Abstract. This paper examines how urbanization is accommodated by increases in numbers and in sizes of cities. Political institutions play a key role. Estimation uses a worldwide data set on all metro areas over 100,000 from 1960-2000. The degree of democratization and technological advances strongly affect growth in both city numbers and individual city sizes. Effects on city sizes are heterogeneous. Technology improvements help bigger cities relative to smaller ones. Increasing democratization levels the playing field across the urban hierarchy, helping smaller cities. Given these opposing effects, the overall relative size distribution of cities worldwide is unchanged over the time period.Corresponding author: J.V. Henderson, Department of Economics, Brown University, Providence, RI, 02912, USA.Phone: 401 863 2886; fax 401 863 1970.JEL codes: H7, O3, O18, R Key words: urban growth, city size distribution, democratization, urbanization.1 This research was supported by a grant from the Research Committee of the World Bank. Rupa Ranganathan of the World Bank prepared the original data and documentation. The work has benefits from comments by participants in presentations at LSE, the Wider Institute, and the Regional Science Association International meetings.2 Countries urbanize as they develop, with urbanization transforming the national landscape. Urbanization has three inter-related dimensions that the literature studies: changes in the size distribution of cities (Eaton andEckstein, 1997 andDobkins andIoannides, 2001), growth in individual city population sizes (Gleaser, Scheinkman andShleifer, 1995 andBlack andHenderson, 2003), and growth in city numbers (Dobkins and Ioannides, 2001, Black andHenderson, 2003). We examine all three dimensions: each offers a particular perspective and relates to a particular literature and the three dimensions compliment each other. Although we try to ground the hypotheses in the theoretical literature, this is an empirical paper that identifies the key forces driving urbanization outcomes. First is technological progress, which in our data and in modeling drives the expansion of the urban relative to rural sector (Henderson and Wang, 2005). Technological progress also fosters growth in individual city sizes, because knowledge accumulation either interacts with and enhances urban scale economies or improves the ability to manage cities through, for example, innovations in commuting technology. Both lead to larger equilibrium and efficient city sizes. Intuition might suggest some innovations are more important for bigger than smaller cities.Larger cities have higher commuting costs and congestion and pose greater managerial challenge. Their more business service and high tech oriented production may benefit relatively more from knowledge spillovers, than the standardized manufacturing found in smaller and medium size cities.Second, institutions affect the size distribution of cities and growth of small relative to large cities. In particular, we argue that an increase in t...
