DP12566 Change in urban concentration and economic growth

Author(s): Susanne A. Frick, Andrés Rodríguez-Pose
Publication Date: January 2018
Keyword(s): agglomeration, Economic Growth, high-income countries, low-income countries, urban primacy
JEL(s): R11, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12566

The paper investigates (1) the evolution of urban concentration from 1985 to 2010 in 68 countries around the world and (2) the extent to which the degree of urban concentration affects national economic growth. It aims to overcome the limitations of existing empirical literature by building a new urban population dataset that allows the construction of a set of Herfindahl-Hirschman-Indices which capture a country's urban structure in a more nuanced way than the indicators used hitherto. We find that, contrary to the general perception, urban concentration levels have on average decreased or remained stable (depending on indicator). However, these averages camouflage diverging trends across countries. The results of the econometric analysis suggest that there is no uniform relationship between urban concentration and economic growth. Urban concentration is beneficial for economic growth in high-income countries, while this effect does not hold for developing countries. The results differ from previous analyses that generally underscore the benefits of urban concentration at low levels of economic development. The results are robust to accounting for reverse causality through IV analysis, using exogenous geographic factors as instruments.