Chapter 7

Report
Chapter 7
Urbanization and
Rural-Urban
Migration: Theory
and Policy
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Urbanization and Development
• Economic development causes urbanization
• There is a positive correlation with economic
development and urban population growth
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Urbanization and Development
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Urbanization Across
Time and Income
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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%)
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Distribution of Urban Population
Urban population shares of Asia and
Africa are expected to rise at the
expense of Latin America:
2000
Africa
Latin America
Asia
18%
22%
60%
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2025
20%
15%
65%
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Urbanization in the World
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Projected Urban and Rural Population
MDCs and LDCs, 1950-2030
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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)
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Largest Cities in the World
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Mega-Cities:
Cities with 10 Million+ Inhabitants
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Size of Largest Cities
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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
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Slums in Urban LDCs
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Urbanization
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
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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
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Extent of R-U Migration
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Components of Migration
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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
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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)
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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
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Informal Urban Labor Force
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Informal Employment
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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
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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
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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)
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Urban Unemployment
• Urban open-unemployment is in doubledigits in many LDCs
• The problem is much more serious because
– Discouraged workers are excluded
– Underemployment is not measured
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Urban Unemployment
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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
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Todaro’s R-U Migration Model
Benefits from migration:
• Higher urban wage
• Enjoyment from urban entertainment
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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
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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
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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.
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Todaro’s Migration Decision Tree
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Wage Differentials & Employment
Agricultural Wage Rate
A
Manufacturing Wage Rate
At WM, OMLM is urban employment and OALA
is rural employment. LALM is the “migrant pool:
Those who are either unemployed or engaged in
low-skilled activities in informal sector
M
q’
WM
WA
q
W*A
E
W*M
M’
W**A
OA
LA
A’
L*A=L*M
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LM
OM
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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
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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
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Policies Reducing R-U Migration
• Eradicate poverty and reduce population growth
• Promote rural and agricultural development
• Create jobs in rural areas: expand small-scale, laborintensive industries
• Eliminate factor-price distortions and adopt
“appropriate” production technologies
• Modify direct link between education and employment
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