urbanization down, or pushing it towards places not linked with world markets, is costly and futile, the bank says. At a time of contagion and bail-outs, the research also reaffirms the unfashionable view that the basic facts of geography – where people live and work, how they get around – matter as much as financial and fiscal policies…
So one answer to the question – why are third-world cities so big? – is that they are not in relative terms all that large. But another answer, suggests the World Bank, is that they are big because they do an economic job that is becoming more, not less, important…
Cheap transport in the past 25 years has produced a second sort of trade revolution. Countries now sell each other not final products like port but intermediate ones such as recording heads for hard drives. That has been made possible by an extraordinary fragmentation of production: every step in the production line is broken down. Parts are made separately, then shipped for assembly.
In some ways, this specialization and concentration of manufacturing seems strange: if parts can be made anywhere, it might appear more efficient to make them in the middle of nowhere, where land is cheapest. Yet factory owners like to cluster together because of the concentration of skills, as well as infrastructure, that cities offer. Workers with particular competences migrate to places where those skills are in demand – and all the businesses that need those skills benefit. Consumers, naturally, appreciate cities because it is easier to shop where goods are available in one place. And business services (banking, insurance, consultancy) cluster round the honeypot…
For poor countries, the key to development is to link up flagging and fast-growing regions. To do that, governments often overemphasize policies targeted on particular places. In practice, there are more powerful instruments of integration than “spatially targeted” efforts – e.g., land markets that unify all places, or infrastructure that connects some places to others. Growth, says the bank, is inevitably lumpy. Governments must learn to like it.
The full report is here.
