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Chapter 7 Urbanization and Rural-Urban Migration: Theory and Policy Copyright © 2009 Pearson Addison-Wesley. Chapter 7 Urbanization and Rural-Urban Migration: Theory and Policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

Urbanization and Development • Economic development causes urbanization • There is a positive correlation Urbanization and Development • Economic development causes urbanization • There is a positive correlation with economic development and urban population growth Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2

Urbanization and Development Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 3 Urbanization and Development Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 3

Urbanization Across Time and Income Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 4 Urbanization Across Time and Income Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 4

Urbanization Trend World urban population distribution (in billions) 2000 2025 World 3. 2 5. 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%) Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 5

Distribution of Urban Population Urban population shares of Asia and Africa are expected to 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% Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2025 20% 15% 6

Urbanization in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7 Urbanization in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7

Projected Urban and Rural Population MDCs and LDCs, 1950 -2030 Copyright © 2009 Pearson Projected Urban and Rural Population MDCs and LDCs, 1950 -2030 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 8

Most Populated Cities • Of the 15 largest cities, 4 are in MDCs (LA, 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) Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 9

Largest Cities in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 10 Largest Cities in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 10

Mega-Cities: Cities with 10 Million+ Inhabitants Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Mega-Cities: Cities with 10 Million+ Inhabitants Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 11

Size of Largest Cities Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 12 Size of Largest Cities Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 12

Location of Migrant Workers • Migrant workers move to nearby towns and large cities, 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 13

Slums in Urban LDCs Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 14 Slums in Urban LDCs Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 14

Urbanization The LDCs experience rapid urban population growth because of • Natural increase: birth 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15

Contribution of R-U Migration • On average, about 50% of urban population growth of 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 16

Extent of R-U Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17 Extent of R-U Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17

Components of Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 18 Components of Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 18

Dualistic Economic Structure • Formal sector: organized and regulated economic system (e. g. , 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 19

Dualistic Labor Market • Formal labor market: skilled labor (e. g. , government employees, 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) Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 20

Urban Informal Sector • Most rural migrants find jobs in the “informal” urban labor 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 21

Informal Urban Labor Force Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 22 Informal Urban Labor Force Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 22

Informal Employment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23 Informal Employment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23

Developing Urban Informal Sector Advantages of investment in urban “informal” sector • Contributes to 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 24

Developing Urban Informal Sector Disadvantages of investment in the urban “informal” sector • Induces 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 25

Women in U-Informal Sector • Represent the bulk of the informal sector labor supply 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) Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 26

Urban Unemployment • Urban open-unemployment is in doubledigits in many LDCs • The problem 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 27

Urban Unemployment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 28 Urban Unemployment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 28

Todaro’s R-U Migration Model • Factors affecting migration decision – Expected urban income – 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 29

Todaro’s R-U Migration Model Benefits from migration: • Higher urban wage • Enjoyment from Todaro’s R-U Migration Model Benefits from migration: • Higher urban wage • Enjoyment from urban entertainment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 30

Todaro’s R-U Migration Model Costs of migration: • Transportation cost • Opportunity cost of 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 31

Todaro’s R-U Migration Model Non-economic factors inducing migration: • Distance: the farther the distance, 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 32

Todaro’s R-U Migration Model Non-economic factors inducing migration: • Information flow about job openings 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. Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 33

Todaro’s Migration Decision Tree Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 34 Todaro’s Migration Decision Tree Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 34

Wage Differentials & Employment Agricultural Wage Rate A Manufacturing Wage Rate At WM, OMLM 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. LM OM 35

Policies Inducing R-U Migration • Neglect of agriculture: industrialization at the expense of agricultural 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 36

Policies Inducing R-U Migration • Educational opportunities in urban areas: U brain drain R- Policies Inducing R-U Migration • Educational opportunities in urban areas: U brain drain R- • Cash and in-kind subsidies to government employees and factory workers Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 37

Policies Reducing R-U Migration • Eradicate poverty and reduce population growth • Promote rural 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 38