Does urbanization cause development, or vice versa?

Across countries, urbanization rates are strongly associated with income levels. The richer a country is, the more urbanized it is.

You can see this in the figures below using data from incomes and urbanization levels in 1960 (graph on the left) and 2010 (graph on the right).

• The horizontal axis shows Gross Domestic Product per Capita (in 2012 US$).
• The vertical axis shows the percentage of the population living in urban areas.

^{Glaeser, E. L. (2014). A world of cities: the causes and consequences of urbanization in poorer countries. Journal of the European Economic Association, 12(5), 1154-1199. Click to expand}

The figures show that generally countries with higher rates of urbanization have higher incomes. The relationship is strong today, as it was 70 years ago. But the prediction is not as tight as it once was. Some of the very poor countries are experiencing fairly high levels of urbanization – see the many dots for countries with incomes below $1,000 in 2012 US$ and urbanization rates between 30-60%.

Within countries, urban populations tend to be better off than rural populations. Still, many big cities in the developing world have large numbers of extremely poor people. Glaeser (2014) notes that countries that were more urbanized in 1960 grew faster in the subsequent fifty years. But a positive correlation does not necessarily mean a causal relationship.

• What are the reasons we might not want to conclude that urbanization causes growth?

• Will today’s highly urbanized poor countries experience faster growth rates than their predominantly rural counterparts?

• Under what conditions do you think that urbanization will lead to growth?