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Development economics > 9. Urbanization > Flashcards

9. Urbanization Flashcards

1
Q

How does the urbanisation rates we are seeing in the developing world compare to that of the now high-income countries?

A

Urbanisation is taking place in the developing world more rapidly than it did for now high-income countries. In some regions much more rapidly

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2
Q

In 2008, what percentage of the worlds population lived in towns and cities?

A

Over 50%

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3
Q

What drives rural-urban migration?

A
  • Factors pulling migrants into cities
  • Factors pushing migrants out of rural areas
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4
Q

What are some factors that may pull migrants into towns and cities?

A
  • The higher relative wage levels in urban areas (Lewis model)
  • Improved access to education, health and other public services
  • The opportunity to manage risk by diversifying the income sources and asset structures of rural households (one family member for example)
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5
Q

What are some factors that may push migrants out of rural areas?

A
  • Rural unemployment
  • Landlessness and exploitation
  • Extreme poverty
  • Civil conflict
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6
Q

Why does urbanisation matter?

A
  • Migration and urbanisation are central features of the evolution of human society
  • Most future population growth in developing countries will be in towns and cities
  • Rural populations are expected to decline
  • Increase in megacities
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7
Q

Where are rural populations already declining?

A

China, Brazil, Indonesia

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8
Q

Where will a lot of megacities be?

A

A lot of which are in Asia and South America which have a lot of slum populations

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9
Q

How can slum populations be defined?

A

As living without one of the following:

  • Access to improved water
  • Access to improved sanitation
  • Durability of housing
  • Sufficient space (by inhabitants per room)
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10
Q

What is the model we will use to explain rural-urban migration?

A

The Harris-Todaro model

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11
Q

What is the decision to migrate based on in the Harris-Todaro model?

A

It is a rational decision based on the expected rather than actual rural-urban wage differentials

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12
Q

What is the probability of getting an urban job dependent on?

A

The probability of obtaining an urban job is related inversely to the urban employment rate. A high urban employment rate means a low probability of employment.

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13
Q

What can we say about worker characteristics?

A

Work characteristics are homogenous other than location, urban or rural

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14
Q

How does the Harris-Todaro model differ to the Lewis model?

A

The Lewis model didn’t count for the probability of getting a job

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15
Q

How do we set up the model graph?

A

With the wage rate on the y-axis and the number of workers on the x-axis

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16
Q

What does the Harris-Todaro model assume about employment?

A

That there is full employment

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17
Q

With flexible wages, how will the wage rates compare between the modern and agricultural sector?

A

Wa=Wm

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18
Q

How is migration with uncertainty decided?

A

If rural workers can migrate based on the chance of getting an urban job, the decision to migrate is based on a comparison between the actual agricultural wage and the expected value of the urban wage

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19
Q

How is the expected value of the urban wage found?

A

The urban wage weighted by the probability of getting an urban job - this probability is given in the model by the ratio Lm/Lus (Jobs in the urban sector/ Labour in urban areas)

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20
Q

What happens to your probability of employment if Lm increases?

A

Your probability of getting a job is going to increase

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21
Q

What happens to your probability of employment if Lus increases?

A

If the denominator increases with Lm being fixed (which is more likely) then the probability of you getting a job is going to fall

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22
Q

How can you find Lus?

A

Lus is the number of people in the urban area who want to work = Number of urban workers Lm + new rural migrants looking for work Lu

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23
Q

Using the equations when will rural workers migrate to the urban sector?

A

If Wa < (Lm/Lus)Wmbar

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24
Q

What is Wa?

A

The guaranteed wage in the agricultural sector

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25
Q

Using the equations when will rural workers not migrate to the urban sector?

A

Wa>(Lm/Lus)Wmbar

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26
Q

Using the equations when will rural workers be indifferent to migrating to the urban sector?

A

Wa=(Lm/Lus)Wmhat

27
Q

If one rural worker migrates and does not find modern sector work what will the probability become?

A

Lm/Lus<1

28
Q

When will rural workers not continue to migrate?

A

Wa=(Lm/Lus)Wmhat

29
Q

What is the qq curve?

A

A false demand curve based on the expectations of agricultural workers of finding a job in the modern sector

30
Q

What happens at point z?

A

Rural-urban migration continues until the equilibrium point z where the indifference condition holds

31
Q

How does the amount of compensation needed for employment change with Lus?

A

The smaller (Lm/Lus), the higher Wm needed for migration

32
Q

If urban employment is certain everywhere, what shape would the qq curve take?

A

If urban employment is certain everywhere, it would be as if Lm/Lus=1 and qq would follow MM

33
Q

What characteristics define the new equilibrium point z?

A
  • A smaller rural labour force La and a rural wage which is higher than both _Wa and Wa*
  • A large share of workers unemployed Lu
34
Q

In reality, what happens to this large amount of unemployed labour in the urban environment?

A

These unsuccessful migrants will commonly enter into informal, urban employment

35
Q

How can we generalise the Harris-Todaro model to include the informal sector?

A

If informal sector income is greater than 0, we can include as a weighted component of expected urban income. (we can add the informal sector wage Wi times the probability of receiving it into the decision equation for rural workers)

36
Q

What characterises the informal sector?

A
  • Low barriers to entry, but
  • Uncertainty of incomes
  • Marginalisation and vulnerability (lack of social protection, no regulation)
37
Q

What is the informal sector?

A

In many urban areas informality is the norm. The sector typically consists of small-scale, enterprises and self-employment, providing goods and services to the urban population.

38
Q

Why was the informal sector often viewed as problematic in the past for developing countries?

A

Reasons would include:
- lost tax revenue
- challenges for infrastructure and service provision
- social welfare concerns

39
Q

What are some of the advantages of the informal sector?

A
  • Despite being unrecorded, informal activities generate income, produce goods and services and contribute substantially to GDP
  • Informal sector businesses offer affordable goods and services to low income urban populations that may not have access to formal markets
  • Minimal capital requirements providing employment for low or unskilled workers
  • Very resilient to economic shocks and can act as a safety net for vulnerable workers
  • No barriers to entry
40
Q

What are some of the issues from having a large informal sector?

A
  • Outside of formal tax system, loss of revenues for government
  • Workers lack legal protections, leaving them vulnerable to poor unsafe conditions or exploitation
  • Can distort competition and undermine the viability of formal businesses
  • Informal sector workers often face social exclusion and discrimination
41
Q

Give a statistic that shows the extent of the informal sector in some countries?

A

Conakry, the capital of Guinea has over 70% of the population employed in the informal sector

42
Q

Give some pro-growth arguments of urbanisation

A
  • Increased supply of labour to urban industries holds the labour costs down (Lewis argument) more money for reinvestment
  • More efficient allocation of labour
  • Improved quality of human capital of labour force
  • enhanced potential for scale economies, and agglomeration economies (infrastructure, knowledge spillovers)
43
Q

Give some anti-growth arguments of urbanisation

A
  • Urbanisation creates mass urban employment (Todaro model) ending up in the informal sector
  • Accelerated deterioration of living and environmental conditions (slum areas)
  • Associated deterioration in health status and efficiency of labour force
  • Growing criminality and public disorder threatening social and economic stability (South Africa)
  • Social exclusion and alienation of the poor on a scale beyond the capacity of the authorities to handle
  • Increasing external diseconomies resulting from growing congestion, pollution and shortage of land
44
Q

How may urbanisation benefit rural areas?

A
  • Remittances from migrants
  • Increases in rural wage rates (seen in data), Lewis turning point, Todaro model, less working in agriculture, higher wage
45
Q

How may urbanisation harm rural areas?

A
  • Migration removing scarce labour skills that cannot be replaced in agriculture
  • Farming may decline and those left behind face higher risk of poverty
  • Loss of relatively better skilled workers, entrepreneurship and otherwise productive investments
46
Q

What ages are the vast majority of migrants?

A

15-24

47
Q

In the long-run what should we consider when deciding if the decision to migrate is rational?

A

If the migrant anticipates a relatively low probability of finding regular wage employment in the initial period but expects this probability to increase over time as he is able to broaden his urban contacts, it would still be rational for him to migrate, even though expected urban income during the initial period or periods might be lower than expected rural income. As long as the present value of the net stream of expected urban income over the migrant’s planning horizon exceeds that of the expected rural income, the decision to migrate is justifiable.

48
Q

How does the Harris Todaro model compare to neoclassical urbanisation models?

A

Rather than equalising urban and rural wage rates, as would be the case in a standard neoclassical competitive model, we see that rural–urban migration in this model equates rural and urban expected incomes.

49
Q

What are some reasons that may cause urban wages to be fixed?

A
  • Urban formal jobs as government showcase
  • Efficiency wages
  • Union bargaining power
  • Labour market regulation - minimum wage
50
Q

Where are workers free to migrate?

A

Everywhere but China

51
Q

How can the model be extended?

A
  • Informal sector income
  • Workers with different levels of human capital have different probabilities
  • Earlier migrants create positive externalities for later migrants by helping with job search (informational)
52
Q

Is the Harris-Todaro model still relevant even if the wage is not fixed by institutional forces?

A

Yes, recent theoretical research on rural–urban migration has confirmed that the emergence of a high modern-sector wage alongside unemployment or an urban traditional sector, as seen in these models, can also result from market responses to imperfect information, cost of labour turnover, efficiency wage payments, and other common features of labour markets.

53
Q

Sum up the Harris-Todaro model

A
  • Migration is stimulated by rational economic decisions
  • Decision is baseed on expected rather than actual urban-rural real wage differentials
  • The probability of obtaining an urban job is directly related to the urban employment rate
  • Migration rates exceed the urban job opportunities
54
Q

How can government policy reduce the negative externalities of urbanisation on both urban and rural populations?

A
  • reducing urban bias that directs too large a share of investment to the urban modern sector while, within the urban informal sector, improving sanitary infrastructure, facilitating improved opportunities for income generation, and encouraging social infrastructure for better community life for those living there.
  • Of perhaps equal importance, investment in programmes of integrated rural development and making rural institutions less extractive and broadly more inclusive will reduce unnecessary “push” of people toward cities.
55
Q

Why may policies aimed at reducing urban employment actually increase urban unemployment?

A

The traditional (Keynesian) economic solution to urban unemployment (the creation of more urban modern-sector jobs without simultaneous attempts to improve rural incomes and employment opportunities) may make the situation worse. Once again, the imbalance in expected income-earning opportunities is the crucial concept. Because migration rates are assumed to respond positively to both higher urban wages and higher urban employment opportunities (or probabilities), it follows that for any given positive urban–rural wage differential, higher urban employment rates will widen the expected differential and induce even higher rates of rural–urban migration. For every new job created, two or three migrants who were productively occupied in rural areas may come to the city. Hence, a policy designed to reduce urban unemployment may lead not only to higher levels of urban unemployment but also to lower levels of agricultural output due to induced migration.

56
Q

How do urban wages compare to rural wages in most developing countries?

A

In most developing countries, urban wages are typically three to four times as large as rural wages

57
Q

What has been the impact of the effects of minimum wages empirically?

A

Research findings on the effects of minimum wages have been varied. Developing-country studies on minimum wages have concluded that formal sector wages rise as a result; and, thus, they do have impact despite enforcement difficulties.
- Evidence from Costa Rica and Brazil suggests that the informal sector experiences a “lighthouse effect,” meaning that the minimum wage is responded to as a benchmark wage for all unskilled labour.
- Studies on the effect of minimum wages on employment have been more mixed, indicating either: a negative effect, including Colombia, Trinidad and Tobago, and Costa Rica; or no effect, as in Mexico and, in a different study, Brazil.
- Reduction in female employment was found for Mexico and Colombia, though a shift in employment toward women was found for Chile.

58
Q

What is the conclusion of which policy prescriptions should be encouraged?

A

Programmes of integrated rural development should be encouraged. Policies that operate only on the demand side of the urban employment picture, such as wage subsidies, direct government hiring, elimination of factor price distortions, and employer tax incentives, are probably far less effective in the long run in alleviating the unemployment problem than policies designed directly to regulate the supply of labour to urban areas. Clearly, however, some combination of both kinds of policies is most desirable.

59
Q

What are the policy implications of the Harris Todaro model?

A
  • Imbalances in urban and rural employment opportunities caused by urban bias must be reduced
  • Urban job creation is an insufficient solution for the unemployment problem
  • Indiscriminate educational expansion will lead to further migration and unemployment
  • Wage subsidies and traditional scarcity factor pricing can be counterproductive
  • Programmes of integrated rural development should be encouraged
60
Q

How are developing country cities expected to growth in the next three decades?

A

Developing-country cities are projected to grow by more than 2 billion people over the next three decades. This presents enormous challenges for the developing world, but at the same time important economic development opportunities. The pattern of urban settlements tends to be very persistent, so the quality of planning now for this enormous transformation will have ramifications for decades to come.

61
Q

By 2025 what proportion of the worlds population will live in urban areas?

A

nearly 2/3

62
Q

How does Botswanas urbanisation rate compare to that of the rest of Sub-Saharan africa?

A

60% compared to an average of less than 1/3

63
Q

What amount of urban growth is accounted for by migrants from rural areas?

A

About half the urban growth is accounted for by migrants from rural areas

64
Q

What proportion of urban residences are shanty towns in the developing world?

A

Shantytowns and similar makeshift settlements represent over one-third of developing-country urban residences

Development economics (17 decks)

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