Urbanization, Poverty and Economic Development

Having spent much of my professional career in Latin America I have been greatly interested in the role that urbanization plays in economic and political development. Many of the trends that I have witnessed in Latin America are playing out all over the developing world. In fact by 2010, cities officially became the home of the majority of the human race, and the rate of urbanization is only increasing.

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Figure 1 Urban and Rural population (billions) over time
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Figure 2 Urban share (%)  of global population over time

The graphs above show rural population worldwide plateaued in the first decade of the century, is expected to decrease over the next 40 years (UNPop World Urbanization Prospects 2009). Although the rural population is decreasing globally, poverty is still disproportionately represented in the worlds’ rural periphery. The chart and table below show this urban-rural disparity on the global and regional scale. Globally, just over 301 million people living in extreme poverty (< $1.25/day), about 27% of population in extreme poverty, are living in cities, whereas just over 3 billion (almost half) of the total population live in cities. If we look at the break up of poverty regionally, we see the same disproportionate trend with rural poverty share of total poverty ranging from 27 percent in Latin America (around 20% of total population is rural) to nearly 80 percent in South Asia (70% of total population is rural).

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Figure 3 Global Population and Total Poverty
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Figure 4 Rural share of total Poverty

Poverty in general has been declining over the past 30 years, and rural poverty in most regions of the world has declined due to general economic development and rural-to-urban migration. I would like to highlight the importance of migration to reducing poverty. Historically, urbanization has been an important precursor to industrialization. Urbanization’s developmental effect is more than just a matter of population displacement, it is a dramatic and often economically revolutionary process that creates new economic opportunities for those who migrate and for those who to stay put. Growing cities provide industries with large and mobile work force, while developing larger markets that can encourage production at greater scales. Cities have powerful agglomeration effects allowing skills and knowledge to be pooled and employed in a wide range of applications spurring innovation and more rapid economic growth. It is not surprising then that cities are widely considered important engines of growth. Nevertheless, the urbanization story is not one of just improving lives in urban areas. Urbanization also has many potential benefits to rural areas. Some of these benefits were well illustrated in a World Bank blog post from last week (Urbanization is good for rural poverty (at least in India)) and include:

  • Large potential markets for agricultural goods produced in rural areas
  • Increasing demand for more diverse goods leads to more opportunities for diversification and specialization
  • Decreasing rural labor force leads to greater bargaining power for rural labor and higher wages
  • New pools of private rural investment through urban-rural remittances

Urbanization also has many negative effects, especially in cities without sufficient infrastructure to handle the large influxes of new people. Managing this transition is undoubtedly of great interest to many developing countries. In the World Bank post, Massimiliano Cali makes a good point that investments in urban areas should be considered in the overall portfolio of pro-poverty and pro-rural investment. Just investing in rural areas, may lead to missed opportunities to harness powerful economic effects from urbanization. Nevertheless, due to the disproportionate amount of poverty in rural areas it will continue to be critical to invest in pro-poor strategies in rural areas. This doesn’t preclude spending some time and money on facilitating and easing the transition to more urban societies, but it must be balanced by targeted interventions to improve rural productivity. Increasing rural productivity has the double benefit of improving rural livelihoods, and stemming urban migration, buying time for heavily stressed cities to build up necessary infrastructure and social services.

Improving rural productivity of course is no easy matter, but should start with a focus on increasing farm productivity and efficiency. Improving yields and decreasing post-harvest losses would contribute greatly to reducing food insecurity and increasing rural incomes. Income is one of the primary factors in determining a household’s vulnerability. Increased farm-level income can reduce vulnerability to all kinds of shocks, including climate change, while creating great economic opportunity through increased capacity to save, reinvest in the farm, or invest in other human capital or economic ventures. New technologies and management techniques must be developed and implemented for crops in much of the tropics, which have not been focused on in the past. Many current technologies (integrated pest management, no-till, etc.) if adopted could make substantial improvements in agriculture in the developing world and help reduce poverty. However, getting current and new technologies to farmers in the field is time intensive and expensive due to factors such as:

  • Bad infrastructure
  • Lack of access to markets
  • Lack of access to accurate and current data
  • Lack of access to financial services (savings, credit, insurance)
  • Poor access to quality education

The recent food crises have highlighted the need for greater investment in agriculture, and to relook at the agricultural systems in the developing world. I believe this is a good thing, and that agriculture has not received the attention that it may deserve. I would love to see greater investment in agricultural extension, and improving the mechanisms of transfers of knowledge and technology in the developing world. However, I am also concerned that development practitioners working on poverty reduction tend to silo themselves off in either urban or rural spheres, which may lead to development interventions with tunnel vision and miss the urban-rural connections that a more holistic approach might exploit.