G3-URBANIZATION-AND-RURAL-DEVELOPMENT.pdf

GROUP 3 | ESTIVE, GA-AS, GAYOMALI, GO, GONZAGA BUSECO2 - A JUNE 18, 2024 PPT LINK: URBANIZATION AND RURAL DEVELOPMENT PREFACE: “As a pattern of development, the more developed the economy, the more urbanized” According to a 2019 UN estimate, by 2050 the world...

GROUP 3 | ESTIVE, GA-AS, GAYOMALI, GO, GONZAGA BUSECO2 - A JUNE 18, 2024 PPT LINK: URBANIZATION AND RURAL DEVELOPMENT PREFACE: “As a pattern of development, the more developed the economy, the more urbanized” According to a 2019 UN estimate, by 2050 the world population is expected to reach 9.7 billion people. A substantial majority of that population growth will be concentrated in the cities of low- and middle-income countries—and in coming decades increasingly in the least-developed countries. According to estimates by the UN Population Division, by 2009, for the first time in human history, the number of people globally living in urban areas surpassed the number living in rural areas. TWO KINDS OF URBANISATION 1. Productive, development-leading city, featuring rapid productivity gains and dynamic knowledge spillovers, that at the same time offers many amenities to its residents. 2. Development-diverting city, which has been termed a “consumption city,” though many of its inhabitants find the experience to be more of a survival city. One characteristic is that an unusually large part of their rapid expansion is natural—that is, much urban population growth comes from continued relatively high numbers of births per woman among urban households. TWO MAIN POLICY CHALLENGES 1. First, to help moderate the flow of rural-to-urban migration when it becomes excessively heavy; and to ameliorate the serious unemployment and particularly underemployment problems that continue to plague many cities. We find that some of the most efficient solutions are to address problems in rural areas, in addition to altering policies in urban areas. 2. Second, to better harness the potential dynamism and productivity of developing cities for rapid and inclusive economic development 1.1 Migration & Urbanization Dilemma I. MIGRATION Migration worsens rural-urban structural imbalances in two direct ways. 1. Supply Side 2. Demand Side - First, on the supply side, internal migration disproportionately increases the growth rate of urban job seekers relative to urban population growth, which itself is at historically unprecedented levels because of the high proportion of well- educated young people in the migrant system. Their presence tends to swell the urban labor supply while depleting the rural countryside of valuable human capital. - Second, on the demand side, urban job creation is generally more difficult and costly to accomplish than rural job creation because of the need for substantial complementary resource inputs for most jobs in the industrial sector. Moreover, the pressures of rising urban wages and compulsory employee fringe benefits in combination with the unavailability of appropriate, more labor-intensive production technologies means that a  rising share of modern- sector output growth is accounted for by increases in labor productivity. - Together this rapid supply increase and lagging demand growth tend to convert a short-run problem of resource imbalances into a long-run situation of chronic urban surplus labo - All economic policies have direct and indirect effects on the level and growth of urban or rural incomes or both, they all will tend to influence the nature and magnitude of the migration stream. TODARO MIGRATION MODEL HARRIS TODARO MIGRATION MODEL - Explains rural urban migration as an - An equilibrium version of the Todaro economically rational process despite migration model that predicts that high urban unemployment and expected incomes will be equated underemployment across rural and urban sectors when - Migrants calculate (present value of) taking into account informal-sector urban expected income (or its activities and outright unemployment. equivalent) and move if this exceeds average rural income SECTORS: URBAN SECTORS FOCUS: Role of economic incentives in the decision of workers to migration from low opportunity area to high opportunity area. Assumptions: – Visible employment in the urban area but not in rural area. – Every migrant from rural area will not find a job Labor turnover Worker separations from employers, a concept used in theory that the urban-rural wage gap is partly explained by the fact that urban modern-sector employers pay higher wages to reduce labor turnover rates and retain trained and skilled workers. Efficiency wage The notion that modern-sector urban employers pay a higher wage than the equilibrium wage rate in order to attract and retain a higher-quality workforce or to obtain higher productivity on the job II. URBANIZATION DILEMMA Urbanization rates increase whenever urban population growth exceeds rural population growth. The positive association between urbanization and per capita income is one of the most obvious and striking “stylized facts” of the development process. - Generally, the more developed the counter, measured by per capita income, the greater the share of population living in urban area. - At the same time, while individual countries become more urbanized as they develop, today’s poorest countries are far more urbanized than today’s developed countries were when they were at a comparable level of development, as measured by income per capita. - The urbanisation rate increases whenever urban population growth exceeds rural population growth. - The increase is driven, in part, by general population growth (although fertility is usually typically less in cities than in rural areas), plus rural-to-urban migration. Rural-to-urban migration is occurring so rapidly in Asia that total rural population will fall by hundreds of millions of people by 2050, as seen in Figure 7.1.  - urbanisation is not driven solely by income - So we need to consider urbanisation carefully—is it only correlated with economic development, or is causation also at work? Urban bias. The notion that most governments in developing countries favor the urban sector in their development policies, thereby creating a widening gap between the urban and rural economies. Rural-Urban Migration. The movement of people from rural villages, towns, and farms to urban centers (cities) in search of jobs. - Are chiefly responsible for the explosion in urban shantytowns, part of the blame rests with governments. Their misguided urban-planning policies and outmoded building codes often mean that a majority of new urban housing is “illegal.” - For example, colonial-era building codes in Nairobi, Kenya, made it impossible to build an “official” house for less than $3,500. The law has also required every dwelling to be accessible by car. As a result, two-thirds of Nairobi’s land has been occupied by 10% of the population, while many slum dwellings cannot legally be improved. - At least 1 billion people (⅓ of the urban population) live in urban slum settlements in all developing countries) > There are slums because the government consciously makes the lives of new migrants miserable to deter them from migrating to cities. - Similarly, in Manila, Philippines, a large majority of the population has historically been too poor to be able to buy or rent an officially “legal” house. - ➔ Is it possible or even desirable now to attempt to influence these trends by pursuing a different set of population and development policies? ➔ A critical issue that needs to be addressed is the extent to which national governments can formulate development policies that can have a definite impact on trends in and the character of urban growth. It is clear that the emphasis on industrial modernization, technological sophistication, and metropolitan growth created a substantial geographic imbalance in economic opportunities and contributed significantly to the accelerating influx of rural migrants into urban areas ➔ Level of Urbanization in the Philippines reached 51.2 percent ➔ In 2015, the level of urbanization or the percentage of population residing in urban areas in the Philippines was recorded at 51.2 percent. This means that a total of 51.73 million persons resided in barangays classified as urban. There were 7,437 barangays classified as urban and 34,599 as rural. The level of urbanization in 2010 was only 45.3 percent. Urban population in the Philippines (Results of the 2015 Census of Population) | Philippine Statistics Authority | Republic of the Philippines. (n.d.). https://www.psa.gov.ph/content/urban-population-philippines-results-2015-census-popula tion Five regions surpass the national level of urbanization  3. Across regions, aside from the NCR, which is classified as entirely urban, four other regions posted a level of urbanization higher than the national level (54.0%). These were: Region IV-A - CALABARZON (70.5%), Region XI - Davao (66.8%), Region III - Central Luzon (66.3%), and Region XII - SOCCSKSARGEN (55.5%). In 2015, the same five regions posted the highest level of urbanization. (Table 1) 4. On the other hand, the five regions with the lowest level of urbanization were: Region VIII - Eastern Visayas (14.7%), Region II - Cagayan Valley (19.5%), Region V - Bicol (23.8%), Region I - Ilocos (25.5%), and the Bangsamoro Autonomous Region in Muslim Mindanao or BARMM (27.6%). (Table 1) City of Davao registers the biggest urban population among the HUCs outside the NCR 7. In terms of population, the City of Davao posted the biggest urban population among the HUCs outside the NCR, with 1.63 million urban residents or a level of urbanization of 91.8 percent. It was followed by the City of Cebu with 908,195 urban population and 94.2 percent level of urbanization, and the City of Zamboanga with 869,929 urban population and 89.0 percent level of urbanization. (Table 3) Urban Population of the Philippines (2020 Census of Population and Housing) | Philippine Statistics Authority | Republic of the Philippines. (n.d.). https://psa.gov.ph/content/urban-population-philippines-2020-census-population-and-hou sing The Role of Cities and Urban Giantism Problem What explains the strong association between urbanisation and development? I. ROLE OF CITIES To a large degree, cities are formed because they provide cost advantages to producers and consumers through what are called agglomeration economies. Agglomeration economies - Cost advantages to producers and consumers from the location in cities and towns, which take the form of urbanization economies and localization economies. - Cities are formed because they provide cost advantages to producers and consumers. TWO FORMS OF AGGLOMERATION ECONOMIES 1. Urbanisation economies - Agglomeration effects associated with the general growth of a concentrated geographic region. - Growth of a city 2. Localisation economies - Agglomeration effects captured by particular sectors of the economy, such as finance or autos, as they grow within an area. - Cost advantage with bring in the same area with particular sectors of economy (finance; automobile) - Localization economies often take the form of forward and backward linkages. A. Forward Linkage - Users of outputs of an industry reduce their transportation costs by locating nearby to the industry - They can easily find a new job. B. Backward linkages - Firms of the same or related industries may benefit from being located in the same city. - Obtain large pool of workers with specific skills - Benefit from specialised infrastructure. A. Industrial Districts - Clustering of firms of same type An economic definition of a city is “an area with relatively high population density that contains a set of closely related activities.” Localization economies encourage emergence of industrial districts. Clustering also has spill-over benefits: INDUSTRIAL DISTRICTS - These spillovers are also agglomeration economies, part of the benefits of what Alfred Marshall called “industrial districts,” and they play a big role in Michael Porter’s “clusters” theory of competitive advantage - Firms doing similar work often prefer to be located around one place. A. Flexible Specialization: greater opportunity to contract outworks - Firms located in such industrial districts also benefit from the opportunity to contract-out work easily when an unusually large order materialises. Thus, a firm of modest size does not have to turn down a big job due to lack of capacity—an arrangement that provides “flexible specialisation.” For example, in the United States, many innovative computer software and other technology firms located in Silicon Valley, California, simply because other such firms were already located there.  B. Learning: firms can more easily learn from each other regarding production processes, business practices, rules and regulations, business opportunities C. Training and Technological Development: easier to develop training facilities; easier to develop, learn and adopt new technologies. D. Social Capital: easier to resolve shared concerns through collective action - Social capital The productive value of a set of social institutions and norms, including group trust, expected cooperative behaviours with predictable punishments for deviations, and a shared history of successful collective action, that raises expectations for participation in future cooperative behaviour Analogously, suppliers to shoe firms located in the Sinos Valley in southern Brazil and in Guadalajara in Mexico because so many shoe firms located in those regions. - Some of the benefits are gained simply by the fact of location—Khalid Nadvi has termed this “passive collective efficiency”—but other benefits must be achieved through collective action, such as developing training facilities or lobbying government for needed infrastructure as an industry rather than as individual firms (“active collective efficiency”).. Congestion - An action taken by one agent that decreases the incentives for other agents to take similar actions. Compare to the opposite effect of a complementarity. - Leads to: Higher cost of real estate, greater transportation costs, higher cost of infrastructure (water and sewer systems) II. URBAN GIANTISM - Is the phenomenon of urban settlements growing disproportionately large in size due to rapid migration of people from other areas to these urban settlements. Understanding Urban Giants: Causes and Consequences 1. Hub-and-spoke system In many cases, the capital city will be located near the outlet of this system on the seacoast. This type of transportation system is also called a “hub-and-spoke system,” - which is especially visible when the major city is located in the interior of the country. Many nations inherited a hub-and-spoke system from colonial times, including many in Africa and Latin America, which also facilitated movement of troops from the capital to the outlying towns to suppress revolts. 2. Location of the political capital in the largest city 3. Bread and circuses - for the first city (usually the capital) to prevent unrest. First-City Bias - A form of urban bias that has often caused considerable distortions might be termed first-city bias. The country’s largest or first (“first-place”) city receives a disproportionately large share of public investment and incentives for private investment in relation to the country’s second-largest city and other smaller cities. - As a result, the first city receives a disproportionately—and inefficiently— large share of population and economic activity.  4. Import substitution industrialization: there is much less international trade, and population and economic activity have an incentive to concentrate in a single city, largely to avoid transportation costs SUMMARY AND CONCLUSION The strong association between urbanization and development is explained by agglomeration economies. Urbanization economies and localization economies provide cost advantages to producers and consumers in cities. Industrial districts and clustering of firms of the same type contribute to agglomeration benefits, including knowledge spillovers and specialized infrastructure. Cities concentrate resources, services, and opportunities, attracting people seeking improved livelihoods and driving economic growth. However, rapid and uncontrolled urbanization can lead to challenges such as congestion and social inequalities. Policymakers need to promote inclusive and sustainable urban development to harness the benefits of urbanization while addressing these challenges. We conclude by noting that while a much higher urban share of population is inevitable, the tempo and pattern of urbanisation will be key determinants of whether the deeper objectives of economic development are achieved. China and India, which together account for over one-third of the world’s population, are in the midst of their most rapid migration and urbanisation period. Several African and other Asian countries are entering this stage. Because of fixed costs, including infrastructure and land use patterns, the quality of policies toward urbanisation and migration that are implemented now are thus of momentous importance for the character of economic development for many decades to come. Todaro, M. P., & Smith, S. C. (2014). Economic development. Pearson. REFERENCES: MICHAEL P. TODARO STEPHEN C. SMITH ECONOMIC DEVELOPMENT