By 2050, the population of cities is projected to double from its current size, with nearly 70 percent of the global population residing in urban areas. For many, cities are beacons of hope that offer the prospect of a better job or education, but a new body of research is highlighting how the complex interactions between cities, their surrounding rural areas, and structural transformation can make or break cities as engines of prosperity.
“Poverty reduction is almost universally accompanied by a transition of the workforce from agriculture into higher-productivity jobs in the manufacturing and service sectors,” said Francisco Ferreira, Acting Director of Research at the World Bank. “Urbanization plays a central role in this process, but getting this right requires an understanding of how cities are shaped by investments in infrastructure as well as human capital.”
At a recent Policy Research Talk, World Bank Senior Economist Forhad Shilpi shared insights into how to manage this process based on more than a decade’s worth of research spanning many of the world’s poorest countries. According to Shilpi, all cities share certain common features: higher population density, a predominance of non-agricultural activities, a high degree of labor specialization, and a diverse set of economic activities.
But history demonstrates that the underlying economic structure of cities can vary significantly. Prior to the industrial revolution, cities like ancient Rome grew through concentrated trade and services. The growth of manufacturing in the 19th century produced the modern industrial town, exemplified by Manchester. More recently, knowledge-intensive industries have helped shape post-industrial cities like San Francisco.
According to research by Shilpi and her colleagues, cities in many developing countries still bear a greater resemblance to ancient Rome than to Manchester or San Francisco. In Nepal, for instance, Shilpi found that the size of manufacturing firms in cities was on average no larger than in rural areas and these firms employed no more skilled managerial workers than those in rural areas. Both of these characteristics point to an absence of the kind of high-productivity jobs that are associated with economic specialization.
Worryingly, this pattern applies more generally for cities across South Asia and to an even greater degree for many cities in Africa. According to a widely-cited study published in 2000, African countries are prone to urbanization without economic growth. More recent research has found that African cities are relatively closed to the world, with only half of economic activity taking place in sectors that produce tradable goods and services. Some cities have even been described as consumption cities that live off the proceeds of resource exports rather than more dynamic manufacturing and services sectors.
Despite this depressing portrait, Shilpi still offered her audience cause for optimism. In 1999, Shilpi’s native country of Bangladesh opened the World Bank-supported Jamuna Bridge, which crosses the Jamuna River and connects the rural and poorer northwest part of Bangladesh to the rest of the country. The nearly 5-kilometer bridge brought about a dramatic reduction in trade costs with travel time cut by at least four hours and freight costs reduced by 50 percent.
According to Shilpi and colleagues’ research, the greater integration of the northwest with the rest of Bangladesh following the opening of the Jamuna bridge transformed both rural and urban areas. In the northwest, population density increased and rice yields rose significantly. Manufacturing moved to urban areas, while the agricultural and services sectors generated more employment in rural areas.