From Farm to Firm Rural-Urban Transition in Developing Countries Nora Dudwick, Katy Hull, Roy Katayama, Forhad Shilpi, and Kenneth Simler DIRECTIONS IN DEVELOPMENT Countries and Regions Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 62259 From Farm to Firm From Farm to Firm Rural-Urban Transition in Developing Countries Nora Dudwick, Katy Hull, Roy Katayama, Forhad Shilpi, and Kenneth Simler © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. ISBN: 978-0-8213-8623-1 eISBN: 978-0-8213-8640-8 DOI: 10.1596/978-0-8213-8623-1 Cover photo: copyright © Ariadne Van Zandbergen. Library of Congress Cataloging-in-Publication Data From farm to firm : rural-urban transition in developing countries / Nora Dudwick [et al.]. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-8623-1 — ISBN 978-0-8213-8640-8 (electronic) 1. Rural-urban migration—Developing countries. I. Dudwick, Nora. HB2160.F76 2011 307.2'4091724—dc22 2011008873 v Foreword xiii Acknowledgments xv Overview 1 WDR 2008 and WDR 2009: Rural and Urban Perspectives on Transformation 1 Building on the WDRs: Our Work Program 7 Main Findings 9 References 11 Part I Global, National, and Local Perspectives on Urbanization and Inclusive Growth: Examples from Africa 13 Chapter 1 Urbanization: Essential for Development 15 Urbanization and Inequality 17 Why Africa? 18 Organization of Part I 21 Notes 22 References 23 Contents Chapter 2 Global Level: Recent Patterns and Trends in Rural and Urban Welfare Inequality 25 Sources of Data 28 Methods 30 Results 32 The Elusive Quest for Patterns 44 Conclusion 47 Notes 48 References 49 Chapter 3 National Level: Three Country-Level Perspectives on Rural-Urban Transitions 51 Structural and Spatial Transformations in Ghana, Mozambique, and Uganda 52 Rural and Urban Poverty Trends 57 Sources of Rural-Urban Inequalities 64 Methodology 65 Results 66 Implications for Policy 73 Notes 76 References 77 Chapter 4 Local Level: Intraurban Welfare Disparities and Implications for Development 79 Growing Cities 80 Lower Poverty, Better Services 81 Welfare Inequalities 82 Welfare Differences: Linked to Location 88 Understanding Spatial Inequalities 90 The Colonial Legacy 91 Failure to Strengthen Systems for Land Delivery 92 Conclusion 100 Notes 102 References 102 Part II Managing the Rural-Urban Transformation: Examples from South Asia 107 Chapter 5 Pathways Out of Poverty: Managing the Rural-Urban Transformation in South Asia 109 vi Contents Note 111 References 112 Chapter 6 Patterns of Rural-Urban Transformation in South Asia 113 Poverty Incidence and Geographical Distribution 114 Contribution of Agriculture to Growth and Employment 115 Urbanization, Nonagricultural Activities, and the Rural-Urban Transformation 118 Rural Nonfarm Activities and the Rural-Urban Transformation 120 Conclusion 121 Notes 122 References 123 Chapter 7 Policies, Institutions, and Initial Conditions 125 Economic Policies 125 Factor Markets: Land and Labor 128 Human Capital Endowments 131 Connective Infrastructures 134 Conclusion 138 Notes 139 References 139 Chapter 8 Land Market Institutions and the Rural-Urban Transformation 141 Impact of Land Inequality: The Existing Evidence 141 Impact of Land Market Restrictions: The Existing Evidence 147 Summary of Case Studies and Policy Implications 154 Notes 156 References 156 Chapter 9 Geographical Linkages and the Rural-Urban Transformation 159 Poverty, Urbanization, and Employment Structure along the Rural-Urban Continuum 159 Case Study 1: The Rural Employment Pattern and Urban Linkages 163 Contents vii Case Study 2: Agglomeration, Spillover, and Location of Nonfarm Activities 165 Notes 171 References 172 Chapter 10 Labor Mobility and the Rural-Urban Transformation 175 Internal Migration in South Asia 177 Internal Work Migration in Nepal 178 Destination Choice of Migrants 184 Notes 188 References 189 Chapter 11 Summary and Conclusions 191 Three Levels of Perspectives on Urbanization and Shared Growth: Sub-Saharan Africa 191 Managing the Rural-Urban Transformation: Examples from South Asia 195 Note 200 References 200 Appendix A Countries and Surveys Used for Consumption and Poverty Analysis 201 Appendix B Data, Methodology, and Results for Decomposition Analysis 205 Data 205 Model Specification 206 Oaxaca-Blinder Decomposition 207 Quantile Decomposition 208 Note 221 References 221 Index 223 Boxes 1 Country-Level Policy Recommendations Derived from the WDRs 5 1.1 Defining Urban 16 2.1 Are Rural-Urban Welfare Differences Shrinking or Growing? 27 viii Contents [...]... areas, which in turn casts doubt on inferences made from the observed rural-urban welfare differences In addition to consistency issues across countries, simple categorization within a country inevitably involves a loss of information In reality, there is a ruralto-urban continuum, ranging from sparsely populated isolated settlements to small towns to secondary cities to megacities Thus, in any given... best to manage the rural-urban transition, they must tailor policies to the country’s (or area’s) stage of transformation According to WDR 2008, in agriculture-based economies policies should focus on boosting productivity in smallholder farming In transforming economies, policies should also promote growth of the rural nonfarm sector And in urbanized economies, policies should help to link farmers to. .. manifested in densely populated lagging regions in “2-D” countries Divisions—for example, between ethnic groups—are an additional obstacle in “3-D” countries The seven countries in Sub-Saharan Africa and South Asia featured in our study would fit into the categories shown in the table 1-D countries WDR 2008 Agriculturebased economies WDR 2009 2-D countries 3-D countries Nepal Ghana Mozambique Transforming... decades China and India changed from agriculture-based to transforming countries, Indonesia became increasingly urbanized, and Brazil developed into a full-fledged urbanized country (figure 1) The speed at which countries make the transition from largely agriculture-based to urbanized economies varies greatly Likewise, the pace of change within countries may vary dramatically Large countries, in particular,... examine rural-urban welfare differences, using both monetary and nonmonetary measures We then use cross-sectional surveys to assess the degree of convergence or divergence in rural and urban living standards as national income and the urban share of the population increase over time Finally, we look at covariates to help explain why spatial inequalities are increasing in some countries and decreasing in. .. us to understand whether rural-urban welfare disparities in these three African countries stem from people or from places Moving on from the national-level analysis, we address the rural-urban transformation from the perspective of intraurban and intraregional differences After the discussion of the rural-urban transformation in SubSaharan Africa, we consider patterns and trends in welfare within three... property rights, or access to infrastructure and services—on rural-urban transformations in the four countries We then move to describing land market institutions (chapter 8), geographical links (chapter 9), and labor mobility (chapter 10) in relation to the rural-urban transformation Chapter 11 presents our summary and conclusions Overview 9 Main Findings Many of the key findings in the studies described... are living in cities (see box 1.1 for definitions of the term urban) Although 60 percent of the people in Sub-Saharan Africa still live in rural areas, it is the fastesturbanizing region of the world In fact, the United Nations predicts that by 2030 Africa will be a predominantly urban continent Urbanization stems in part from rural -to- urban migration, in part from natural increase, and in part from. .. Reshaping Economic Geography (WDR 2009) represented a turning point in the Bank’s thinking about the links among geography, poverty reduction, and growth In presenting this new thinking, the book sparked a rich intellectual debate within the development community from which emerged the following paradigmshifting notion: Spreading investment across a territory does not necessarily promote convergence in. .. others We then move to the national level of analysis (chapter 3), homing in on rural-urban differences in three African countries Ghana, Mozambique, and Uganda For the national-level analysis, we use OaxacaBlinder decomposition techniques to determine whether rural-urban inequalities stem from differences in endowments, such as levels of education, or from differences in returns to those endowments . Cataloging -in- Publication Data From farm to firm : rural-urban transition in developing countries / Nora Dudwick [et al.]. p. cm. Includes bibliographical references and index. ISBN 97 8-0 -8 21 3-8 62 3-1 . Street NW, Washington, DC 20433, USA; fax: 20 2-5 2 2-2 422; e-mail: pubrights@worldbank.org. ISBN: 97 8-0 -8 21 3-8 62 3-1 eISBN: 97 8-0 -8 21 3-8 64 0-8 DOI: 10.1596/97 8-0 -8 21 3-8 62 3-1 Cover photo: copyright. Authorized 62259 From Farm to Firm From Farm to Firm Rural-Urban Transition in Developing Countries Nora Dudwick, Katy Hull, Roy Katayama, Forhad Shilpi, and Kenneth Simler © 2011 The International