Does urban concentration matter for changes in country economic performance?

Abstract: https://journals.sagepub.com/doi/full/10.1177/0042098021998927#abstract

Urbanisation and urban concentration processes have been the object of a long-standing scrutiny by scholars. They are also of particular interest for policymakers, as they can shape the design of national- and local-level growth and development strategies.

Traditionally, the presence of large and high-density cities at the top of the national urban hierarchy has been considered a fundamental factor driving the overall economic performance of a country. Having a big city at the apex of a well-balanced urban structure was almost a guarantee of economic success. However, this supposedly positive link between urban concentration of economic activity in few very large cities and the economic performance of a country has come under closer scrutiny in recent years. Some of the new research highlights —in contrast to the dominant views stemming from new economic geography and urban economics— that the link between big and dynamic cities and national economic dynamism cannot be automatically generalised to all national contexts. In fact, the most recent scholarly literature has stressed how differences in economic development levels significantly alter the urban concentration-economic growth nexus, at least when looking at a short-term growth path of income or wealth.

In our recent paper in Urban Studies, we push the boundaries of existing knowledge by providing a more comprehensive analysis of the economic growth returns of urban concentration in low- versus high-income countries. Our work presents three key novelties with respect to the existing literature. First, we employ the Global Human Settlement Layer database that allows for a considerably more granular approach than previous city-level databases, as it provides detailed population data defined at the Functional Urban Area (FUA) level rather than considering purely administrative boundaries of cities. There are two key advantages of this. On the one hand, we are able to define the city (i.e., the ‘urban agglomeration’) by considering the physical space where social and economic activities take place. On the other, the globally-harmonised definition of FUAs adopted in the database allows for a direct comparison of the degree of urban concentration among countries worldwide.

Second, we complement previous evidence on the relationship between urban concentration and country-level short-run growth of Gross Domestic Product (GDP) per capita by analysing also long-run growth trajectories. We also provide a comparative analysis going beyond GDP and involving other two economic dimensions: employment and labour productivity growth.

Finally, we assess the interplay between the national concentration-dispersion pattern and the monocentric-polycentric internal spatial structure of urban agglomerations. This implies examining if there is an ‘optimal’ size of FUAs for agglomeration economies and diseconomies to materialise.

Our empirical analysis —based on a sample of 108 low- and high-income countries observed over the period 2000-2016— uncovers three main results. First, high levels of urban concentration have different growth returns on employment than on wealth and labour productivity. Urban concentration has a negative impact on employment growth in high-income countries only. This, however, only takes place in the long run. Urban concentration, by contrast, has a positive effect on both wealth and labour productivity growth, both in low- and high-income countries. These positive growth returns of urban concentration, however, take some time to materialise, especially in low-income countries. Overall, we find that the growth returns of urban concentration are considerably greater for high- than for low-income countries.

Second, the growth returns of urban concentration are primarily driven by the urban ‘core’ of FUAs. Indeed, the negative long-run returns of urban concentration on employment growth, and the positive returns on wealth and labour productivity growth, are higher for high-density than for low-density areas within FUAs.

Finally, we learn that the growth returns of urban concentration diminish as the population size of FUAs increases. Indeed, the urban concentration growth effects are lower in countries with highly concentrated urban structures dominated by large urban areas. Moreover, the negative urban concentration effects on employment growth become negligible above a threshold value of 150,000 inhabitants.

Altogether, our analysis suggests that, first, the growth returns of urban concentration depend on the level of development of a country, the time horizon considered, and the economic dimension analysed. Second, we highlight how the positive and negative country-level growth returns of highly concentrated national urban structures can be balanced only if adjustment processes occur both across cities of different size, and between well-developed urban ‘cores’ and suburbs within FUAs.

Read the accompanying article on Urban Studies OnlineFirst here.