Urbanization and Rural-Urban Migration: Theory and Policy

• In this unit we would:

• 1.1 Examine the potential role of cities both modern sector and urban informal sector-in fostering economic development

• 1.2 Rurual –urban labour transfer in the context of rapid growth and high urban unemployment

• 1.3 Evaluation of various policies options for LDC governments may wish to pursue

7 - 2

Urbanization and Development

• Economic development causes urbanization

• There is a positive correlation with economic development and urban population growth

7 - 3

7 - 4

Urbanization and Development

Highest- income countries such as Denmark and Luxenborg are among the

most urbanised while the verry poor countries such as Rwanda are among

the least urbanised

7 - 5

Urbanization Across

Time and Income

Each line represents the trajectory of one country, starting

from the solid dots(1970 income and urbanization level for a

given country ending at the end of the line segment marked

by a diamond representing the corresponding 1995 income

and urbanization level for the same country )

Urbanization Trend

World urban population distribution (in billions)

2000 2025 World 3.2 5.1

MDCs 1.0 (31%) 1.1 (22%)

LDCs 2.2 (69%) 4.0 (78%)

7 - 6

Distribution of Urban Population

Urban population shares of Asia and Africa are expected to rise at the expense of Latin America:

2000 2025

Africa 18% 20%

Latin America 22% 15%

Asia 60% 65%

7 - 7

Urbanization in the World

7 - 8

7 - 9

Projected Urban and Rural Population

MDCs and LDCs, 1950-2030

Most Populated Cities

• Of the 15 largest cities, 4 are in MDCs (LA, NY, Tokyo, and Osaka) and 11 are in LDCs

• By 2015, the ranking of these largest cities will change in favor of the LDCs (e.g., NY falls from no. 3 to 11)

7 - 1 0

Largest Cities in the World

7 - 1 1

7 - 1 2

Mega-Cities:

Cities with 10 Million+ Inhabitants

Size of Largest Cities

7 - 1 3

Location of Migrant Workers

• Migrant workers move to nearby towns and large cities, and especially the capital city

• They reside in slums and shanty towns where low cost housing is available

7 - 1 4

Slums in Urban LDCs

C o p y r i g h t © 2 0 0 9 P e a r s o n A d d i s o n -W e s l e y .

A l l r i g h t s r e s e r v e d . 7 - 1 5

Urbanization

7 - 1 6

The LDCs experience rapid urban population

growth because of

• Natural increase: birth rate > death rate

• Rural-urban migration: movement of rural workers to urban areas

Contribution of R-U Migration

• On average, about 50% of urban population growth of the LDCs is due to R-U migration

• Rapid R-U migration has resulted in the construction of slumps and shanty towns that house a large percentage of urban population

7 - 1 7

Extent of R-U Migration

7 - 1 8

7 - 1 9

Components of Migration

Dualistic Economic Structure

• Formal sector: organized and regulated economic system (e.g., government agencies, banks); it generates 2/3 of GDP

• Informal sector: fragmented and unregulated economic system (e.g., street vendors, loan sharks); it generates 1/3 of GDP

7 - 2 0

Dualistic Labor Market

• Formal labor market: skilled labor (e.g., government employees, teachers) and professionals with education and license

• Informal labor market: semi-skilled and unskilled labor (e.g., small business, street vendors)

7 - 2 1

Urban Informal Sector

• Most rural migrants find jobs in the “informal” urban labor markets

• The “informal” urban labor force is a large component of the urban labor force

7 - 2 2

Informal Urban Labor Force

7 - 2 3

7 - 2 4

Informal Employment

Developing Urban Informal Sector

Advantages of investment in urban “informal” sector

• Contributes to economic growth

• Requires small capital investment

• Requires low cost of training and education

• Supplies semi-skilled labor to industry

• Uses labor-intensive technology to create jobs

7 - 2 5

Developing Urban Informal Sector

Disadvantages of investment in the urban

“informal” sector

• Induces R-U migration

• Exerts pressure on urban infrastructure

• Adds to pollution, congestion, and crime

7 - 2 6

Women in U-Informal Sector

• Represent the bulk of the informal sector labor supply

• Earn low wages in unstable jobs with no benefits (e.g., housekeeping)

• Run micro-enterprises (e.g., home-made foodstuffs and handicrafts)

• Engage in illegal activities (e.g., prostitution)

7 - 2 7

Urban Unemployment

• Urban open-unemployment is in double-digits in many LDCs

• The problem is much more serious because

– Discouraged workers are excluded

– Underemployment is not measured

7 - 2 8

Urban Unemployment

7 - 2 9

Todaro’s R-U Migration Model

• Factors affecting migration decision

– Expected urban income

– Probability of finding an urban job

– Cost of living in urban areas

• Decision criterion:

– Migration will take place if the present value of “expected” benefits exceed costs

7 - 3 0

Todaro’s R-U Migration Model

Benefits from migration:

• Higher urban wage

• Enjoyment from urban entertainment

7 - 3 1

Todaro’s R-U Migration Model

Costs of migration:

• Transportation cost

• Opportunity cost of being unemployed

• Greater living expenses

• Psychic cost of being away from home and family

7 - 3 2

Todaro’s R-U Migration Model

Non-economic factors inducing migration:

• Distance: the farther the distance, the larger is the transportation cost

• Relatives living in urban areas helping reduce living expenses

7 - 3 3

Todaro’s R-U Migration Model

Non-economic factors inducing migration:

• Information flow about job openings in the “informal” sector

• City lights: movie theaters, restaurants, amusement parks, etc.

7 - 3 4

Policies Inducing R-U Migration

• Neglect of agriculture: industrialization at the expense of agricultural development

• Urban bias development strategies: investment in urban industrial development

• Job creation in urban areas by government and manufacturing and services industries

7 - 3 7

Policies Inducing R-U Migration

• Educational opportunities in urban areas: R-U brain drain

• Cash and in-kind subsidies to government employees and factory workers

7 - 3 8

Policies Reducing R-U Migration

• Eradicate poverty and reduce population growth

• Promote rural and agricultural development

• Create jobs in rural areas: expand small-scale, labor-intensive industries

• Eliminate factor-price distortions and adopt “appropriate” production technologies

• Modify direct link between education and employment

7 - 3 9