DP7016 Urbanization and Structural Transformation

Author(s): Guy Michaels, Ferdinand Rauch, Stephen J. Redding
Publication Date: October 2008
Keyword(s): Gibrat's Law, Structural Transformation, Urbanization
JEL(s): E20, R11, R12
Programme Areas: Labour Economics, International Trade and Regional Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7016

This paper presents new evidence on urbanization using sub-county data for the United States from 1880-2000 and municipality data for Brazil from 1970-2000. We show that the two central stylized features of population growth for cities - Gibrat's Law and a stable population distribution - are strongly rejected when both rural and urban areas are considered. Population growth exhibits a U-shaped relationship with initial population density, and only becomes uncorrelated with initial population density at the high densities found in predominantly urban areas. We provide evidence that the explanation for these patterns lies in different employment growth dynamics in the agricultural and non-agricultural sectors and the process of structural transformation away from the agricultural sector.