the economic role of cities

8/12/2019 The Economic Role of Cities

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United Nations Human Settlements ProgrammeNairobi 2011


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Te Global Urban Economic Dialogue SeriesTe Economic Role of Cities

First published in Nairobi in 2011 by UN-HABIA.Copyright United Nations Human Settlements Programme 2011

HS/067/11EISBN (Series): 978-92-1-132027-5ISBN(Volume): 978-92-1-132361-0

Disclaimer

Te designations employed and the presentation of the material in this publication do notimply the expression of any opinion whatsoever on the part of the Secretariat of the UnitedNations concerning the legal status of any country, territory, city or area or of its authorities, orconcerning the delimitation of its frontiers of boundaries.

Views expressed in this publication do not necessarily reflect those of the United Nations HumanSettlements Programme, the United Nations, or its Member States.

Excerpts may be reproduced without authorization, on condition that the source is indicated.

Acknowledgements:

Director: Oyebanji Oyeyinka

Chief Editor and Manager: Xing Quan Zhang

Principal Author: Xing Quan Zhang

English Editor: om Osanjo

Design and Layout: Victor Mgendi


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Urbanization isone of the mostpowerful, irreversibleforces in the world. Itis estimated that 93percent of the futureurban population

growth will occur inthe cities of Asia and

Africa, and to a lesserextent, Latin America and the Caribbean.

We live in a new urban era with most ofhumanity now living in towns and cities.

Global poverty is moving into cities, mostlyin developing countries, in a process we call

the urbanisation of poverty.Te worlds slums are growing and growing

as are the global urban populations. Indeed,this is one of the greatest challenges we face inthe new millennium.

Te persistent problems of poverty andslums are in large part due to weak urbaneconomies. Urban economic development isfundamental to UN-HABIAs mandate.

Cities act as engines of national economicdevelopment. Strong urban economiesare essential for poverty reduction and theprovision of adequate housing, infrastructure,education, health, safety, and basic services.

Te Global Urban Economic Dialogue seriespresented here is a platform for all sectorsof the society to address urban economicdevelopment and particularly its contributionto addressing housing issues. Tis work carriesmany new ideas, solutions and innovativebest practices from some of the worlds

leading urban thinkers and practitionersfrom international organisations, nationalgovernments, local authorities, the privatesector, and civil society.

Tis series also gives us an interestinginsight and deeper understanding of the widerange of urban economic development andhuman settlements development issues. It willserve UN member States well in their quest

for better policies and strategies to addressincreasing global challenges in these areas

Joan ClosUnder-Secretary-General, United Nations

Executive Director, UN-HABIA

FOREWORD


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CONTENTS

FOREWORD III

CONTENTS IV

LISTS OF FIGURES V

INTRODUCTION 1

THE ROLE OF CITIES 3

Advantages of Cities 3Economies of Agglomeration and Economies of Urbanization 3

Higher Productivity in Cities 8

Variation in Productivity within Country 10

Variation in Growth between Cities 10

Greater Contribution of Cities to National Economy in

Developing Countries 10

Higher Urban Productivity in Developed Countries than in

Developing Countries 11

Larger Gap and Inequality in Productivity in Developing Countries 11Higher Productivity and Under-Resources in Cities 12

Gap in Income and Benefits between Cities and Rural Areas 13

Cities as Poverty Reduction Mechanisms 13

Wealth Generation in Cities 16

Rapid Wealth Accumulation in Cities in Emerging Economies 17

Capturing Land Value in Cities 19

Assets and Competitiveness of Cities 21

THE ROLE OF GLOBAL CITIES 25Globalisation and Global Cities 26

The Financial Role of Global Cities 26

The Rank of Global Cities 27

THE ROLE OF CITY REGIONS 33City Regions as Engines of Global Economy 33

City Regions as Innovative Systems 37

Mega City Regions 37

CONCLUSIONS 41REFERENCES 43


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LIST OF FIGURES

Table 1: Mechanisms to Capture Land Value 20

Table 2: Ratio of Land Sale Income to Local Government

Revenue in China, 2001-2011 20

Table 3: The Top 40 Global Financial Cities 27Table 4: The Worlds Top 40 Global Cities 28

Table 5: The Worlds Top 20 Global Cities based on Categories

of Activities 29

Table 6: The Economic and Creative Power of Mega City Regions

Based on Population Rankings 38

Table 7: The Economic and Creative Power of Mega City

Regions based on Economic Size 39


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INTRODUCTION

Te world has reached a turning point in 2008for the first time in history, more than half itshuman population, 3.3 billion people, livein urban areas. Te worlds urban populationgrew from 220 million to 2.8 billion in the20th century. Te next few decades will see anunprecedented scale of urban growth. By 2030,

this is expected to expand to about 5 billion.Such rapid urban expansion will be particularlynotable in Africa and Asia where the urbanpopulation will double between 2000 and2030. By 2030, the towns and cities of thedeveloping world will make up 81 per cent ofurban humanity1.

Urbanization has been an essential part ofmost nations development towards a stronger

and more stable economy. Te countries inthe South that urbanized most rapidly in thelast 1020 years are generally those with themost rapid economic growth. Most of the

worlds largest cities are in the worlds largesteconomies, which is further evidence of thislink between economic wealth and cities. Citiesand towns also have important roles in socialtransformation. Tey are centers of artistic,scientific and technological innovations, of

culture and education. Te history of cities andtowns is inexorably linked to that of civilizationin general (the Habitat Agenda).

Cities play an important role in economicdevelopment. Cities provide economiesof scale, agglomeration, and localisation;they provide efficient infrastructure andservices through density and concentrationin transportation, communications, power,

human interactions, water and sanitationservices. Tey attract talents and skilled laborthat allow specialization in knowledge, skills,

and management capabilities possible. Tey canachieve the economies of scale, agglomerationand urbanization2.

Economic growth and urbanization areoften positively linked. Cities are the drivingforce for economic development. Economic

growth also stimulates urbanization. Suchpositive relationship is clear in many countries.However, urbanization can also occur in theabsence of economic growth. For example,in some Sub-Saharan African countries,urbanization has occurred to a large extentindependent of economic development3.Urbanization processes and patterns are alsodifferentiated by different institutional settingsand policies from country to country and

region to region.

Despite the growing importance of citiesin world affairs and national economicdevelopment, the position of the city is regardedas marginal to current debates and developmentcontroversies4. Te negative impact of over-urbanization is often over-emphasized such asthe concentration of poverty, slums and socialdisruption in developing cities. However, cities

do represent the best hope for growth andopportunities. Tis paper illustrates the centralrole of cities as engines of national economicdevelopment.


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Advantages of Cities

Cities provide large efficiency benefits, whichresult in unprecedented gains in productivityand competitiveness. Cities are the centresof knowledge, innovation and specializationof production and services. Cities facilitate

creative thinking and innovation. Highconcentration of people in cities generatesmore opportunities for interaction andcommunication, promotes creative thinking,creates knowledge spillovers and develops newideas and technologies. Cities provide moreopportunities for learning and sharing. Citiesfacilitate trade and commerce by providingsuper market places. Cities serve as productionand services centres because the production

of many goods and services is more efficientin a high-density urban environment. Citiesprovide consumers with more choices of goodsand services. Cities are the agents of social,cultural, economic, technologic and politicalchanges and advancement.

Economies of Agglomerationand Economies of Urbanization

Te advantages of urbanization economiescan be reflected in large functional urbanregions, in particular in metropolitan regions.Such regions can embrace diversity and

accommodate a variety of specializationsinside the region. In a sense a metropolitanregion is a high degree self-contained universethat generates a large share of its own demand.Metropolitan regions are different fromother regions by being larger and capable ofaccording more diversity. Firms select locations

where co-location of agents, chain businessesand the formation of clusters that benefit fromfrequent contacts, where shopkeepers benefit

from consumers complementary shoppingbehaviors5. Te economies of agglomerationand urbanization point to the phenomena

where large urban regions are more productive.Countries with high levels of urbanizationtend to contribute to the strongest urban GDPgrowth. Figure 1 projects the urban GDPgrowth in 2025. China, United States, India,Brazil and Mexico will have highest urbanGDP growth by 2025. China will contributeto 31.2 percent of the global growth; UnitedStates, 10.7 percent; India, 3.7 percent; Brazil,2.8 percent; and Mexico, 1.6 percent.

THE ROLE OF CITIES


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THE ECONOMIC ROLE OF CITIES

Economies of Agglomeration

Agglomeration economies are the positivebenefits of economic activities that firmsobtain from being located in close proximity

with those engaged in similar businesses orinterests (i.e. agglomerating). It refers to thereduction of business cost as more efficiencyand productivity occur because of positive

technological and pecuniary externalitiesarising from the interaction of economicagents located in close spatial proximity due toeconomies of scale and knowledge spillovers.Certain degree of density is necessary toefficiently share some basic infrastructure andto reduce the user unit costs, particularly forspecialized inputs of production includinglabor skills. Proximity may also facilitate thesharing of new ideas and dissemination of

production techniques. Certain spillovers may

only be available in large cities such as thosecaused by diversity or access to internationalhuman capital. Te incubation functionscome more naturally to agglomerative cities.Diversity and specialization of resources andsupplier functions are the major externalitiesof agglomeration6.

Te logic emphasizing the role of diversityand specialization in enhancing economicefficiency suggests that national growth isenhanced by the combined forces of theheterogeneous features of modern cities and thelevel of specialization7. Tere are two types ofeconomies which can be described as externaleconomies of scale: localization economiesand urbanization economies. Economiesof localization arise from many different

firms in the same industry located close to

FIGURE 1: Countries with the strongest urban GDP growth tend to have largepopulation and high levels of urbanization

Source: McKinsey Global Institute 2011


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THE ROLE OF CITIES

each other. Te main benefits are: 1) labourpooling allows firms to have access to a varietyof skilled labour forces; 2) the developmentof industries due to the increasing return toscale in intermediate inputs of production;

3) the enhanced interaction, exchanges ofideas, supplies, and labour market due to theproximity8.

Economies of urbanization arise ifeconomic activities benefit mainly fromdiversification of industries and/ or co-existence of different industries. Division oflabour (i.e. specialization of functions betweenfirms) can increase with the scale of the city.

Te larger the city, the more specializedoperations and services can be formed.Providers of specialized services in large citiescan achieve the economies of scale. But citiescan not grow unlimited. If cities grow too big,other negative externalities increase such ascongestion and pollution9.

City Clusters

Te economies of agglomeration underlinethe laws and trends that determine thenumber, size, distribution, cluster or density ofurban settlements. Human activities producetwo main types of goods and services. One islower order goods and services such as dailygoods from grocery stores. Te other is higherorder goods and services such as sophisticatedappliances from specialty stores. People are

willing to travel only short distances to get

certain lower order goods and services andto go further to get higher order goods andservices. Te people consumption preferencesand behavior lead to the formation of urbansystems comprising of urban centres of varioussizes. Big cities offer a greater variety of higherorder goods and services. Tere are few largecities (the sentence is hanging). Tere are

more small towns and villages offering lowerorder goods and services. Te emergence ofcentral cities or places results in the clusteringof a hierarchy of cities10.

Specific types of industries and businessestend to cluster together to achieve maximumcompetitiveness. Tey form vertical andhorizontal linkages with other industriesthat supply their inputs or market and selltheir products or services. Te formationof city clusters depends on a number oflocal factors such as topography, climate,transportation, technological facilities, andthe personal preferences of consumers. In the

long historical development, transportationand infrastructure played an important rolein leading to the agglomeration of enterprisesand business activities. Firms tend to aggregatein development nodes that were in turn linkedto other nodes to form clusters11.

For example, 22 clusters can be identified inChina where the clusters vary widely in their

wealth; per capita GDP in the cluster around

Shanghai is triple that of the inland clusterof the Changjiang River mid-lower, offeringvery different growth opportunities betweenthe two. And market dynamics and consumerattitudes range widely, too. Shanghai haseight times the density of hypermarkets thatChangjiang River mid-lower has; consumersin the Liao central-south cluster have threetimes the price sensitivity of their counterpartsin Changjiang River mid-lower, and the

impact of word of mouth on buying behavioris five times as high (Figure 2).


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FIGURE 3: City Clusters in India


FIGURE 2:City Clusters in China



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THE ROLE OF CITIES

India, given its relatively early stage ofurbanization, is an economy where 14 majorclusters of cities capture significant shares ofthe countrys population and GDP. Tese 14urban agglomerations would cover 17 percent

of the countrys total population and 40percent of Indias total GDP in 2030 (Figure3).

Tree mechanisms enhance productivity12:

1. An entire industry may benefit fromagglomeration, since the size of theagglomeration provides sufficient demandto allow individual firms with internalscale economies to develop differentiatedproducts.

2. An individual firm may benefit from theoption to buy more specialized inputs atlower transaction costs from differentiatedinput suppliers within the region.

3. An individual firm may benefit fromknowledge flows outside the market(spillovers) that arise from proximity

within an agglomeration.

Agglomeration can generate positiveexternalities. Te agglomeration externalitiesare the key force behind clustering. Urbanexternalities involve diversity of suppliers andinformation spillovers about market conditionsand technology. Clusters grow because theyfacilitate peoples interaction and learningfrom each other. Te proximity enhances the

interaction. Te second type of externalitiescomes from the industry diversity, particularlythe diversity on innovation and diffusion oftechnologies in a city or region, which is themain factor driving regional and nationaleconomic growth. Cities pay an importantrole of external human capital for economicactivity and the growth of knowledge13.

Urbanization economies are those economiesof agglomeration, which accrue to firms acrossdifferent sectors. People who work in sectorsthat feature localization economies will require

legal, real estate, retail, educational, health care,transportation, communication, and leisureservices. While firms themselves may requireservices such as design, marketing, advertising,catering, packaging, transportation, real estate,

communication, and security.

Gains from urbanization to the economystem from several factors14:

Tere are efficiency gains from havingfirms located in the same place. Tevariety of goods offered is greater,search and travel costs are reduced, andcompetition is stronger. Tis is what

we call economies of scale. A goodexample is a shopping mall which leads toefficiency gains in retail.

Firms want to be close to their customers,whether they be firms in the sameindustry or a mass of consumers. Tiscreates a powerful force for clusteringof firms in related industries in cities.Firms are then able to learn about andimitate the practices of other firms in

the industry. Good examples include theclustering of software firms in Bangaloreand car manufacturers in Detroit.

Cities are also centers of innovation in theproduction of ideas, knowledge, and theircommercialization. People can absorbknowledge from contact with more skilledindividuals in their own industry. Largecities therefore facilitate learning, and are

particularly attractive for highly-talentedyoung people, e.g., London.

Other benefits of moving to cities includepolitical access, enhanced by proximity tothe administrative and governance center, as

well as the anonymity that city life brings.Te latter is especially the case in India whereurbanization can often mean freedom fromthe oppressive caste system of the villages.


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Higher Productivity in Cities

Tese advantages make cities moreproductive than in rural areas. No countrieshave achieved sustained economic growth

without the growth of cities. Cities are thedriving force of national economies. Cities

generate disproportionately higher rate ofeconomic growth than in rural areas. Teygenerate more than 80 percent of global GDPtoday. Of which the top 100 largest citiescould account for 35 percent of global GDP;the top 600 cities are expected to generate62 percent of global GDP; the top 1,000cities could account for 68 percent of globalGDP and the top 2,000 could account for 75percent of global GDP (Figure 4).

In developed countries, statistics show thatcities have higher productivity per capita thanrural areas. For example, okyo with 26.8percent of the national population, produced34.1 percent of national GDP. London has20.3 percent of population and accounts for25.4 percent of GDP. Paris, with 16.2 percent

of national population, accounts for 26.5percent of national GDP. Dublin with 25.9percent of population generates 32.8 percentof GDP. Auckland, Vienna and Helsinkigenerate about 50 percent higher of GDPthan their respective population share (Figure5).

Shanghai drives the economic development of the Changjiang River Delta region

Photo : UN-HABITAT/X. Q. Zhang


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THE ROLE OF CITIES


FIGURE 4: Economic Contributions of Top 2,000 Cities

FIGURE 5: Share of National Population and GDP in Key Cities in DevelopedCountries

Source: Based on data of PriceWaterHouse Coopers; International Monetary Fund; and National Statistics

34.1%

20.3%

16.2%

7.2%

6.1%

15.3%

10.6%

15.3%

25.9%

31.8%

24.4%

21%21.1%

1.9%

17.2%

25.4%26.5%

19.5%

16.5%

2.5%

12.7%

32.8%

47.5%

36.9%

25.7%

16.5%

30.1%

8%9.7%


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Variation in Productivity withinCountry

Cities are normally more productive thantheir rural areas in their own countries. Te

productivity and income in cities varies withincountries. For example, the average incomeper capita in 2007 in the San Franciscometropolitan area was above USD 60,000 ,

while the average income per capita was underUSD 20,000 in Browsville, exas. Per capitagross product in New York is more than threetimes higher than in El Paso15.

Variation in Growth betweenCities

Economic growth drives the populationgrowth. Dan Diegos population grew by 9times between 1950 and 2000, while thetotal US population grew less than 2 times.Zhenzhen saw it population multiply by aphenomenal 20 times in 25 years time. Surat,in western India has also grown by many times

the national average16.

Why do some cities grow faster? In general,the growth drivers of cities come from twomain sources. Firstly, it is from the naturaladvantages of cities such as being on a coast,

waterway, or having a favorable climate. Manyglobal cities are located at the coastal areassuch as New York, Shanghai, Hong Kong,

Amsterdam, Boston, Singapore, Barcelona,

Mumbai, Lagos, Copenhagen and Lisbon.Secondly, being the hub of industrial activity,or trade and transport etc. Tis includesknowledge centres. Other growth driversof cities include the administration andgovernance seats, and the level of infrastructure.

We can call these are local assets. Once thereare considerable local assets driving the city togrow, it will continue to attract firms, workers,and consumers to create a cluster effect17.

In the US, cities in the sunbelt of California,Miami and Florida have gained at the expenseof mid-western towns, in part due to favorableclimate conditions. In China, emerging centresof urban economic activities in Shenzhen,

Dongguan, Shanghai and Guangzhou have inpart had a strong manufacturing base whichhas fueled their rapid economic growth18.

Greater Contribution ofCities to National Economy inDeveloping Countries

Te central role of cities in nationaleconomies is more significant in developingcountries than in developed countries. Forexample, Sao Paulo has 10.5 percent ofpopulation and generates 19.5 percent of GDP.Shanghai, with a 1.2 percent of populationgenerates 2.9 percent of GDP. Buenos Aires,

with a 32.5 percent of population produces63.2 percent of GDP. Mumbai, with 2 percentof population, accounts for 6.3 percent ofGDP. Nairobi, with 9 percent of population,generates 20 percent of GDP, Dar es Salaam,

with 7.9 percent of population, accounts for14.9 percent of GDP. In Shanghai, Manila,Brasilia, Cape own, Karachi and Nairobi,cities generate more than 100 percent higherGDP than their population share. In Dhaka,

Yangon, Chittagong, Khartoum, Mumbai,cities generate more than 200 percent higherGDP than their population share. In Addis

Ababa, it generates more than 360 percenthigher GDP than its population share. InHanoi, it produces more than 460 percenthigher GDP than its population share. InKinshasha and Kabul, cities generate morethan 500 percent higher GDP than theirpopulation share (Figure 6). Estimates of thecontribution of cities to total GDP in Indiarange from 60 percent to 80 percent19.


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THE ROLE OF CITIES

Higher Urban Productivity inDeveloped Countries than inDeveloping Countries

Cities in both developed and developingcountries play crucial roles in driving nationaleconomic development. Statistics show

that cities are much more productive thanrural areas in developing countries than indeveloped countries. However, this doesnot mean that cities are more productivein developing countries than in developedcountries. In fact, the productivity in cities isgenerally higher in developed countries thanin developing countries. For the GDP percapita was USD 113,000 in okyo in 2005;USD 100,000 in Helsinki; USD 90,000 in

Boston; USD 112,700 in Osaka; USD 81,000in New York and USD 75,000 in London.Te GPD per capita is much lower in leading

cities in developing countries. For example,it is USD 12,300 in Shanghai; USD 22,000in Mexico City; USD 20,600 in Guangzhou;USD 21,300 in Budapest; USD 13,000 inBangkok; and USD 1,432 in Bangalore20.

Larger Gap and Inequality inProductivity in DevelopingCountries

But it also reveals the fact that theproductivity gap and inequality ofdevelopment between cities and rural areas aremuch larger in developing countries than indeveloped countries. Te large productivitygap and inequality of development between

cities and rural areas in developing countriesleads to the enlarged income gap betweenurban and rural areas, which in turn drive rural

FIGURE 6:Share of National Population and GDP in Key Cities in DevelopingCountries in 2008

64.3%

38.1%

20%

14.9%16.9%10.6%10.1%

10.2%

35.4%

39.8%

17.4%18.5%

34.5%

25.2%

32.5%

10.5%

1.4% 2.0%

6.3%

18.3%

13.5%

1.9%6.4%

8.7%7.7%

20%

36.1%

30.6%

Percentage

City

SaoP

aulo

90

80

70

60

50

40

30

20

10

0

Buenos

aires

Shanghai

Mumb

ai

Riode

Janeiro

ManilaCairo

Santi

ago

Bankok

Brasili

aLim

a

Cape

Town

Bogota

Jakart

aDh

aka

Karachi

WarsawHa

noi

Khart

oumYa

ngon

Chita

gong

Kinshash

aKa

bul

Abidj

an

Addis

Ababa

Nairo

bi

Dare

sSala

am

20.3%

44.3%

21.8%

32.7%

49.1%46.9%

63.2%

10.1%6.3%

2.9%

19.5%

5.5%

18.8%

9.2%

5.8%3.1%

12.1%

13%

10.3%

3.6%

9%

7.9%

21.3%

9.8%3%

Source: Based on data of PriceWaterHouse Coopers; International Monetary Fund; and National Statistics


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population to migrate to cities to search forbetter opportunities and prosperity. Te influxof massive rural population to cities createsshortages of resources to provide housing andservices for all citizens in cities. Terefore, the

engines of economic development becomethe engines of migration. Te over-pacedmigration over economic development turnsinto the engine of slum formation. Tis is whyManila, Karachi, Nairobi, Dhaka and Mumbaiare the engine of economic development onone hand and they are also cities of slums onthe other hand.

Higher Productivity and Under-Resources in Cities

Te contribution of cities to nationaleconomic growth is very significant indeveloping countries. Te economic future ofdeveloping countries depends much more oncities than even before. Cities generate wealth

much faster than their rural counterparts.However, cities are seriously under-resourcedto fulfill their potential as drivers of nationaleconomic development and prosperity. Citiesface many challenges, from accelerating

growth, influx of massive rural migrants,deteriorating infrastructure to environmentaldegradation, social exclusion, violence, under-investment, lack of fiscal freedom and policychoices. Municipal governments often lackfinancial means to address the vast challengesfacing them. For example, of the totalgovernment revenues in Canada, the federalgovernment receives 39 percent; provincialgovernments receive 50 percent and municipal

governments only get 11 percent . Municipalgovernments in most countries have less thana quarter of total government revenue. Inmany countries such as Afghanistan, Armenia,

Australia, Chile, Cyprus, El Salvador, Greece,Honduras, Iran, Jordan, Lesotho, Malta,Mauritius, Mongolia, Morocco and Paraguay,municipal governments are allocated less than

FIGURE 7: Local Governments Share of Total Government Revenue in 2008

Afghanistan

Armenia

Australia

Austria

Belarus

Belgium

Bulgaria

Canada

CapeVerde

Chile

Croatia

Cyprus

Czech

ElSalvador

Estonia

Finland

France

Germany

Greece

Honduras

Hungary

Iceland

Iran

Ireland

Israel

Italy

Jordan

K

azakhstan

Latvia

Lesotho

Lithuania

Lux

embourg

Macedonia

Malta

M

auritius

M

oldova

M

ongolia

M

orocco

Netherlands

N

orway

Par

aguay

Peru

Poland

Por

tugal

Rom

ania

Ru

ssia

Se

rbia

Slove

nia

SouthAf

rica

Sp

ain

Swed

en

Ukraine

UnitedKingdo

m

50

45

40

35

30

25

20

15

10

5

0

Percentage

Source: Based on data of IMF, World Bank


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THE ROLE OF CITIES

10 percent of the government revenues (Figure7). International development communityalso ignores the need of cities. For example, thetotal urban assistance to developing countriesfrom 1970 to 2000 was about US$ 60 billion,

about US$ 20 per capita. It was less than US$1 dollar per capita per year22.

Gap in Income and Benefitsbetween Cities and Rural Areas

Income per capita in cities is normally higherthan in rural areas. Te income gap betweenurban and rural areas has widened in China

since 1994. Te urban-rural income ratiowas 3.21 to 1 in 2006. Tis calculation didnot include the non-monetary benefits urbanresidents have such as housing, education,medical care and social security. If we considerthese socialbenefits , then the urban-ruralincome gap is much wider. Te number ofhigh school graduates in urban areas is 3.4times higher than in rural areas. Te numberof vocational high school graduates in urban

areas is 6.1 times higher than in rural areas.Te number of junior college graduates inurban areas is 13.3 times greater than in ruralareas. Te number of college graduates inurban areas is 43.8 times greater than in ruralareas. Te number of post-graduates in urbanareas is 68.1 times higher than in rural areas23.

Cities as Poverty ReductionMechanisms

Te importance of cities in poverty reductionhas become increasingly prominent. Cities

are proven to be better poverty fighters thantheir rural counterparts. For example, averageincomes of urban residents are four timeshigher than those of rural ones in countriessuch as China and Tailand. China, with itspro-urbanization policies, has removed 220million people from poverty in less than 25years. With economic growth highly correlated

with poverty reduction, the high growth ofcities bodes well for poverty reduction24.

Te American cities proved the similarpoverty reduction effects as those of Chinaand Tailand. Cities are generally betteroff than rural areas. Tere is less poverty incities than rural areas. In the United States,1,610 Of 2,288 non-metro counties have apoverty rate above the national average rate,outnumbering metro almost 5 to 1; 979non-metro counties have a poverty rate from

12.4 percent to 19.9 percent; 455 non-metrocounties have a poverty rate of 20 percent ormore (Figure 8). Of the 500 poorest counties,459 are non-metro, outnumbering metro 11to 1.3. Of the 500 lowest per capita incomecounties, 481 are non-metro, outnumberingmetro 25 to 1. And of the 500 highest percapita income counties, only 150 are non-metro, outnumbered by metro more than 2to 125.


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FIGURE 8: Non-Metro Counties Poverty Rate in 2000

Source: Kathleen K Miller & Thomas D Rowley (2002), Rural Poverty and Rural-

Urban Income Gaps, RUPRI Data Report 2002-5


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THE ROLE OF CITIES

Source: Kathleen K Miller & Thomas D Rowley (2002), Rural Poverty and Rural-Urban Income Gaps, RUPRI Data Report 2002-5

In term of per capita income, most non-metro countries are below the nationalaverage. Some 62 non-metro counties are lessthan half of the national average per capitaincome. 1,358 non-metro counties have 50

percent to 74 percent of the national averageper capita income. 774 non-metro countieshave 75 percent to 100 percent of the national

average per capita income. Only 49 non-metrocounties are above the national average percapital income. Compared to the year 1990 toyear 2000, the number of non-metro countiesabove the national average per capita income

decreased from 71 to 49 (Figure 9 and 10).

FIGURE 9: Non-Metro County Per Capita Income as Percentage of USA Per CapitaIncome in 1990


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FIGURE 10: Non-Metro County Per Capita Income as Percentage of USA Per CapitaIncome in 2000

Source: Kathleen K Miller & Thomas D Rowley (2002), Rural Poverty and Rural-Urban Income Gaps, RUPRI Data Report 2002-5

Wealth Generation in Cities

Cities are the drivers for wealth generation.In 2009, the worlds most economically

powerful cities were okyo, New York, LosAngeles, London, Paris, Chicago, Osaka,Mexico, Washington DC, and San Francisco.okyo produced USD 2.99 trillion; New Yorkproduced USD 2.63 trillion; Los Angelesproduced USD 1.79 trillion; London producedUSD 695.6 billion; Paris produced 658.1billion; Chicago produced USD 657.1 billion;Osaka produced USD 525.5 billion; Mexicoproduced USD 452.1 billion; Washington

DC produced USD 384.5 billion; and SanFrancisco produced USD 374.5 billion26.

Either okyo or New Yorks economy is largerthan the individual national economies suchas Italy, Spain, Canada, Russia, South Korea,Brazil, and India. Londons economy ranksas the ninth largest in all of Europe, largerthan the individual national economies suchas Austria, Greece, Portugal, Switzerland,Sweden and Belgium. Te top 10 cities inEurope are London, Paris, Milan, Madrid,Rome, Berlin, Hamburg, Munich, Barcelona,and Stockholm27.

In terms of prime residential price, Chinesecities have the highest growth rate in price,

which makes Chinese cities the most attractiveinvestment assets. 8.5 million new residential


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THE ROLE OF CITIES

units were sold in China in 2009, compared toabout 500,000 in USA. Te average prices ofhousing units in urban Shanghai, Beijing andShenzhen increased 87 percent, 63 percentand 66 percent respectively. Prime residential

price increased 52 percent in Shanghai; 47

percent in Beijing; and 40.5 percent in HongKong; 17 percent in Johannesburg; 17 percentin Singapore; 14 percent in Jakarta; 11 percentin Mumbai; 10 percent in Rio de Janeiro in2009 (Figure 11).

FIGURE 11: Prime International Residential Index in 2009

Rapid Wealth Accumulation inCities in Emerging Economies

Rapid urbanization and industralisationdrive the rapid economic growth in emergingeconomies. GDP growth rate in Russia was6.4 percent in 2005 and 6.6 percent in 2006.It was 2 times that of United States, and morethan 2 times that of Canada, Germany, UnitedKingdom, France and Italy. GDP growth inIndia was 8.5 percent in 2005 and 8.8 percentin 2006. GDP growth rate in China wastwo digital at 10.2 percent in 2005 and 10.5percent in 2006 (Figure 12).

Figure 13 shows that returns on investmentin Brazil, India, Russia and China are much

higher than in Japan, UK, United States,France, and Germany. For example in 2006,annual returns on investment in stock in

Japan, UK, and US were respectively 6.9percent, 10.7 percent, and 13.6 percent. Whilethe annual return on investment was as high as32.9 percent (where and when?). It was 46.7percent in India and 70.7 percent in Russia.

Annual return on investment in Shenzhenstock market in China was 96.4 percent and

it was incredibly as high as 130.6 percent inShanghai, China.

Te global financial crisis has impactedthe global economy and many countriesexperienced negative growth in 2008-2009.Some emerging countries such as China andIndia still maintain rapid economic growthduring the period of global financial andeconomic crisis, and have become the most

important economic force for global recovery(Figure 14).

Source: Knight Frank (2009), The Wealth Report 2009

PRICE CHANGE

ABOVE 40%1. SHANGHAI* 52.0%

2. BEIJING* 47.0%

3. HONG KONG 40.5%

BETWEEN 10% AND 20%

4. JOHANNESBURG 17.0%

5. SINGAPORE 17.0%

6. JARKATA 14.0%7. MUMBAI 11.0%

8. RIO DE JANEIRO 10.0%

BETWEEN 10% AND 20%

9. LONDON 6.1%

10. WASHINGTON D.C. 5.6%

11. SAO PAULO 5.6%

12. BANGKOK 4.6%

13. CAPE TOWN 4.3%

14. HOME COUNTIES (UK) 1.4%

15. ZURICH 0.0%

0 5 10 15 20 25 30 35 40 45 50 (%)IN GROWTH

1011

141513

9

8

5

3

2

1

4

7

6

12


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Source: The Economist Intelligence Unit, February 2007

Note: Stock market capitalization values include all companies listed on exchange

Source: Year-End Review of Markets & Finance, The Wall Street Journal, January 2, 2007; Russian Stock Exchange,http://www.rts.ru/en, accessed April 2007

FIGURE 12: Real GDP Growth in Selected Countries 2005-2006

FIGURE 13: Returns on Global Stock Market Indexes, 2006


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MECHANISM DESCRIPTION

Government purchase and ownership of land,with resale and developed land prices or providing

development and use rights through long-term leases.

This enables value increments created by re-zoning (or the expectation ofinvestment in social infrastructure) to be captured. There are substantial

practical difficulties associated with such an approach in many areasother than on the urban fringe where the land commissions haveestablished an acceptable political and institutional precedent.

A uniform land tax, paid annually withoutdiscrimination.

This is an effective and non-distorting approach that would alsoappropriate increments generated within use classes and not only atthe time of upgraded development rights (as is normally proposed withbetterment taxes).

A tax on income generated from the sale of landand buildings at appropriate personal and businesstax rates, providing tax deductibility for the value ofimprovements.

This would act as an effective betterment tax. Such a system couldreplace capital gains tax (at least as it applies to land and buildings).

Taxes or charges applying to the unearned

increment of value increases only.

The classic application of betterment taxation theory. It seeks to capture

the difference between the unimproved value of the land at its currentuse and its unimproved value following re-zoning.

TABLE 1: Mechanisms to Capture Land Value

Source: Medda F R & Modelewska M (2011) Land Value Capture as a Funding Source for Urban Investment,Warsaw: Ernst & Young Poland

Te impressive achievements of modernurban development and infrastructure inChina are largely benefited from the landvalue capture through land sale. 76.6 percentof local government revenue in China wasfrom land value capture in 2007 (able 2).Te share of land value capture in total localgovernment revenue is about 2 times that of

Australia and the United States. In Australia,37.8 percent of total local government revenue

was from land value capture (in 2002)29. Inthe United States, about 38 percent of localgovernment revenue was from land value

capture (in 2006)30

.

TABLE 2: Ratio of Land Sale Income toLocal Government Revenuein China, 2001-2011

Year Ratio of Land Sale Income to LocalGovernment Revenue

2001 16.6 %

2002 28.4 %

2003 55.0 %

2004 53.9 %

2005 39.0 %

2006 44.1 %

2007 55.2 %

2008 33.5 %

2009 46.0%

2010 76.6 %

Source: Ye Jianping (2011)


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THE ROLE OF CITIES

Assets and Competitiveness ofCities

Opening up national economies to globalmarkets has restored to cities a competitive

role within the same country and globally.City competition has had the effect ofidentifying urban economy as fundamental tothe achievement of national economic goalsand resulted in the remarkable transformationin national governments view of cities. Higheconomic development levels in cities arerecognized as the result of higher productivity,greater capital intensity, higher levels ofhuman capital, and a greater density of

infrastructure31.

Competitiveness is most often discussedin relation to the tradable part of theeconomy. In the short term, competitivenessdepends on the structure of the economyand on its sectoral specialization as well ascontextual conditions such as the characterand effectiveness of institutions, the qualityand spread of infrastructure and other

factors which affect the efficiency of thenational economic system. In the long term,competitiveness depends on the ability tosustain changes in the factors that enhance theproductivity growth. Terefore, investmentin assets both tangible or intangible such ashuman and physical capital, institutional andorganizational changes32.

A competitive urban economy can identify

six attributes33

:1. the jobs created should be high-skill,

high income jobs;

2. production should evolve towardsenvironmentally benign goods andservices;

3. production should be concentratedin goods and services with desirable

characteristics, such as high incomeelasticity of demand;

4. the rate of economic growth should beappropriate to achieve full employment

without generating the negative aspectsof overstressed markets;

5. the city should specialize in activitiesthat will enable it to gain control overits future, that is, to choose amongalternative futures rather than passivelyaccepting its lot;

6. the city should be able to enhance itsposition in the urban hierarchy.

Cities can achieve competitive advantages byallowing market forces to operate in such ways

that local natural assets/advantages are utilizedto develop specializations. Cities which canform most competitive advantages specializein the growing industries and develop cutting-edge technologies and technological products.Competitive cities have always specializedand these specializations are at the heart of

what distinguishes cities from one another.Te development of clusters of activities incities is a testimony of the importance of

specialization.

Competitiveness affects urban economicperformance. Figure 15 identifies the majorcompetitiveness factors of cities. Tere arefour major competitiveness factors whichare sectoral trends, company characteristics,the business environment, innovation andlearning34.

Sectoral rends capture the main influenceson the structure of economic activities in acity. Tese factors are partly determined bythe citys inheritance. Te mix of industriesand functions are the outcome of historicaldevelopment. Tey are partly determined bythe new preference of new investment.

1. Te aggregate performance of thenational (and increasingly regional andglobal economy) is bound to affect theindividual citys development;


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2. Long-term structural changes will affectthe health of the industries in urbaneconomy;

3. National policy changes will impinge

on what the city is able to do.Company Characteristics refer to the mix

of attributes of the companies in the city.Are they, dynamic or sluggish, financiallyrobust or precarious? Do they have access toefficient financing or run on costly capital?

Are they labor-intensive or capital-intensive ortechnology-intensive? Do they generate highvalue or low value?35

Te Business Environment comprises thosefactors outside the direct control of firms,but which have a significant impact on theattractions of the city as a place for business.Many of the most important influenceson urban competitiveness concern themix of factors that affect the input costs ofemployers in the city such as tax regime andinfrastructure36. Key factors include:

1. Te supply, quality and cost of thevarious factors of production such aslabor, housing cost, and regulatoryservices;

2. Labor supply;3. Fiscal and user charges, local public

spending, urban planning rules;

4. Social and environmental factors suchas quality and cost of housing, crimerate, schools, and civic amenities;

5. Various agglomeration effects, such asdiversity of sub-contractors, quality and

cost of transport, communication andother infrastructure networks.

Innovation and Learning refers to thosefactors that inhibit or encourage thecapacities of firms to new process andproducts. Investment in intangible assetssuch as knowledge, and development ofentrepreneurship are important. Innovationand learning are important elements of the

competitiveness of cities

37

.

FIGURE 15: Competitiveness of Cities

Source: Begg I. (undated), Cities and Competitiveness

THE URBAN COMPETITIVENESS MAZE

Standard of living/quality of life

Employment rate Productivity

URBANPERFORMANCE

Top-downsectoral trends

and macro

influences

Capacity forinnovation and

learning

CompanyCharacteristics

The BusinessEnvironment


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THE ROLE OF CITIES

In summary, in order to maintain andpromote the vital economic growth power andcompetitiveness of cities, it is essential that:(1) cities should have the power to generaterevenues and make development decisions;

(2) cities should have sufficient investment toprovide adequate infrastructure and services,such as transport, communications, powersupply, water and sanitation, housing, andfinancial and business services; (3) developand attract high quality human resources fortechnological innovation, entrepreneurship,and knowledge development; (4) an enablingnational environment for market development.


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Cities generate more than 80 percent of theglobal GDP today. But the economic powerconcentrates in global cities. Te largest 600cities with 20 percent of the worlds populationgenerate 60 percent of the global GDP. 380of the global cities are in the developed worldand accounted for 50 percent of global GDP

in 200738.

A global city acts as the powerful centre ofeconomic development. It outstrips its nationalnetwork and becomes part of an internationalglobal system as a centre of command andcontrol. It is a centre of political power, worldtrade, communication, finance and culture.

THE ROLE OF GLOBAL CITIES

The Global City New Yorks GDP was USD 2.63 trillion in 2009. Its economy is larger than somecountries national economy such as Italy, Spain, Canada, Russia, South Korea, Brazil, and India.

Photo : UN-HABITAT/X. Q. Zhang


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Globalisation and Global Cities

Global cities are linked to globalization.Globalization is the development of strongerlinks between countries and the breaking down

of existing barriers as a result of technologicalcommunications and international regulationand de-regulations. Global cities haveexcellent transportation systems linking themto the world. Tey are often the hubs of theselinkages. For example, Londons airportsinclude London Heathrow, London Luton,London Stanstead, London Gatwick andLondon City Airports. Londons internationalrailway stations include Waterloo Station.

Dovers shipping terminal and the Eurotunneltrain service link London to Europe and therest of the world. It has extensive informationnetwork including daily newspapers,television stations, and other forms ofmedia. For example, London produces worldnewspapers and journals such as Te Financialimes, Tames imes, Te Independent,Te Guardian, Te Economistetc. It hasBBC television and Sky V broadcasted

worldwide39

.

Te role of global cities such as Londonand New York has rapidly changed to becomean essential component for multiplicity oflinkages and interconnections that sustainthe contemporary global economy, social andpolitical systems. Global cities are characterizedby the concentration of headquarters of

global corporations, commodity, currencyand securities exchanges, producer servicesorganizations, international governmentalorganizations and global conference centres40.For example, okyo is home to 17 of the top

100 multinational corporations (MNCs), NewYork has 11. Global cities are internationalfinancial centres, for example, London, New

York, okyo and Hong Kong. Tey are thekey locations for specialized services suchas law, accounting, design, advertising andcreative economy41.

The Financial Role of Global

Cities

Te global cities (New York, London andokyo) accounted for an enormous share ofall major financial markets, about 60 percentto 70 percent of world share in 1980s. Teglobal financial system centres on a networkof about 40 global cities, with increasingtendency toward the concentration in thetop 2042(sentence not complete) In a survey

by MasterCard on the best financial cities inthe world in 2008, London ranked No. 1.

Asian cities rise fastest. Shanghai representsthe fastest jump in overall rank, moving eightplaces forward from the previous year (able3). able 3 shows the worlds top 40 bestfinancial cities in the world.


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1 London

2 New York3 Tokyo

4 Singapore

5 Chicago

6 Hong Kong

7 Paris

8 Frankfurt

9 Seoul

10 Amsterdam

11 Madrid12 Sydney

13 Toronto

14 Copenhagen

15 Zurich

16 Stockholm

17 Los Angeles

18 Philadelphia

19 Osaka

20 Milan

21 Boston

22 Taipei23 Berlin

24 Shanghai

25 Atlanta

26 Vienna

27 Munich

28 San Francisco

29 Miami

30 Brussels

31 Dublin32 Montreal

33 Hamburg

32 Houston

35 Dallas

36 Washington DC

37 Vancouver

38 Barcelona

39 Dsseldorf

40 Geneva

The Rank of Global Cities

Te rank of the importance of global citiesby a global survey revealed in the WealthReport 2011 is showed in able 4. New York,

London, Hong Kong, Singapore, Beijing,Shanghai, okyo, and Paris are the mostimportant global cities. In 10 years time, New

York and London will continue to remainon the top of the list. Shanghai and Beijing

will rise to position 3 and 4. Mumbai willovertake okyo and rise to position 7. In thetop 40 global cities, the ranks of prominent

cities in China, Russia, India and Brazil willrise, which correspond to the overall shift ofglobal economic activities. China is chosen asthe best place for business. Te top 8 globalcities for business are Shanghai, Hong Kong,

Beijing, New York, Mumbai, Singapore,London, and Sao Paulo. However, the mostromantic cities remain in France, USA, UK,and Italy. Te top 8 romantic global citiesare Paris, New York, London, Rome, okyo,Sydney, Shanghai and Hong Kong (able 5).

TABLE 3: The Top 40 Global Financial Cities

2008 Rank City 2008 Rank City

Source: http://www.citymayors.com/economics/financial-cities.html


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Now 10 years time Score Change Rank (2010-20) Score %

1 New York 1 New York 759 0 -8

2 London 2 London 611 0 -16

3 Hong Kong 3 Shanghai 558 +3 +91

4 Singapore 4 Beijing 506 +1 +39

5 Beijing 5 Hong Kong 479 -2 +1

6 Shanghai 6 Singapore 438 -2 +4

7 Tokyo 7 Mumbai 225 +6 +118

8 Paris 8 Tokyo 220 -1 -14

9 Geneva 9 Paris 129 -1 -46

10 Zurich 10 Moscow 117 +6 +23

11 Washington DC 11 Dubai 113 +1 -7

12 Dubai 12 Sao Paulo 103 +8 +66

13 Mumbai 13 Zurich 93 -3 -39

14 Berlin 14 Geneva 92 -5 -55

15 Sydney 15 Washington DC 91 -4 -29

16 Moscow 16 Berlin 84 -2 -15

17 San Francisco 17 Sydney 72 -2 -26

18 Los Angeles 18 Los Angeles 59 0 -34

19 Vancouver 19 Seoul 52 +8 +73

20 San Paulo 20 San Francisco 42 -3 -54

21 Toronto 21 Rio 33 +39 +725

22 Taipei 22 Dallas 28 +1 -22

23 Dallas 23 Vancouver 28 -4 -56

24 Chicago 24 Chicago 24 0 -29

25 Monaco 25 Melbourne 23 +1 -26

26 Melbourne 26 Brasilia 19 +16 +111

27 Seoul 27 Brussels 19 +1 -30

28 Brussels 28 Jakarta 19 +20 +171

29 Miami 29 Monaco 19 -4 -44

30 Riyadh 30 Taipei 18 -8 -53

31 Auckland 31 Toronto 18 -10 -63

32 Houston 32 Auckland 17 -1 +6

33 Shenzhen 33 Delhi 17 +13 +143

34 Abu Dhabi 34 Abu Dhabi 16 0 +7

35 Guangzhou 35 Bangalore 15 +4 +25

36 Seattle 36 Istanbul 13 +23 +225

37 Milan 37 Seattle 13 -1 -13

38 Austin 38 Doha 12 +28 +50039 Bangalore 39 Houston 12 -7 -25

40 Beirut 40 Beirut 11 0 -8

TABLE 4: The Worlds Top 40 Global Cities

Source: Knight Frank (2011) The Wealth Report 2011


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Notes: Respondents were asked to choose their top 10 cities in order of priority. Cities were assigned 10 points for a topranking, nine for second, and so on.

THE ENTREPRENUER THE HEDONIST THE ROMANTIC1. Shanghai 1. New York 1. Paris

2. Hong Kong 2. Hong Kong 2. New York

3. Beijing 3. Tokyo 3. London

4. New York 4. Paris 4. Rome

5. Mumbai 5. London 5. Tokyo

6. Singapore 6. Shanghai 6. Sydney

7. London 7. Rio 7. Shanghai

8. Sao Paulo 8. Barcelona 8. Hong Kong

9. San Francisco 9. Sydney 9. San Francisco10. Palo Alto 10. Dubai 10. Vancouver

11. Dubai 11. Bangkok 11. Rio

12. Rio 12. Beijing 12. Venice

13. Moscow 13. Singapore 13. Las Vegas

14. Sydney 14. Rome 14. Buenos Aires

15. Delhi 15. Las Vegas 15. Barcelona

16. Istanbul 16. Monaco 16. Istanbul

17. Jakarta 17. Vancouver 17. Beijing

18. Lagos 18. San Francisco 18. Dubai19. Dallas 19. Prague 19. Milan

20. Bangalore 20. Miami 20. Miami

Source: Knight Frank (2011) The Wealth Report 2011

TABLE 5: The Worlds Top 20 Global Cities based on Categories of Activities

John Friedmann developed a framework toanalysize the characteristics and roles of globalcities43:

1. Te form and extent of a citys integrationwith the world economy, and the functionsassigned to the city in the new spatial divisionof labor, will be decisive for any structuralchanges occurring within it.

Friedmanns conception of the city isa spatially integrated economic andsocial system at a given location ormetropolitan region. Metropolitaneconomies may carry out different

roles as locations for global capitalshead offices, or as financial centers, oras nodal points in a regional or nation

economy but important cities do allthree.

Te form, intensity, and durationthe link between the urban system

and global capital may vary, and arehistorically based, but for the mostpart the changes occurring in cities areexternally induced by the directionand volume of transnational capitalflows; the spatial division of thefunctions of finance, managementand production. Changes to theurban system include changes inmetropolitan function, the structure

of metropolitan labor markets, and thephysical form of cities.


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2. Key cities throughout the world are used byglobal capital as basing points in the spatialorganization and articulation of productionand markets. Te resulting linkages make it

possible to arrange world cities into a complex

spatial hierarchy.

Friedmann presents a hierarchy ofworld cities based on the presumednature of their integration with theglobal economy whose selectioncriteria include major financialcentre; headquarters for transnationalcorporations; rapid growth ofbusiness services sector; important

manufacturing centre; majortransportation node; and population.His hierarchy presents primary andsecondary world cities and furtherclassifies these by core and semi-peripheral countries. All but two ofthe primary cities (Singapore and SaoPaulo) are in the global North.

3. Te global control functions of world cities aredirectly related in the structure and dynamicsof their production sectors and employment.

World city growth has seen a growth inthe particular sectors (see 2 above).

World cities play an ideological roleas centres in the production anddissemination knowledge (i.e. news,entertainment) and art.

Te labor force is dichotomized,

with a high percentage of high-wageprofessionals and low-wage workers.

World cities are also characterized ashaving a growth in the informaleconomy.

4. World cities are major sites for theconcentration and accumulation ofinternational capital.

However, some world cities are atypicaland do not have high concentrationsof foreign direct investment. Tis

is the case in okyo: Although amajor control centre for Japanesemultinational capital, Japanese businesspractices and government policy haveso far been successful in preventing

capital from making major investmentsin the city.

5. World cities are points of destination forlarge numbers of both domestic and/orinternational migrants.

Both international and inter-regionalmigrants contribute to growth inprimary countries. Tese countriesattempt to curb low-skilled

immigration and promote high-demand (skilled or professional)immigration through legislation andspecial programs.

Semi-peripheral world cities experiencegrowth from intra-regional migration,and have experienced rapid populationincreases. Attempts to curb migrationhave been largely unsuccessful.

6. World city formation brings into focus themajor contradictions of industrial capitalism among them spatial and class polarization.

Friedmann identifies three scalesof spatial polarization: Global awidening gulf in wealth, income, andpower between peripheral economiesand rich countries; Regional whichexpresses the income disparity between

high and lowincome regions withinstates; and Metropolitan includesclass polarization and the segregationof poor neighbourhoods, for example.

Contradictions include the fact thatthe financial services sector, whichemploys high paid professionals, alsoemploys many in low-wage categories;the absence of middle sectors in the

semi-periphery and the vulnerability ofthe middle sectors to unemployment incore cities, for example, from the loss ofunionized employment.


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7. World city growth generates social costs atrates that tend to exceed the fiscal capacity ofthe state.

Te rapid influx of poor workers into

world cities be it from abroad or fromwithin the country generates massiveneeds for social reproduction, amongthem housing, education, health,transportation, and welfare. Teseneeds are increasingly arrayed againstother needs that arise from transnationalcapital for economic infrastructure andfrom the dominant elites for their ownsocial reproduction.

BOX 1:The advantages of scale in Chinathe case of Shanghai

Of the 858 cities (official and unofficial) in China, only 13 today have populations above five million.Yet these cities accounted for more than 25 percent of Chinas total GDP in 2007. Why are Chinaslarger cities more successful than its smaller cities? Without doubt, history, location, economies ofscale, and broad preferences granted by the central government (for example, Special EconomicZone status) have contributed. But MGI has identified three critical factors that explain why largercities such as Shanghai, in general, have more advantageous conditions for economic success.

1. Larger cities attract the most talent. Shanghai has the skills and talent it needs to feed growth.The city has access to 100,000 or more graduates from 60 higher education institutions every year.As a result, more than one-quarter (28 percent) of Shanghais labor force has a college educationdouble the proportion of a decade ago. The city is also beginning to attract talent from overseasthe expatriate community is half a million strong.

2. Large cities attract more investment. Foreign direct investment (FDI) has disproportionately landedin larger cities. FDI in emerging markets, at least initially, tends to go to areas that have marketaccess as well as better infrastructure, services, and tax and other financial incentives. Larger citiesin China, including Shanghai, have been more competitive than smaller ones in the provision ofthese benefits and others that are favorable to businesses. The establishment of a foreign-investedcommunity reduces perceived investment risks and creates a virtuous cycle that serves to attractmore investment in the future. Large cities also tend to attract a disproportionate share of total

financing for infrastructure, driven by larger local equity pools, greater perceived creditworthiness,and access to a larger range of financing sources due to scale (e.g., large cities can tap the bondmarket).

3. City network effects stimulate economic growth. Large cities are almost always at the center of acluster of smaller cities, and network effects spur economic growth and productivity. Shanghai sitsin the middle of a very close-knit cluster of economic centers on the Yangtze River Delta, and thisproximity has driven growth in the entire region.



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City regions have become an importantelement of geographic and economic landscapethan at any previous time in history. Over thepast few decades, many well positioned urbancentres have been transformed into super-clusters whose extent and growth arising fromthe circumstances that many of the leading

economic sectors are organized as intenselylinked networks of producers and services withpowerful endogenous growth mechanisms and

with an increasingly global market reach. Eachcity region is the site of intricate networksof specialized but complementary forms ofeconomic activity, together with large multi-faceted local labour markets, functions as thelocus of powerful agglomeration economies44.

City regions have emerged as the mostimportant growth poles. Te improvementsin transportation and communicationstechnologies in terms of cost and qualitystimulate the rapid development of cityregions. Modern products and services becomeincreasingly sophisticated. Producers andservices providers gain significant advantagesfrom their close location in transactionnetworks. Tese networks facilitate exchanges

of information on products, services,technologies, and markets and help to fostereconomic creativity and innovation. Firmsand actors participating in these networksreceive tremendous boosts to their efficiencyby being part of tightly-linked and spatially-concentrated clusters. Tese networks andproduction and services modes foster thedevelopment of urban agglomerations andcity regions.

Tere are now more than 300 city regionswith a population more than one million

in the world. At least 20 city regions have apopulation beyond 10 million. Tey rangefrom familiar metropolitan agglomerationsdominated by a strongly-developed core suchas London city region or Mexico City region,to more polycentric geographic centres suchas Randstad or Emilia-Romagna regions. Te

process of globalization and world economicintegration and accelerated urban economicdevelopment demand new economic andspatial planning and policy strategies toenhance the benefits of city regions45.

City Regions as Engines ofGlobal Economy

Improvements in transportation andcommunications technologies in terms of bothcost and quality will eventually undermine theneed for urban concentration. Some predictedthat with advancement in technologies,large scale urbanization and concentration

will not be necessary. However, cities notonly do not disappear as the transportationand communications technologies developfurther, instead cities become larger and more

important. On the one hand, transportationand communications technologies enablemany forms of economic and social interactionto occur over greater distances and spaces. Onthe other hand, they enhance the need forproximity. Different economic activities areinterconnected through their transactional ornetwork relationships to each other and to therest of the world46.

Economic activities often require differentkinds of conditions. Vast areas of moderneconomy involve activities where enormous

THE ROLE OF CITY REGIONS


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uncertainty prevails and require mutualinteractions. Tis is particularly true for highorder economic activities. For example, hightechnology industry and financial services, thechanging project-oriented and client-oriented

product and services require firms to beorganized so as to change the mix of skills andresources that they bring to each particulartasks; further skills and resources themselvesare not widely available in small cities orspaces of activities. Large city regions oftenprovide complex skills of labor, technology,services and information. City regions provideconditions for acquiring economically-usefulknowledge in a timely fashion through human

relationships and interactions and being ableto interpret information in meaningful ways.

At the same time, economic specializationand flexibility are present. Both efficiency andcreativity can be easier in city regions as thecosts of transaction and interactions decreaseas distance decreases47.

Since 1970s, the economic environmentshave become less stable and forced many

firms to adopt more flexible technologies andorganizational patterns. Increasing wealthand proliferating market niches stimulate thedemand for wider product variety. Increasedshares of products and employment requireflexibly-networked production systems orvalue chains. Different firms and actorsparticipating in these networks receive atremendous boost to their efficiency becauseof reduced transactions costs by being part

of tightly-linked and spatially-concentratedclusters. Te creativity and innovation withthe production system are much enhancedbecause of the great variety of different skills,sensibilities and experiences in the labor forceand because the agglomeration of producersand service providers increases the probabilityof interactions which inspire novel insightsand economically-useful knowledge48.

Productivity and performance are raisedby urban concentration and density. Firstly,concentration secures overall efficiency of

the economic system. Secondly, it intensifiescreativity, learning and innovation by theincreased flexibility of producers and servicesproviders and by the enormous flows of ideasand knowledge through the transactional links

within localized industrial networks. Suchnetworks are often to be found at the economiccores of the major city regions and they arethe driving forces for significant new roundsof urban expansion. Moreover, the economiesof these city regions are to an increasing degreetied in to the global markets, thus stimulatingfurther growth which in turn encouragesmore specialized producers to appear in anygiven network. Te films of Hollywood, the

semiconductors of Silicon Valley, the bankingand financial services of New York, Londonand Hong Kong, the fashions of Paris, thetrade services of Guangzhou all representthe outputs of clustered flexible productionnetworks whose fortunes are tied to the globalmarket demand. In an era of decliningtransportation and communication costs,the world is still organized around large cityregions rather than around a more diffuse

pattern of location. Because city regions offermany advantages so that the economies ofthese city regions have become so closely tiedin with clustered flexible networks of firmsand actors that compete on the increasinglyextended global market49.

oday, city regions merge as one of themost evident driving forces for economicdevelopment in many countries. For example,

okyo city region in Japan consists of morethan 40 cities and towns and has a populationof 33.2 million, and generates more than34 percent of national GDP (Figure 16).Pearl River Delta city region in China has apopulation of 30 million. New York Cityregion has a population of 22 million ; SaoPaulo, 17.7 million; Mexico city region, 17.4million. Changjiang River Delta in China hasmerged as the worlds largest city region with

a population of about 100 million, generating26 percent of the national GDP (Figure 17).


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Te Greater London city region in UKconsists of 51 cities and towns. It has a hugecommuting ring with a radius around 60 kmfrom central London and overlapping withother 50 cities and towns. Major highway

and rail travel corridors such as Northampton(M1), Cambridge (M11), Ashford (M20),Bournemouth-Poole (M3/M27) and Swindon(M4) links these cities and towns to the centreof London. 32 cities and towns lie to the westand 18 to the east of London. Te cities andtowns to the west of London have developedstrong and interdependent centres than thoseto the east (Figure 18).

Cities and city regions are the key source ofeconomic vitality and innovation for nations.Innovative and creative activities and highefficiency is increasingly linked to the abilityto associate economic activities in city regions.

Te comparative advantages of cities and cityregions make them become the drivers ofnational economies and global economies.Terefore, the better cities are, the betterregional and national economies are.

FIGURE 16: Tokyo city region in Japan

Source: http://web-japan.org/region/pref/tokyo.html


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FIGURE 17: The Worlds Largest City Region in the Pearl River Delta in China

Source: http://www.guardian.co.uk/world/2010/mar/22/un-cities-mega-regions. Photograph : Nasa


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FIGURE 18: Greater London City Region

Source : Taylor P J & Pain K

City Regions as InnovativeSystems

City regions are either defined by theiradministrative boundaries or by their spatialcharacteristics, or both. City regions displaya complex type of interrelationship betweenspatial and institutional properties. Te specificpatterns can influence the investment andattractiveness for companies and workers52.Spatial structures influence accessibility,mobility, and the availability of informationand the possibilities of human interaction andorganization. Innovation systems are widerframeworks within which entrepreneurs andknowledge workers can function and usetheir competencies. Te dynamic interaction

of actors of companies, learning and researchinstitutions and governments is the basis ofthe innovation system53.

Many studies show that larger city regionsdisplay higher degree of innovativeness thanrural regions. City regions attract the largecompanies, technology firms and knowledgeorganizations such as universities, whichgenerate investment in technology, andfacilitate the development and diffusionof technological knowledge. Tese factorsbecome the main forces driving economicgrowth54.

Mega City Regions

Te Mega City Region phenomenon wasoriginally identified in Eastern Asia, in areaslike the Pearl River Delta region and theChangjiang River Delta region in China, the

okyo-Osaka region in Japan, and the GreaterJakarta region in Indonesia. It is a series of


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urban centres between twenty and fifty citiesand towns, physically separate but functionallynetworked, clustered around one or morelarge central cities and drawing enormouseconomic strength from a new functional

division of labor. A key feature of mega cityregions is that they are basically polycentric55.

When we examine the largest mega cityregions in terms of population size, we findthat mega city regions have strong economicand creative advantages over the rest of the

world. Te world top 10 mega city regions havea population of 666 million (i.e. 10.5 percentof the world population) and produced USD

7,891 (i.e. 25.1 percent of world products).

Te top 20 mega city regions have 17 percentof world population and account for 42.8percent of world economy. Te top 40 megacity regions have 23.2 percent of worldpopulation and account for 58.9 percent of

world economy (able 6).

Te top 10 mega city regions have apopulation of 10.5 percent and produce 41.1percent the world patents. Te top 20 megacity regions have a population of 17 percentand generate 61.1 percent of the worldpatents. Te top 40 mega city regions have apopulation of 23.2 percent and generate 76.8percent of the world patents (able 6).

TABLE 6: The Economic and Creative Power of Mega City Regions Based onPopulation Rankings

Mega CityRegions

Regional Product Population Patents

USD (Billion) Share of theWorld

Persons(Million)

Share of theWorld

Number Share of theWorld

Top 10 7,891 25.1% 666 10.5 % 123,832 41.1 %

Top 20 13,433 42.8% 1,081 17.0% 184,240 61.1%Top 40 18,489 58.9% 1,478 23.2% 231,797 76.8%

Source: Richard Florida, Tim Gulden and Charlotta Mellander (2008) The Rise of the Mega-Region, CESIS paper 129,Royal Institute of Technology.

When we examine the economic andcreative power of the top mega city regions ofthe world according to their economic size,the contribution of mega city regions to the

world economy is even more significant. Tetop 10 mega city regions have 6.5 percentof the worlds population and produce 42.8percent of the world economic outputs and56.6 percent of the worlds patents. Te top

20 mega city regions have 10 percent of theworlds population and generate 56.6 percentof the world economic outputs and 76 percentof the worlds patents. Te top 40 mega city

regions have 17.7 percent of the worldspopulation and produce 66 percent of the

worlds economic outputs and 85.6 percent ofthe worlds patents (able 7).


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TABLE 7: The Economic and Creative Power of Mega City Regions based onEconomic Size

Mega CityRegions

Regional Product Population Patents

USD (Billion) Share of the

World

Persons

(Million)

Share of the

World

Number Share of the

World

Top 10 13,433 42.8% 416 6.5 170,885 56.6%

Top 20 17,777 56.6% 636 10.0% 229,212 76.0%

Top 40 20,711 66.0% 1,125 17.7% 258,181 85.6%



Te Greater okyo mega city region housesmore than 55 million people and generatesabout USD 2.5 trillion economic outputs,

which is the largest mega city region in theworld56. Te Boston-New York-Washingtonmega city region is home to some 54.3million, about 18 percent of the total United

States population, generate USD 2.2 trillionregional product, which is larger than anynational economies except for the USA and

Japan. Its economic size is larger than that ofFrance or United Kingdom and more thantwice that of India or Canada (Figure 19).

FIGURE 19: Mega City Regions in North America


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Te Chicago-Pittburgh mega city regionstretches over 100,000 square miles and hasa population of 46 million and produce USD1.6 trillion economic outputs.

Te Rotterdam-Ryhr-Cologne-Brussels-Antwerp-Lille mega city corridor in Europeaccommodates 59.2 million people and

generates USD 1.5 trillion economic outputs.Te London-Leeds-Manchester-Liverpool-Birmingham mega city corridor has apopulation of 50 million and produces USD1.2 trillion economic outputs. Te Italian

Milan-Rome-urin mega city corridor has apopulation of 48 million and produces USD1 trillion (Figure 20).


FIGURE 20:Mega City Regions in Europe


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Urban economics is the economic studyof urban areas. It uses the economic tools toanalysize urban issues such as city growth,housing, land, employment, transportation,health, education, crime, urban environment,local government finance, and social issues.Tis report illustrates the importance of

the economic roles of cities. Urbanizationis an inevitable force of development. Citiesare more productive than rural areas. Teyprovide efficient infrastructure, services,communications and skilled labor forces.Tey can achieve the economies of scale,agglomeration and urbanization. Cities arethe driving forces of national economicdevelopment. Cities generate positiveexternalities of agglomeration, scale, diversity

and specialization.

Cities have demonstrated productivity,efficiency and the multitude of developmentopportunities and advantages. However,

when cities grow to certain levels, theystart to produce negative impacts such asovercrowding, congestion and pollution. Teroles of municipalities are to maximize the

positive externalities and to minimize thenegative impacts of cities. Tere are manydifferent approaches that can enhance theeconomic roles of cities. Tis report addressesthe important roles played by cities andexplains how cities become more productive

when they are agglomerated and clustered. Inthe next series of reports, we will examine thedynamics of urban economy and how we candrive economic development more effectively

and sustainable.

CONCLUSIONS


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