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Does Urbanization Drive Southeast Asia's Development?

How the creative class is affecting economic growth in Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

For those of us who live in the United States or in the advanced nations of Europe or Asia, urbanization has gone hand in hand with greater economic development, and the growth of the middle class. But elsewhere that once-positive connection between urbanization and rising living standards seems to be breaking down over the past decade or so. The world may be entering into a troubling new phase of urbanization without growth, where urbanization no longer goes hand in hand with great economic output, rising living standards, or a large middle class.

Southeast Asia—the region of the world that spans Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—is going through rapid urbanization today. By 2030, its urban population will grow by another 100 million people, rising from 280 million people today to 373 million people.

A new study, released today by my Martin Prosperity Institute (MPI) team, takes a close look at urbanization across these six major Southeast Asian nations and the cities of Phnom Penh, Cambodia; Jakarta, Indonesia; Kuala Lumpur, Malaysia; Manila, Philippines; Bangkok, Thailand; Ho Chi Minh City, Vietnam; and the city-state of Singapore.

Two of those cities, Manila and Jakarta, are megacities with over 10 million people. Bangkok, Ho Chi Minh City, Kuala Lumpur, and Singapore have populations between five and 10 million people. By 2030, Bangkok and Ho Chi Minh City are projected to have populations over ten million. Kuala Lumpur will have close to 10 million people, while Singapore will be approaching seven million. The region provides an intriguing lens from which to better understand the opportunities and challenges of urbanization today.

Metropolitan Economic Output per Person in Southeast Asia (Martin Prosperity Institute/Data from Brooking Institution, 2014 Global Metro Monitor)

Our analysis highlights the highly uneven process of urbanization across this region, as its cities and nations divide across four broad tiers of development.

Singa­pore occupies the top tier. With economic output of $66,864 per person, it is one of the most prosperous and advanced cities on the planet, ranking just below New York City and ahead of Tokyo, Toronto, Seoul and Hong Kong. It ranks as the fourth-most-advanced global city in the world, behind only New York, London, and Tokyo. The creative class makes up nearly half of its workforce (47.3 percent)—considerably larger than that of the United States (32.6 percent).

The Global City Index is based on the following sources: Brookings Institution’s 2014 Global Metro Monitor; Z/Yen Group’s Global Financial Centres Index 15; A.T. Kearney’s 2014 Global Cities Index; and The Economist’s Hot Spots 2025. (Martin Prosperity Institute)

Kuala Lumpur occupies a second tier, with economic output of $28,076 per person, more than Shanghai ($24,065) or Beijing ($23,390). This is nearly three times bigger than Malaysia as a whole ($9,748). With $172 million in total economic output—more than Stuttgart ($158 million) or Stockholm ($143 million), it generates more than half (50.8 percent) of Malaysia’s GDP. According to our “urban productivity ratio,” which compares a city’s productivity to that of its nation, Kuala Lumpur is three times as productive as Malaysia. It ranks 39th on my Global City ranking, not too far behind Beijing.

Bangkok and Manila fall into the third tier, with economic output per person of $19,705 and $14,222 respectively—considerably greater than for Thailand ($5,158) or the Philippines ($2,360) as a whole. Bangkok’s economic output is $307 billion—more than Miami ($263 billion) or Frankfurt ($230 billion), and accounts for more than three quarters of Thailand’s total GDP. Manila generates $183 billion in economic output—more than Stockholm ($143 billion), which makes up nearly two-thirds of the Philippine’s GDP. Bangkok is nearly four times more productive than Thailand as a whole; and Manila is six times more productive that the Philippines on our urban productivity ratio.

Jakarta and Ho Chi Minh City occupy the fourth tier with economic output per person of $9,984 and $8,660—which while lower than the other Southeast Asian cities is still considerably larger than for Indonesia ($3,323) or Vietnam ($1,544). With total economic output of $321 billion, Jakarta is a bigger economy than Toronto ($276 billion), while Ho Chi Minh City with $71 billion in output is just slightly smaller than Turin ($78 billion) or Oslo ($74 billion). Both account for more than 35 percent of their respective national economies. Productivity in Jakarta is three times higher than for Indonesia as a whole, while it is 5.6 times higher in Ho Chi Minh City than for the Vietnamese economy.

So is urbanization helping to propel economic growth in Southeast Asia or not? The answer from our research is a qualified yes.

Economic output per person is from the World Bank, World Development Indicators, GDP Per Capita, 2010–2012, and urbanization is from the World Bank, World Development Indicators, Urban Population, 2010–2012. (Martin Prosperity Institute)

The graph above charts the relationship between the level of urbanization and economic development (measured as economic output per person). The slope of the line is upward and to the right, highlighting the generally positive relationship between the two. But what is important for our purposes is that the Southeast Asian nations lie either exactly on the line or slightly above it—in other words their level of urbanization is roughly in line with their level of economic development.

Singapore leads the region in urbanization and economic development—with levels that put it among the world’s leaders such as the U.S., Japan, Canada, and Australia. Malaysia is next in line with an urbanization level of nearly 75 percent, which is closing in on South Korea. Indonesia and Thailand are more than 50 percent urbanized, while the Philippines has urbanization rate of almost 45 percent. All three have levels of urbanization that are not far behind that of China. Vietnam’s level of urbanization is 33.6 percent, putting it slightly ahead of India, while Cambodia’s is just 20.7 percent—still both have levels of urbanization that are roughly in line with their levels of economic development.

Ultimately, the level of economic development across the region and its cities is highly uneven, mirroring the broader pattern of uneven development between the advanced nations and cities of the Global North and the struggling nations and cities of the Global South. The region spans Singapore—one of the most affluent and urbanized places on the planet—and also Cambodia, where economic output of just $869 per person leaves it 116th of the 139 nations we examined.

While some areas of Southeast Asia are urbanized and developed, others have yet to make this transformation. The question is whether urbanization can continue to propel economic development in the region’s less developed cities and nations, or whether some will fall victim to urbanization without growth.

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