Chapter 10Urbanization and ruralurban migration

1
Chapter 10/Urbanization and rural-urban
migration

• Introduction
• The evolution of conventional wisdom
• Development economists in the 1950s viewed
  rural-urban migration and
• city growth with optimism.
• City immigration was seen as a favorable process
  whereby "surplus rural
• labor was withdrawn from traditional agriculture
  to provide cheap manpower
• to fuel a growing modem industrial complex
  (Todaro, 1969)
• 3. Things began to change in the 1960s with
  evidence of high rates of
• unemployment optimism was replaced by a
  neo-Malthusian pessimism
• view immigration to the city with alarm.
• 2 principal explanations of rapid city growth and
  urbanization
• (1) PUSH unusually rapid rates of population
  growth pressing on limited farm acreage, pushing
  landless labor into the cities.
• (2) PULL economic forces pulling migrants into
  the cities domestic policies that distort prices
  to favor cities and other factors in favor of
  energy-intensive or large-scale manufacturing
  typically urban-sectors.

2
Lecture Outline

• Introduction
• I-Stylized facts urban transition
• A-Urbanization is happening everywhere but faster
  in LDCs
• B-Benefits and costs of cities
• C-The urban Giantism problem -urban bias -first
  city bias
• D-The informal sector
• II-Consequences of migration
• A-Worsening of the structural imbalance
  selective migration
• B-Who wins, who loses?
• III-What drives LDCs migration and city growth
• A-How does the urban labor work?
• 1-Recall how is the labor surplus absorbed from
  the Lewis model
• 2-The Todaro model
• 3-Evidence against Todaros job lottery
• B-Determinants of migration
• 1-Schematic framework
• 2-The driving forces
• 3-New findings by the New Economics of Migration

3
Urbanization
Urbanization is happening everywhere but faster
in LDCs Urbanization is the shift of population
from rural to urban environments a typical
transitory process. It is the consequence of
changes in national output composition from rural
agriculture to urbanized modern manufacturing and
service production.
Urbanization across time and income levels
4
Sub-Saharan African and Asian countries still
face substantial urbanization in the future.
Almost all of the increments to the world's
population will be accounted for by the growth of
urban areas
Estimated and Projected Urban and Rural
Population of the More and Less Developed Regions
1950-2030
Share of Urban Population in total Population
(average over countries within groups)
5
Dramatic modification of the top 15 cities to come
The Worlds Largest Cities, 1995 and 2015
6
Stylized facts urban transition B-Benefits and
costs of cities
Benefits Cost advantages to producers and
consumers through what are called agglomeration
economies (Walter Isard) 2 types (a)
Urbanization economies are effects associated
with the general growth of a concentrated
geographic region. (b) Localization economies are
effects captured by particular sectors of the
economy, as they grow within an area (backward
and forward linkages). Clustering effect
(industrial districts) positive externalities
(pecuniary and non pecuniary) are passive
phenomenon. Additional benefits can be obtained
through joint action (advertising, common RD)
active collective efficiency Those benefits
that derive from the combination of economies of
scale and positive transportation costs
constitute centripetal forces
7
Stylized facts urban transitionB-Benefits and
costs of cities

• Costs Relate to the lack of mobility of some
  factors such as land
• 1. Congestion costs costs of real estate, costs
  and time of commuting push
• upward wages.
• (a)Gargantuan urban complex induce higher costs
  of infrastructure such as
• water and sewer systems
• (b) Overloading of housing and social services,
  not to mention increased
• crime, pollution, and congestion, tend gradually
  to outweigh these historical
• urban advantages.
• 2. Those costs relating to diseconomies of scale
  constitute centripetal
• forces
• 3. Trade off between centripetal and centrifugal
  forces lead to an optimal
• city size. No case of black hole effects real
  not nominal income matters!!

8
The urban Giantism problem
Urban giantism is pervasive in LDCs.Probably
results from a combination of first-city bias and
a hub-and-spoke transportation system First-city
bias First" city receives a disproportionately
large share of public investment and incentives
for private investment. As a result, it receives
a disproportionately, and inefficiently, large
share of population and economic activity.
9
URBAN TRANSITION THE Giantism problem
The urban Giantism problem Hub-and-spoke
transportation system The differentiated plane
model predicts urban concentrations where the
scarce transportation routes cross, called
"internal nodes." Design follows the need to
facilitate movement of troops from the capital to
the outlying towns to suppress revolts (Roman and
colonial inheritance) -to ease of extraction of
the country's natural resources Original bias is
reinforced by consequence of political
economy (a) production for the home market in the
face of high protection and transport costs
circular causation reinforces the major
market (b) political logic of unstable
dictatorship "bread and circuses" (c )political
culture of rent seeking
The urban Giantism problem Difficulty to block
this self-sustaining process (a) Coordination
failure and capital market failures that make the
creation of new urban centers a task that markets
cannot complete. (b) no adequate midsize cities
to provide alternative locations for growth.
Again Chicken-and-Egg problem no incentive to be
first-mover Slum explosion as a consequence
10
SLUM EXPLOSIONS
Slum in Rio (Brazil)
Kibera slum, Nairobi, Kenya
11
The informal sector
Massive additions to the urban labor force were
mainly absorbed by the informal sector---No legal
registration, license or subject to government
labor regulations
Income Poverty in Seven African Countries,
Various Years
12
The Informal Sector

• Controversial role of the informal sector
• A. Long seen as parasitic activity with little
  social value so treated with
• benign neglect at best and outright hostility at
  worst. Labeled as "residuum"
• B. Evolution towards recognition of the
  beneficial role of the informal
• sector, especially as appears now a permanent
  rather than transitional
• phenomenon
• 1-It is closely connected with the formal urban
  sector informal activities can graduate to the
  formal sector
• 2-Creation of employment and income opportunities
  especially allows huge numbers to
• escape from extreme rural poverty and
  underemployment especially women
• 3-Creation of a surplus that could provide an
  impetus to growth in the urban economy.
• 4-Important role in the formation of human
  capital.
• 5-Absorbs semiskilled and unskilled labor not
  demanded elsewhere.
• 6-Adopts appropriate technologies and make use of
  local resources.
• 7-Recycles waste materials

13
Consequences of migrationA-Worsening of the
structural imbalance selective migration

• A. Exacerbation of urban unemployment and
  underemployment.
• B. Migration is selective and therefore has
  implications for economic growth
• in general and particularly for its
  distributional manifestations.
• (a) young adults
• (b) mostly male (despite exception such as
  Philippines, Ethiopia ? Middle
• East bound)
• (c ) educated
• C. Emigrants are often drawn from the best and
  the brightest. So emigration
• depletes the rural countryside of valuable human
  capitalbrain drain
• This constitute negative externalities of
  emigration on
• the community of origin

14
Economic Development as Structural Transformation

• What determines whether this transformation takes
  place or
• not? i.e. rural-urban migration

AGRICULTURE
MANUFACTURING
15
Dual Economy
Manufacturing
Agriculture

• technologically
• backwards
  modern
• decreasing returns increasing
• 
  returns/learning-by-doing
• low earnings/ high
  earnings/
• productivity
  productivity
• Duality sustained by policy barriers

16
Nobel Press Release Arthur Lewis

• 1. -- Lewis first model is based on the dual
  nature of a developing economy. There is an
  agricultural sector primarily based on
  self-support and a modern market-oriented
  sector primarily engaged in industrial
  production.
• 2. -- ... the low productivity of agriculture
  is, in Lewis's analysis, a causal factor for the
  poverty of the developing countries and a
  restriction on growth .
• NOTES
• a. average labor productivity in NONAGRICULTURE
  is much greater than in AGRICULTURE in many poor
  countries (this observation appears to go back to
  Kuznets)
• b. -- this could be an indication of barriers
  that, once removed, would lead to less dispersion
  in international incomes

17
Consequences of migration B-Who wins, who loses?
Migrants Should win expected gains from
migration Community of origin 1. Difference
according to skill and capital endowment 2.
Aggregate impact depends on the balance of
negative externalities and positive effect
(remittances) Community of arrival 1. Difference
according to skill and capital endowment 2.
Except unskilled city-born previous immigrants
(little political power), others benefit from the
rise in unskilled labor supplies. Explains lack
of motivation for governments to restrict
city immigration
What drives LDCs migration and city growth? How
does the urban labor work? Recall how is the
labor surplus absorbed in standard development
models (aka Lewis) 1. Urbanization responds to
industrialization 2. PULL factors dominate
Accumulation was the key constraint 3. Migrants
arrive when called by the industrialization
process How can we reconcile paradoxical
relationship of accelerated rural-urban migration
in the context of rising urban unemployment?
18
The Harris-Todaro Model
The Todaro model Hypotheses 1-Migration is an
individual rational decision 2-Migration proceeds
in response to urban-rural differences in
expected income rather than actual earnings 3.
Compare of expected incomes for a given time
horizon in the urban sector (returns minus costs
of migration) with prevailing average rural
incomes in a context of a urban job lottery
19
What drives LDCs migration and city growth?
How does the urban labor work? The Harris-Todaro
Migration model
20
The Todaro Model
1. Migration takes place until the expected urban
wage WM is equated to the rural wage WA. 2. The
probability of getting the favored job is simply
the ratio of employment in manufacturing, LM, to
the total urban labor pool, LUS
where WA is agricultural income, LM is employment
in manufacturing LUS is total urban labor pool WM
is the urban minimum wage
The curve qq indicates the agricultural wage at
which the potential migrant is indifferent about
employment location. So the equilibrium
agricultural wage is WA and OMLA-OMLM are
either unemployed or underemployed in the city
21
Evidence against Todaros job lottery model

• 1. The literature on job search emphasizes the
  role of investment in the
• search and rejects the simple lottery mechanism
  of the job allocation
• rules embedded in the Todaro model individual
  characteristics matter!!
• 2. Rejection that wages are lower in informal
  service sector employment
• than in industrial employment.
• 3. Issue of discount rates need to assume very
  long time horizons, in
• some cases greater than 50 years for present
  values to equated in setting
• of urban wages twice as high. Cole and Sanders
  (1985)
• 4. The model abstracts from many additional
  influences on the potential
• migrant's decision (New findings by the New
  Economics of Migration)

22
Determinants of migration Schematic framework
23
Determinants of migration

• 2-Driving forces
• Williamson (1988) proposes 4 exogenous internal
  forces
• 1-Malthusian pressures high population growth in
  context of agricultural land
• scarcity pushing labor to cities
• 2- Engel effects
• 3-Government induced urban bias price
  distortions, distribution of public
• investment and manipulation of capital markets in
  favor of capital technology
• intensive projects (located in cities)
• 4-Unbalanced total factor productivity advance
  (i.e. more rapid in
• modern urban-based manufacturing sector than in
  the traditional rural-based
• primary products sectors.
• It seems that the combination of unbalanced TFP
  with price-
• elastic demand for urban output explains most of
  the city
• growth.

24
Determinants of migration3-New findings by the
New Economics of Migration

• 1. Migration can take place even if income at
  place of arrival is lower than
• income at place of origin
• 2. Huge importance since migration will continue
  even if living conditions
• improve in the countryside
• Why?
• Relative deprivation
• Collective household decision driven by search
  for insurance and
• capital anti-cyclical pattern (risk aversion and
  market failures are key)

• CONCLUSION
• 1. Need to have a comprehensive Migration and
  Employment Strategy
• Observation that migration increases with rural
  income rise threshold
• 2. New migration economics findings point to
  the role of
• Reduction in inequality
• b. Implementation of insurance mechanisms (social
  security, old-age)
• c. Reduction of market failures in capital market