Nancy Lozano Gracia & Evelyn Sánchez Hernández
Background
Cities are often seen as engines of economic growth, innovation, and cultural exchange. Currently, cities account for approximately 80% of GDP generated worldwide,[3] and in regions such as Europe and Central Asia, urban centers contributed roughly 70% of the total economic output and GDP growth of the regions’ countries in 2016.[4] Cities are unique environments where diverse populations and a larger availability of resources can lead to the creation of new ideas, businesses, and industries.
Per urban economics, three drivers make cities places where productivity, diversification, and economic growth interact closely.[5] First is "agglomeration economies," in which the high density and close spatial proximity of people, goods, and services brings diverse benefits, such as the more economical provision of basic services and infrastructure.[6] For firms, this proximity facilitates access to a large pool of workers and the sharing of suppliers. Second, cities generate higher productivity through a higher level of human capital. Cities attract diverse populations of talented and ambitious individuals with a variety of skills and perspectives, who are drawn to the opportunities of urban areas, including higher education, cultural institutions, and professional networks. These individuals learn and interact with each other, increasing the generation and diffusion of knowledge and innovation.[7] Finally, the larger and faster access to intermediate inputs (e.g., raw materials, semi-finished goods) in cities and larger consumer markets leads to an increase in productivity. For example, greater access to markets can make it easier for a firm to cover the fixed costs of setting up a new plant which, in turn, increases profits and productivity.[8]
These strengths and benefits in terms of human capital, density, and access make cities complex ecosystems, which are often highly interdependent and interconnected with other urban centers. Such interconnectedness also makes cities vulnerable to crises that start elsewhere, through trickle-down effects that can travel through the networks that connect cities.
Given this, what can policy makers do to reduce vulnerabilities or, more clearly, make cities more resilient to shocks? First, it is necessary to define resilience in the urban context as the ability of a city to resist, absorb, adjust to, and recover successfully from shocks or disturbances that disrupt its development path. A resilient city successfully maintains the continuity of services and functions throughout shocks, while protecting and enhancing people’s lives.[9] The recent COVID-19 pandemic is a reminder of how an unexpected crisis, such as a health crisis, can have significant and lasting economic impacts in cities. Before responding to the underlying question of how cities can become more resilient, we must assess how crises, whether they are produced by natural disasters and climate change, health emergencies, or economic shocks, affect cities through a range of different economic channels. These channels include:
1) Drastic changes in demand for goods and services. During crises, consumers may reduce their spending on non-essential goods and services, leading to businesses in cities experiencing decreased demand. For example, during the COVID-19 pandemic, consumers stayed home and avoided public places, dampening demand significantly. Google mobility data show that visits to workplaces in the United States were still down by 28% in August 2022 compared with the pre-pandemic period.[10] On the other hand, cities can experience shocks that lead to a drastic increase in the demand for goods and services. For example, when a city faces a large influx of migrants, demand for goods and services—such as housing or education—can increase dramatically. In Colombia, the costs of providing assistance and access to basic services to the influx of Venezuelan migrants peaked at 0.5% of GDP in 2019,[11] imposing high economic costs on welcoming cities, in particular Bogota, where around 20% of migrants concentrated.[12]
2) Supply chain disruptions. During natural disasters or health crises, disruptions in supply chains or damages to transportation infrastructure can impact the availability and cost of goods and services in cities. For instance, the COVID-19 pandemic disrupted global supply chains, causing shortages of essential goods such as medical supplies in cities like New York.[13] Similarly, natural disasters, like the 2011 tsunami in Japan, disrupted global supply chains, leading to an international shortage of electronic components and automobile parts.[14]
3) Price changes or increased costs. Crises can also lead to increased costs for businesses and households in cities, which can reduce their competitiveness or pressure the affordability of basic services. Recent increases in electricity prices in many European cities have limited the affordability of electricity for many households, pushed many others into energy poverty, and put at risk the competitiveness of businesses.[15]
4) Job losses and reduced wages. When a health crisis, natural hazard, or widespread violence or conflict occurs, businesses in cities may be forced to close or reduce their operations, leading to significant job losses or reductions in wages. In cities where informality is higher, income losses may be larger. Bouncing back from these shocks can take some time; for instance, by the end of 2022, while the U.S. as a whole had regained all the jobs lost during the early COVID-19 pandemic, New York City was still “missing” 176,000 jobs—mainly in services, representing the slowest recovery of any major metropolitan area in the US.[16]
5) Decreased tax revenue. As businesses are forced to close, and workers cannot work, cities may experience reduced tax revenue as businesses and consumers reduce their spending or are unable to cover service fees. This negatively impacts the government's availability to provide essential services and invest in infrastructure. At the start of the COVID-19 crisis in 2020, it was estimated that the revenues of urban municipalities in Morocco decreased by 25%, while recurrent expenditures increased by 10%.[17]
Such economic impacts can have a long-lasting effect on cities’ development. For this reason, building cities' resilience to shocks matters—not just to limit the immediate effects of any given crisis, but also to positively influence a city’s long-term future.[18] In a recent work, Martin and Gardiner (2019) examine the resilience of 85 British cities to the last four recessions (1971 to 2015),[19] analyzing differences in the cities’ resilience to shocks and how effectively they recovered from disruptions. The study highlights a number of factors that might positively influence a city’s ability to respond to shocks, which are further supported by the literature on regional and city economic growth and development. These include the degree to which a city's economic structure is diversified, its export orientation, the level of competitiveness of its firms, the presence of high-skilled human capital and workers, access to business finance, and the effectiveness of the institutional and economic governance arrangements.[20]
In its framework for assessing and monitoring urban resilience, the OECD (2018)[21] presaged Martin and Gardiner’s work in considering four dimensions of urban resilience. First, the economic dimension, which calls for industry diversification and the promotion of innovation. Second, the social dimension, in which society is inclusive and cohesive, citizen networks are active, and people have access to opportunities. The environmental dimension focuses on ensuring sustainable urban development, the availability of reliable infrastructure, and the responsible management of natural resources. The final dimension is governance, which includes a long-term governance vision, sufficient public resources, collaboration between multiple levels of government, and a participatory government. Based on this literature, we can summarize four key policies to positively influence a city’s ability to respond to shocks:
These four policies are described in further detail below.
1) Promote a diverse local economy. A diverse economy can help to cushion a city from the impacts of economic shocks, as some industries may be more affected than others. A 2020 study by Coulson et al. in the U.S. shows that more diverse economic regions dampen both the magnitude and the duration of the effects of a natural disaster on local real estate values.[22] To diversify their economies, cities can start by creating a supportive business environment. Specifically, this requires streamlining regulatory processes, reducing bureaucracy, and providing incentives for new and growing businesses. For instance, in 2012, Chicago reduced the number of license types by 60%, from 117 to 49, through consolidation and the deletion of outdated licenses. The city also set up a one-stop shop to eliminate the need for some small business owners to visit multiple city departments or fill out duplicative forms to conduct business. A quarter of walk-in visitors to the center were “in and out” in fewer than 10 minutes, and, on average, new business licenses were issued in under 20 days.[23]
City governments can also promote entrepreneurship and small business development. These services can include access to financing and the establishment of business incubators and mentorship programs. For instance, the city of Bilbao created Big Bilbao, an entrepreneurship center that offers individualized support for business creation, including workshops, working space, and customized advice in the development of business plans. Since 2017, Big Bilbao has supported the creation of 509 businesses and advised 1,300 business projects.[24]
2) Focus on people. Cities that invest in innovation and human capital and focus on reducing inequality are generally more resilient to economic shocks, as they are better equipped to adapt to changing economic conditions and ready to take advantage of new opportunities. Investment in education, research, development, and entrepreneurship can help to foster a culture of innovation and create a more skilled and adaptable workforce. For instance, Changsha City, in China, hosts a world-class construction machinery industry. It has nurtured this industry by increasing human capital through high-quality training and talent recruitment (e.g., by stimulating competition between vocational schools), tax credits and funding for firms that send workers to training programs or fairs, and investment in talent attraction programs. In recent years, Changsha has attracted professionals through national and municipal programs. As a result, facilitating firms and city firms have stated that skilled labor has been easy to find.[25]
3) Build strong social networks and communities. Cities with strong citizen networks and community resilience can mobilize resources and enable citizens to support one another during times of hardship. These networks help provide a safety net for vulnerable populations and promote a sense of collective responsibility and solidarity. Good social and citizen networks are interdependent with physical networks. This means that investing in public spaces, resilient public transportation, and infrastructure can help better integrate and facilitate social interaction across the city. Providing opportunities for citizens to engage in local decision-making processes can also help create a sense of community and lead to reduced inequalities.
In 2011, the Mayor's Office of Barranquilla, Colombia, launched the initiative Todos al Parque (All to the Park) as an effort to rebuild public trust in local institutions and public safety by using a participatory design process to guide investments in parks and public green spaces across the city. As a result, 93% of households in the city are within an 8-minute walk of a green public space, and parks serve as safe public places and revitalized community hubs.[26] Likewise, in Mexico City, as a culture of preparedness spread following the 1985 earthquake, citizens established neighborhood committees for disaster management, in which specific roles and tasks are assigned to members of the community in case of an earthquake.
4) Establish mechanisms to adapt and respond to shocks. Cities with strong and effective institutional arrangements, such as good urban and land planning systems, sound fiscal management, and effective emergency management systems, are generally better equipped to respond to shocks. Some examples of these elements include:
o Establish institutions and regulations for effective response. These enable cities to adjust their physical infrastructure, services, and built environment to meet changing needs. For instance, in 2010, Youngstown, Ohio—experiencing a population decline of a total 60% (100,000 inhabitants) between 1960 to 2010—implemented one of the first urban plans focused on “smart decline.”[27] The plan prioritized the provision of services to neighborhoods with the highest population densities, while converting vacant areas in declining neighborhoods into green spaces in declining neighborhoods, with the idea to make the city more livable and greener. Similarly, in Toyama, Japan, which faced a declining, aging population and low-density urban areas, the government developed a long-term strategy to revitalize public transportation, which encouraged residents and businesses to relocate along the new light rail lines and revitalized the city center.[28]
o Use information to improve service provision and infrastructure use. Information is an essential tool for cities to improve awareness, ensure effective and timely responses to crises, and optimize resources to make cities more livable. In Singapore, the Electronic Road Pricing (ERP) system automatically charges motorists for using certain roads at times when these roads are more prone to congestion. In the future, it is expected that real-time alerts will notify drivers about congestion and suggest alternate routes.
o Promote the physical adaptability of public spaces. This is fundamental to prevent or mitigate the effects of disasters. For instance, to respond to the effect of flooding due to heavy rains, the Brazilian city of Rio de Janeiro started construction of a diversion tunnel for the Joana River and the revitalization of the Bandeira Park, which now serves as a natural flood barrier as well as a large, welcoming public space with multiple public facilities.[29]
o Strengthen fiscal resilience. This is fundamental for cities to have sufficient economic resources and fiscal wards to respond to crises or disasters. Queensland, Australia, which has been hit hard by natural disasters, established an insurance fund—the Queensland Government Insurance Fund[30]—to cover physical assets and liabilities of government entities against natural disasters. This Fund maintains a centralized, geo-referenced database for all state government assets, updated annually.
To summarize, the dynamic and interrelated nature of cities makes them vulnerable to a set of diverse shocks. Cities that invest in and implement policies that build resilience are better equipped to cope with shocks and adapt to changing internal conditions, such as population changes, or external factors, like pandemics, global economic crises, and climate change-induced disasters. As described above, cities can transform themselves gradually by unlocking their economic potential, investing in human capital, and expanding physical and social resilience through adaptable infrastructure, risk-sensitive land use planning, and cohesive social policies. Building resilient cities also requires establishing government mechanisms and institutional arrangements that help facilitate a coordinated and effective response to economic shocks, thus helping to mitigate their immediate and long-term impacts.
[1] 2022. World Bank. Navigating multiple crises, staying the course on long-term development: The World Bank group’s response to the crises affecting developing countries.
[2] 2021. World Bank and IMF. From COVID-19 Crisis Response to Resilient Recovery - Saving Lives and Livelihoods while Supporting Green, Resilient and Inclusive Development (GRID).
[3] Inclusive Cities, https://www.worldbank.org/en/topic/inclusive-cities
[4] Restrepo Cadavid,Paula; Cineas,Grace; Quintero, Luis E.; Zhukova,Sofia. Cities in Europe and Central Asia : a shifting story of urban growth and decline (English). Washington, D.C.: World Bank Group.
[5] Duranton, G., and D. Puga. 2004. “Micro-foundations of Urban Agglomeration Economies.” In Handbook of Regional and Urban Economics. Volume 4, edited by J. V. Henderson and J.-F. Thisse, 2063–117. Amsterdam: North-Holland.
[6] Duranton, Gilles, and Diego Puga. 2020. "The Economics of Urban Density." Journal of Economic Perspectives, 34 (3): 3-26.
[7] See World Bank (2009) Reshaping Economic Geography and Grover, and Arti Grover, Somik V. Lall, and William F. Maloney (2022) Place, Productivity, and Prosperity: Revisiting Spatially Targeted Policies for Regional Development.
[8] Fujita, M., P. Krugman, and A. J. Venables. 1999. The Spatial Economy: Cities, Regions, and International Trade. Cambridge MA: MIT Press.
[9] Definition from the European Union Commission, Resilient City platform (https://urban.jrc.ec.europa.eu/thefutureofcities/the-resilien-city#the-chapter), in accordance with the World Bank definition of urban resilience, described in World Bank (2017). Towards urban resilience: an evaluation of the World Bank Group’s evolving approach (2007-2017) (Approach Paper) (English). Independent Evaluation Group (IEG).
[10] Google COVID-19 Community Mobility Report. August 2022.
[11] Jorge Alvarez, Marco Arena, Alain Brousseau, Hamid Faruqee, Emilio Fernandez-Corugedo, Jaime Guajardo, Gerardo Peraza, and Juan Yépez Albornoz (2022) “Regional spillovers from the Venezuelan crisis: migration flows and their impact on Latin America and the Caribbean” Washington, DC : International Monetary Fund, 2022. December 2022.
[12] Statista data, number of migrants from Venezuela residing in Colombia in 2022, by department. https://www.statista.com/statistics/819401/entry-points-migration-flow-venezuela-colombia/. Last accessed on June 12, 2023.
[13] Andrew Jacobs. “Grave Shortages of Protective Gear Flare Again as Covid Cases Surge," New York Times, July 8, 2020.
[14] Toyota's plants in China, Europe, and North America ceased production or went for a short-time working, and other car companies, such as Peugeot-Citroën, cut production by 40-70% at most of its European plants due to the shortage of engines imported from Japan. Malcolm Wheatley and Malcolm Ramsay. “After the disaster in Japan”, Automotive Logistics. July 1, 2011.
[15] Guan, Y., Yan, J., Shan, Y. et al. The burden of the global energy price crisis on households. Nat Energy 8, 304–316 (2023). https://doi.org/10.1038/s41560-023-01209-8
[16] Nicole Hong and Matthew Haag. "In New York City, Pandemic Job Losses Linger," New York Times, September 14, 2022.
[17] Juan Chacaltana, Julio Perez and Sergio Quispe (2021). Technical Note: Impact and response of the Moroccan municipalities in the context of the COVID-19 crisis”. World Bank, 2021.
[18] Ron Martin & Ben Gardiner (2019). The resilience of cities to economic shocks: A tale of four recessions (and the challenge of Brexit). Papers in Regional Science, Volume 98, Issue 4. August 2019.
[19] Ron Martin & Ben Gardiner (2019). The resilience of cities to economic shocks: A tale of four recessions (and the challenge of Brexit). Papers in Regional Science, Volume 98, Issue 4. August 2019.
[20] Ron Martin & Ben Gardiner (2019). The resilience of cities to economic shocks: A tale of four recessions (and the challenge of Brexit). Papers in Regional Science, Volume 98, Issue 4. August 2019.
[21] Figueiredo L., Honiden T., Schumann A. 2018. Indicators for Resilient Cities. OECD Regional Development Papepers, 2018/02, OECD. https://www.oecd-ilibrary.org/deliver/6f1f6065-en.pdf?itemId=%2Fcontent%2Fpaper%2F6f1f6065-en&mimeType=pdf
[22] N. Edward Coulson, Shawn J. McCoy, Ian K. McDonough (2020), “Economic diversification and the resiliency hypothesis: Evidence from the impact of natural disasters on regional housing values," Regional Science and Urban Economics, Volume 85, 103581, ISSN 0166-0462, https://doi.org/10.1016/j.regsciurbeco.2020.103581
[23] Stephen Goldsmith and Michael Hendrix. “Unclogging the Permit Pipeline," Urban Policy 2018. Manhattan Institute.
[24] https://www.bilbaoekintza.eus/emprende/conoce-big-bilbao-espacio-para-emprendimiento-de-bilbao-ekintza
[25] Joe Kulenovic and Alexandra Cech (2015). Six case studies of economically successful cities. Competitive cities for jobs and growth, Companion Paper 3.
[26] World Resource Institute, Prize for Cities: Todos al Parque. 2021-2022 Grand Prize Winner.
[27] Alexia Fernández Campbell. “The city that embraced its decline”. July 6, 2017. The Atlantic. Last accessed October 3, 2023.
[28] Restrepo Cadavid, Paula; Cineas, Grace; Quintero, Luis E.; Zhukova, Sofia. Cities in Europe and Central Asia: a shifting story of urban growth and decline (English). Washington, D.C.: World Bank Group.
[29] C40 (2015). Cities100: Rio De Janeiro - Reservoirs and River Diversion Prevent Flooding
[30]https://qgif.qld.gov.au/