Introduction
Increasing urbanization in developing countries has been cause for worry
in the minds of some economists. Developed countries experienced a similar
magnitude of urbanization in the early 1900's. However, these less developed
countries (LCD's) are experiencing a greater degree of urban primacy than
developed countries did. Primacy is termed as the share of the national
urban population in the largest city. There is an indication that this is
occurring because urbanization is happening so much faster in these developing
countries than it occurred in developed countries (Henderson 2002). Many
LCD's are experiencing rapid urban growth in a small number of mega-cities.
While there are initial benefits to urbanization in terms of economies of
scale, there is a decreasing marginal benefit. There are substantial negative
effects within mega-cities that decrease efficiency. Overall, the general
trend of developing countries is to initially have high primacy and then
to have urban population become more evenly distributed.
The first section will discuss the benefits of urbanization to a countries
economy. It will also discuss how urbanization can be encouraged by a government.
The second section will cover its negative effects of urbanization. In many
cases these negative effects can help contain urbanization. The third and
last section will cover case studies in China as well as Latin America.
This section will explain the differences between the growth that has occurred
in developing countries and that that has occurred in the more balanced
countries in Europe.
Why Urbanization
Urbanization is a natural part of development, as a countries economy shifts
from labor intensive agricultural practices to a more industrial economy
(Henderson, 2002). Urbanization occurs more specifically because of economies
of scale in production. Central Place Theory can help explain some of this
phenomenon to locate in market centers. This theory suggests that production
centers will be "determined in a manner that minimizes total unit production
costs and access costs to consumers" (Mutlu, 1989). Initially, in developing
countries there are transportation infrastructures in few places. This encourages
growth in these central places that have a competitive advantage (Alonso-Villar
2000). As investment in transportation infrastructure develops throughout
the country this advantage is lost (Alonso-Villar 2000). There are also
other benefits to a centralized production that increase the efficiency
and productivity of the plants and services that locate in them.
Increases in the efficiency of plants and businesses that locate in these
urban areas are the result of spillover benefits such as information, technology,
market conditions and the close location of supplier's purchasers (Henderson
2002). Plants that locate near each other are able to learn from each others
production techniques. Whether or not it is voluntary, this sharing of information
creates intense competition and greatly improves the efficiency of production.
Some plants engage in product development to become more efficient. The
need for high tech firms in research and development can be found in these
large urban centers (Henderson 2002). Each party benefits from the interaction
and they reinforce each other. Specialized employees from these research
and development firms are likely beyond the scope of these businesses individually
but the large economies of scale produce an environment where these firms
can find multiple opportunities for business that would not have occurred
in a rural setting. Urban centers also provide these plants with valuable
market information. They can tailor their supply effectively with the market
demand. Finally, urban development can bring suppliers and producers closer
together and foster better communications. Asian car manufacturers typify
this kind of manufacturing style (Mair et al.1988). These are all factors
that increase the likelihood of urban migration in terms of benefits to
the efficiency of production.
Institutions can also encourage urbanization. Governments that devote large
amounts of capital to transportation and communications in the early development
of infrastructure can increase the importance of these urban centers (Henderson
2002, Roberts 1989). Without the proper transportation structure the benefits
of production would be countered by costs of transportation (Puga, 1998).
Centralized government power can lead to intense urbanization as well (Henderson
2002). However, this kind of political organization can create dangerous
central urbanization into what is known as mega-cities (Song and Zhang 2002).
Limits of Urbanization
Primacy is cause for serious externality problems but this is usually corrected
for by the market. These externalities include environmental degradation
and increasing inefficiency because of congestion. Urbanization and especially
primacy in many ways is a self limiting process. Its negative effects promote
regional disparities which are countered by a movement toward convergence,
decreasing regional disparity (Henderson 2002). Theory also suggests that
the increases in wealth and education that come with this economic growth
of urban areas should allow the country to eventually invest in hinterland
regions (Henderson 2002). The growth of mega-cities only exasperates the
problems of urbanization. The following are examples of responses to negative
effects and associated with cities that are too large.
Urbanization affects labor by increasing the costs of living (Mutlu 1989).
The cost of rent goes up because of the high demand. The general cost of
food-stuffs is increased because of the "ever wider geographical areas
to provision the center" (Mutlu 1989). This cost is generally balanced
by the high wages associated with urban areas. The cost of living should
be a serious consideration for any worker who hopes to make a living in
the city. If the cost of living becomes too high, workers will move out
of the city. Problems arise if people do not have anywhere else to go or
if governmental institutions limit the migration of people into rural areas.
Fall in the marginal productivity of capital and the amenities for high
grade labor have been known to push businesses to the periphery (Mutlu 1989).
Marginal productivity of capital falls in urban areas because of increasing
investments, perhaps overinvestment and congestion at the center (Mutlu
1989). In addition, urban areas tend to increase pollution and congestion
of major roads. This may cause high quality labor to seek areas with better
amenities, climate or recreations which lie outside the urban area on the
periphery. These are both examples of the increase in importance of smaller
urban areas and a move to a more balanced urban population.
Case Studies
Latin American countries have been shown to exhibit high levels of urbanization.
This is attributed to their radical restructured rural social relationships
(Roberts 1989). While this area has been independent for over a century,
regional economic forces have been strong (Roberts 1989). These forces have
produced very strong urban populations and a government that tailors to
them. The result is a government that promotes high levels of urbanization
through subsidies, union organization and welfare provision (Roberts 1989).
These subsidies and welfare provisions help pay for the high cost of living
which is likely a source of inefficiency. The investments that are used
to "prop up" the quality of life in these "primate"
cities use public resources that could have been used in other cities (Henderson
2002). This has the end effect of decreasing the quality of life especially
in non-primate cities (Henderson 2002). This can perhaps explain why Latin
American countries, "with some exceptions, are not chosen as sites
for export assembly industry based on cheap and usually feminine labor"
(Roberts 1989).
China is a good case study of controlled urbanization. This country has
witnessed rapid urbanization since the economic reform in 1978. During the
Cultural Revolution (1966-77) urban population was static or negative (Song
and Zhang 2002). This was due to a major governmental policy issued by Mao.
This policy forced urban youth to go to rural areas to "undergo peasants'
education" (Song and Zhang 2002). When this policy came to an end in
1978 there was a period of rapid urbanization. This was characterized at
first by urban primacy, whereby growth occurred in a relatively small amount
of mega-cities. It was later characterized by a more even distribution in
the 1990's while the government remained dedicated to developing small cities.
The socialist Chinese government has largely been the determining factor
for urbanization in the country. The government supported this urbanization
by reclassifying cities, changing the countries economic structure and initiating
urban reforms. Cities receive authority and investment according to their
status as determined by the government. The Chinese Government reclassified
many towns into cities and many cities as larger cities. This increased
the importance of cities in the economy. It also increased the desire to
become a city and many more were "eager to pursue the upgrading of
their settlements to a higher status" (Song and Zhang 2002). China
began to devote less money toward agriculture during this time increasing
the amount put into the industrial sector. Urban reforms began in 1984 that
reversed a previous policy that limited rural-urban migration through a
static urban household registration system (Song and Zhang 2002). While
the government has allowed urbanization to take hold it still "favors
development in small cities (Song and Zhang 2002). The government is able
to accept a certain amount of urbanization in central places but it attempts
to keep this under control.
Conclusion
Urbanization is a normal feature in countries that are transitioning from
an agricultural economy to one of industrialization. Large urban centers
can be efficient for plants and increases their marginal productivity through
information, technology sharing and proximity to suppliers and producers.
While this kind of shift has happened in developed countries, the one that
is occurring in some developing countries is different. There is a substantial
amount of the population in a small number of very large cities. This phenomenon
can have negative effects on efficiency if it is allowed to continue by
government policies. Under the right government, urban growth will eventually
even out between larger numbers of cities. This occurs because of decreasing
marginal productivity of labor, increasing cost of living standards and
externalities such as pollution that push high skilled labor outside the
city. In China, the government has proven to be very influential in determining
urban population growth and is currently supporting growth into small cities.
Latin American countries in contrast, are generally characteristic of governments
that promote these mega-cities through welfare and subsidizing policies.
History seems to have taught us that this kind of urbanization is only a
phase. Under the right government third world primacy will be solved and
urbanization will reflect a more even distribution into a larger number
of cities.
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