Question

why urbanisation is more common in developing countries?​

Answer 1

Answer:

The effect of resources on urbanisation runs deeper than this, though. The composition of urban employment differs starkly between resource-exporters and non-exporters, holding income levels and urbanisation rates constant.

Using IPUMS  census micro-data, labour force surveys and household survey data, we look at the sectoral composition of urban areas in a sub-sample of 88 countries. We find a key distinction in the labour allocations of resource-exporters and non-exporters.

China’s urban centres are best characterised as Reuters/Aly Song

We characterise resource-exporting urban centres as “consumption cities”. This is where a large fraction of workers are employed in non-tradable services such as commerce and transportation or personal and government services. In contrast, urban centres in China or other historical cities are best characterised as “production cities”. Here a large fraction of workers are engaged in manufacturing or in tradable services, such as finance.

This does not imply that resource-exporting cities are necessarily poorer. Unconditionally, natural resource exporters have lower poverty rates and slum shares than non-exporters. But if we control for income levels and urbanisation rates, resource exporters appear to have higher poverty rates and slum shares. The results of our comparison suggest that the positive effect of income on living standards is lower for resource exporters.

To illustrate why industrialisation and urbanisation need not be synonymous, we develop a model of structural change that features two types of urban production: tradable and non-tradable goods. The basic logic is that urbanisation is driven by income effects. Any income shock will cause a shift away from economic activities in rural areas and encourage the movement of production and people into urban areas. This is true whether the income shock is caused by industrial productivity or resource revenues.

But the source of the shock does matter for which sector the new urban workers will be employed in. With a resource shock, there is a Dutch Disease outcome. Workers substitute away from the tradable goods sector and into non-tradable. Hence the cities grow into “consumption cities”, dominated by non-tradable employment.

A productivity shock in the tradable sector pulls workers into that sector and away from rural areas. This leads to urbanisation in “production cities” being dominated by tradable production

Explanation:

Answer 2

Explanation:

The basic logic is that urbanisation is driven by income effects. Any income shock will cause a shift away from economic activities in rural areas and encourage the movement of production and people into urban areas. This is true whether the income shock is caused by industrial productivity or resource revenues.