Chapter Urbanization and Rural-Urban Migration: Theory and Policy Copyright © 2009 Pearson Addison-Wesley All rights reserved Urbanization and Development • Economic development causes urbanization • There is a positive correlation with economic development and urban population growth Copyright © 2009 Pearson AddisonWesley All rights reserved 7-2 Urbanization and Development Copyright © 2009 Pearson AddisonWesley All rights reserved 7-3 Urbanization Across Time and Income Copyright © 2009 Pearson AddisonWesley All rights reserved 7-4 Urbanization Trend World urban population distribution (in billions) 2000 2025 World 3.2 5.1 MDCs 1.0 (31%) 1.1 (22%) LDCs 2.2 (69%) 4.0 (78%) Copyright © 2009 Pearson AddisonWesley All rights reserved 7-5 Distribution of Urban Population Urban population shares of Asia and Africa are expected to rise at the expense of Latin America: 2000 Africa 18% 2025 20% Latin America 22% 15% Asia 60% 65% Copyright © 2009 Pearson AddisonWesley All rights reserved 7-6 Urbanization in the World Copyright © 2009 Pearson AddisonWesley All rights reserved 7-7 Projected Urban and Rural Population MDCs and LDCs, 1950-2030 Copyright © 2009 Pearson AddisonWesley All rights reserved 7-8 Most Populated Cities • Of the 15 largest cities, are in MDCs (LA, NY, Tokyo, and Osaka) and 11 are in LDCs • By 2015, the ranking of these largest cities will change in favor of the LDCs (e.g., NY falls from no to 11) Copyright © 2009 Pearson AddisonWesley All rights reserved 7-9 Largest Cities in the World Copyright © 2009 Pearson AddisonWesley All rights reserved 7-10 Developing Urban Informal Sector Advantages of investment in urban “informal” sector • Contributes to economic growth • Requires small capital investment • Requires low cost of training and education • Supplies semi-skilled labor to industry © 2009 Pearson Addison•Copyright Uses labor-intensive technology to create jobs Wesley All rights reserved 7-24 Developing Urban Informal Sector Disadvantages of investment in the urban “informal” sector • Induces R-U migration • Exerts pressure on urban infrastructure • Adds to pollution, congestion, and crime Copyright © 2009 Pearson AddisonWesley All rights reserved 7-25 Women in U-Informal Sector • Represent the bulk of the informal sector labor supply • Earn low wages in unstable jobs with no benefits (e.g., housekeeping) • Run micro-enterprises (e.g., home-made foodstuffs and handicrafts) • Engage in illegal activities (e.g., prostitution) Copyright © 2009 Pearson AddisonWesley All rights reserved 7-26 Urban Unemployment • Urban open-unemployment is in double-digits in many LDCs • The problem is much more serious because – Discouraged workers are excluded – Underemployment is not measured Copyright © 2009 Pearson AddisonWesley All rights reserved 7-27 Urban Unemployment Copyright © 2009 Pearson AddisonWesley All rights reserved 7-28 Todaro’s R-U Migration Model • Factors affecting migration decision – Expected urban income – Probability of finding an urban job – Cost of living in urban areas • Decision criterion: – Migration will take place if the present value of “expected” benefits exceed costs Copyright © 2009 Pearson AddisonWesley All rights reserved 7-29 Todaro’s R-U Migration Model Benefits from migration: • Higher urban wage • Enjoyment from urban entertainment Copyright © 2009 Pearson AddisonWesley All rights reserved 7-30 Todaro’s R-U Migration Model Costs of migration: • Transportation cost • Opportunity cost of being unemployed • Greater living expenses • Psychic cost of being away from home and family Copyright © 2009 Pearson AddisonWesley All rights reserved 7-31 Todaro’s R-U Migration Model Non-economic factors inducing migration: • Distance: the farther the distance, the larger is the transportation cost • Relatives living in urban areas helping reduce living expenses Copyright © 2009 Pearson AddisonWesley All rights reserved 7-32 Todaro’s R-U Migration Model Non-economic factors inducing migration: • Information flow about job openings in the “informal” sector • City lights: movie theaters, restaurants, amusement parks, etc Copyright © 2009 Pearson AddisonWesley All rights reserved 7-33 Todaro’s Migration Decision Tree Copyright © 2009 Pearson AddisonWesley All rights reserved 7-34 Wage Differentials & Employment Agricultural Wage Rate A Manufacturing Wage Rate At WM, OMLM is urban employment and OALA is rural employment LALM is the “migrant pool: Those who are either unemployed or engaged in low-skilled activities in informal sector M q’ WM WA q W*A E W*M M’ W**A OA LA A’ L*A=L*M Copyright © 2009 Pearson AddisonWesley All rights reserved LM OM 7-35 Policies Inducing R-U Migration • Neglect of agriculture: industrialization at the expense of agricultural development • Urban bias development strategies: investment in urban industrial development • Job creation in urban areas by government and manufacturing and services industries Copyright © 2009 Pearson AddisonWesley All rights reserved 7-36 Policies Inducing R-U Migration • Educational opportunities in urban areas: U brain drain R- • Cash and in-kind subsidies to government employees and factory workers Copyright © 2009 Pearson AddisonWesley All rights reserved 7-37 Policies Reducing R-U Migration • Eradicate poverty and reduce population growth • Promote rural and agricultural development • Create jobs in rural areas: expand small-scale, laborintensive industries • Eliminate factor-price distortions and adopt “appropriate” production technologies • Modify direct link between education and employment Copyright © 2009 Pearson AddisonWesley All rights reserved 7-38 ...Urbanization and Development • Economic development causes urbanization • There is a positive correlation with economic development and urban population growth Copyright © 2009 Pearson AddisonWesley All... move to nearby towns and large cities, and especially the capital city • They reside in slums and shanty towns where low cost housing is available Copyright © 2009 Pearson AddisonWesley All rights... construction of slumps and shanty towns that house a large percentage of urban population Copyright © 2009 Pearson AddisonWesley All rights reserved 7-16 Extent of R-U Migration Copyright © 2009 Pearson