A pair of studies from LSE suggests that developing countries are better off with smaller cities.
When it comes to cities and urbanization, it is generally thought that bigger is better. But a pair of recent studies suggests that although industrialized nations may have benefitted from larger cities, the same is not true for the rapidly urbanizing areas of the developing world. In these parts of the globe, there really might be such a thing as too much urbanization, too quickly.
The studies, by Susanne A. Frick and Andrés Rodríguez-Pose of the London School of Economics, take a close look at the actual connection between city size and nationwide economic performance. Their initial study, from last year, examines the relationship between economic development, as measured by GDP per capita, and average metropolitan-area size in 114 countries across the world between 1960 and 2010. To ensure robustness, it controls for variables including national population size, physical land area, education levels, economic openness, and other factors.
The size of cities or metro areas across the world has exploded over the past half-century, with cities in the developing world growing much faster and much larger than those in more developed nations. Between 1960 and 2010, the median city in high-income countries grew modestly from 500,000 to 650,000 people; but the median city in the developing world nearly quadrupled, expanding from 220,000 to 845,000 people. In 1960, 12 of the top 20 countries with the largest average city size were high-income countries; by 2010, 14 of the top 20 were in the developing world.
Urbanization has historically been thought of as a necessary feature of economic development and growth, but this study finds the connection is not so simple. While advanced nations benefit from having larger cities, developing nations do not. Advanced nations experience a 0.7 percent increase in economic growth for every additional 100,000 in average population among its large cities over a five-year period. But for developing nations, the addition of 100,000 people in large cities is associated with a 2.3 percent decrease in economic growth over a five-year period.
In their latest study, the researchers found that developing nations tend to get a bigger bang for their buck from smaller and medium-size cities. These countries see the most economic benefit from having a larger proportion of their urban population living in cities of 500,000 people or less. Bigger cities tend to have a more positive economic impact in larger countries. Having a metro with more than 10 million inhabitants produces a nationwide economic benefit only if the total urban population is 28.5 million or more, according to the study. This makes sense: Bigger, more developed countries are more likely to play host to knowledge-based industries that require urban agglomeration economies.
As I have pointed out before in CityLab, and in my book The New Urban Crisis, there are several reasons why megacities often fail to spur significant growth in the rapidly urbanizing world. For one, the lion’s share of places that are urbanizing most rapidly today are in the poorest and least-developed parts of the world, whereas the places that urbanized a century or so ago were in the richest and most developed. This history has created a false expectation that urbanization is always associated with prosperity. Also, a good deal of urbanization today comes from massive migrations of people escaping wars, civil conflicts, or natural disasters, rather than from purely economic forces like increased demand for labor.
Additionally, globalization has severed the historical connection between cities, local agriculture, and local industry that powered the more balanced urban economic development of the past. In today’s globally interconnected economy, the raw materials that flowed from the surrounding countryside to the city can all be inexpensively imported from other parts of the world. The result is that the connection between large cities and growth has now become much more tenuous, producing a troubling new pattern of “urbanization without growth.”
That said, urbanization is still essential for developing countries, and cities remain the key drivers of their economic growth. My own analysis of the urban productivity ratios of global cities shows that the cities of the developing world have far higher ratios than those of the advanced nations. In other words, developing cities, on a relative basis, are much more productive than the surrounding areas.
Developing countries surely need cities, but not necessarily megacities. The study upends a core assumption of economic and urban theory: that bigger cities are necessarily better. While this tends to be true in more advanced nations, where innovative knowledge economies benefit from density and clustering, it is not the case in the developing and rapidly urbanizing world, where having a broad range of smaller and medium-size cities adds more to economic growth.
This study serves as yet another reminder that there is no one-size-fits-all pattern for urban and economic development.