Urbanization with and without industrialization

Abstract

Many theories link urbanization with industrialization; in particular, with the production of tradable (and typically manufactured) goods. We document that the expected relationship between urbanization and the level of industrialization is not present in a sample of developing economies. The breakdown occurs due to a large sub-sample of resource exporters that have urbanized without increasing output in either manufacturing or industrial services such as finance. To account for these stylized facts, we construct a model of structural change that accommodates two different paths to high urbanization rates. The first involves the typical movement of labor from agriculture into industry, as in many models of structural change; this stylized pattern leads to what we term "production cities" that produce tradable goods. The second path is driven by the income effect of natural resource endowments: resource rents are spent on urban goods and services, which gives rise to "consumption cities" that are made up primarily of workers in non-tradable services. We document empirically that there is such a distinction in the employment composition of cities between developing countries that rely on natural resource exports and those that do not. Our model and the supporting data suggest that urbanization is not a homogenous event, and this has possible implications for long-run growth.

Openness and Urbanization: The Case of the People's Republic of China

“…In line with Gollin, Jedwab, and Vollrath (2013), a green revolution (an increase in A at ) leads to the "push effect" and an industrial revolution (an increase in A mt ) leads to the "pull effect" in the agriculture sector. With equations (6) and (22), the fraction of labor employed in the manufacturing sector is…”

“…In the current literature, the ranking of productivity growth among sectors is crucial to the stylized structural transformation (e.g., Gollin, Jedwab, and Vollrath 2013). However, I have extended their model to show that, even reversing the ranking of their sectoral productivity growth, the structural transformation in a country presents similar stylized facts and urbanization after opening to trade.…”

“…I extend the model of Gollin, Jedwab, and Vollrath (2013) by incorporating business services, such that there are four sectors in an economy: agriculture, manufacturing, personal services, and business services.…”

“…Combining the income effect (due to different elasticity of substitution in production) and the relative price effect (due to different rates of sectoral productivity growth), Gollin, Jedwab, and Vollrath (2013) introduce trade to a static model of structural transformation with the nonhomothetic Stone-Geary utility. They use this model to explain why natural resources lead the countries in sub-Saharan Africa to urbanization while not experiencing the standard pattern of structural transformation as in the developed and East Asian countries.…”

“…In contrast to OECD countries in which agricultural productivity has the highest growth among sectors, the PRC, where agricultural productivity has the lowest growth among sectors, also experiences the standard pattern of structural transformation and rapid urbanization. To address the structural transformation and urbanization in the PRC, this paper develops a simple static model of structural transformation by incorporating business services into Gollin, Jedwab, and Vollrath's (2013) framework. I argue that this simple model can demonstrate all of the stylized facts in the structural transformation in a country with openness to trade.…”