Download Urban Development and Economic Growth in

Urban Development and Economic
Growth in Bangladesh
Somik Lall
The World Bank
Workshop on Growth & Employment,
December 12, 2005
Outline
• Bangladesh is predominantly rural but rapidly
urbanizing
• Across countries, urbanization is typically seen to
accompany and lead economic growth (economic and
institutional transformation)
• Performance of individual cities is conditioned on local
efforts as well as national / regional circumstances
• Rapid population growth poses challenges for
providing consumer and producer services
• What strategies are useful for improving the
contribution of the urbanization process to economic
growth?
Across countries, urbanization
accompanies economic transformation
80
45
Urban population (% of total)
70
40
35
30
50
25
40
20
30
15
20
10
10
5
0
0
1965
1970
1975
1980
Labor force in agriculture (% of total)
Source: World Development Indicators 2001
1985
1990
1995
Agriculture, value added (% of GDP)
1999
Urban %
Agriculture %
60
And the Importance of agriculture diminishes as
countries get richer
Per capita GDP, 2000
100,000
10,000
Bangladesh
1,000
100
1
10
Agriculture, value added as percent of GDP, 2000
Source: World Bank Indicators (2000 data)
100
Share of urban population is rapidly increasing
In Bangladesh
Urban Population (%)
200
180
160
Population, millions
40
35
30
25
20
15
140
120
Total
100
Rural
80
Urban
60
2030
2015
2005
2000
0
1990
0
1980
20
1970
5
1960
40
1950
10
Source: United Nations World Urbanization Prospects
50
19
60
19
70
19
80
19
90
19
00
20
10
20
20
20
30
20
And much of the rural population is in close proximity to
urban centers
100
90
Cumulative rural population by
distance from different size towns
80
Percent
70
60
5,000
50
10,000
20,000
40
30
20
10
0
1
3
5
7
9
11
13
15
17
19
21
23
25
km
Source: GIS calculations using WARPO/CEGIS data; based on 1991 census figures.
Percentages are likely to be higher today as towns have increased in size and as
rural areas near larger towns have grown faster than more remote areas.
Distance
less than
2 km
5 km
10 km
15 km
Minimum town population
5,000
10,000 20,000
9.4
28.1
82.0
96.4
8.6
24.4
72.4
91.6
7.8
20.4
59.0
81.6
Urbanization has been characterized by ‘excessive’
concentration in a few agglomerations
Table 1: Population growth of the largest agglomerations
City Population
Rank (2000)
Dhaka
Chittagong
Khulna
Rajshahi
Mymensingh
Comilla
1
2
3
4
5
6
Population
(2000)
12300
3581
1426
1016
328
307
Population
(1990)
Population
(1980)
Population
(1970)
6619
2265
972
517
189
135
3248
1333
622
238
108
126
1474
693
310
105
N.A.
86
Note 1: Population in thousands;
Note 2: Data are for agglomerations;
At the other end of the size distribution: 300 other urban areas
account for only 4 percent of the urban population
Annual
Growth
(19702000)
7.1%
5.5%
5.1%
7.6%
4.2%
Urban concentration is consistent with
countries at similar income levels
• Dhaka accounts for 32% of urban population
• Concentration is important for efficiency in early stages of
development
• There is an optimal range of concentration which varies with
economic development – increases, peaks, declines
Urban concentration in comparator counties (%)
South Asia Region
Per capita Incomes
Land area
Country
India
Primacy
5.72
Country
Cameroon
Primacy
22.48
Country
Bulgaria
Primacy
20.84
Pakistan
21.94
Mongolia
56.27
Guatemala
20.09
Senegal
43.53
Korea
23.28
45.50
Honduras
27.25
Kyrgyz
Republic
Data Source: WDI Tables, SIMA
Historic Incomes
Country
Colombia
(75)
Honduras
(85)
Armenia
(95)
Turkey (75)
Primacy
20.16
35.48
50.85
21.63
Economic activity
is also concentrated
around major
agglomerations
Core-periphery
pattern, with
Dhaka as the
primary center
and the port
cities (Khulna
and Chittagong)
as secondary
centers
Factors promoting urban concentration
• National political institutions :
– Allocation of local public expenditures in centralized
settings: national government may favor one or two cities
where decision-makers live.
– Favoritism involving the national government not choosing to
invest sufficiently in interregional transport and
telecommunications, so hinterland cities are less competitive
locations; and
• Central government is directly responsible for urban
and regional development
• Failures of national land development markets
– With limited local fiscal autonomy, land developers and local
governments cannot develop alternate locations and spread
development across the urban hierarchy.
Implications of urban concentration
(positives)
• Benefits from economies of scale and
agglomeration
• Economic transformation with large cities
leading manufacturing / industrial
representation
– Dhaka and Chittagong have over seven times the national
representation of employment in garments and machinery.
– Co-location of business and financial services boost firm
level performance
• Thick labor markets
• Higher quality of life for residents as these cities can
do better in proving local public goods and services
Implications of excessive urban
concentration (costs)
• High prices for immobile factors (land and
housing)
• High commuting costs (leading to a
segmented labor market), along with
congestion and pollution diseconomies
• Management failures lead to bottlenecks in
infrastructure and service provision, thereby
increasing production costs
• This translates into lower welfare and overall
economic performance
Dhaka was ranked as one of the most polluted cities in
the World , but PM2.5 concentrations have declined by
41% because of Two Stroke Phaseout
Microgram/m3
350
300
250
200
150
100
50
0
PM2.5
Average
Low satisfaction with public services
Table 1: Satisfaction with Services (% of surveyed households)
Services
Dhaka
Chittagong
Khulna
Rajshahi
Police
2
0
1
2
Land Registration
2
1
10
4
Transport
7
3
19
6
Electricity Services
8
2
12
2
Judiciary
8
1
2
5
Health Care
11
4
18
9
Garbage Disposal
15
10
12
10
Sewerage/
17
16
11
16
Education
21
5
28
12
Drinking Water
27
9
11
8
Sanitation
Source: Proshikha (2002)
Does the distorted urban system translate
into lost opportunities for economic growth?
• The central link between concentration and economic
performance revolves around economies of scale.
• If cities are too small, resources could be spread too
thinly/evenly across cities and scale economies are
not efficiently exploited.
• However, if resources are over-concentrated in one
or two excessively large cities, this raises costs of
production of goods and lowers the quality of urban
service provision.
Table 1: The Effect on Annual Economic Growth Rates of Urban Concentration
Low income ($1100)
Medium income
($4900)
High income
($13400)
The optimal
degree of urban
primacy
Loss in growth rate
from excessive
primacy (one
standard deviation)
Growth effect of a one
standard deviation increase
in road density in a country
with excessive primacy
.15
.25
.71
1.6
.23
.68
.23
1.6
.68
The table looks at a medium size country --national urban population of 22 million. Numbers for countries with
urban populations of up to 50-60 million are similar. The first column calculates the degree of urban primacy that
maximizes growth rates and steady state income levels. Error bands about this for medium or higher income
countries are quite tight (standard error of .018). The growth losses of excessive primacy are high, although more so,
as income rises. The role of transport investment (length of the national road system divided by national land area) is
quite significant, particularly as countries enter middle income phases when deconcentration becomes critical.
Growth implications for Bangladesh
• In 2000, Urban population of 35 million; income per capita (1987
PP) of around $2100.
• At this income level and urban scale, Bangladesh should have
an ‘optimal’ primacy value of around 21 percent.
• In practice, primacy is 32 percent -- 11 percent points higher
than optimal values.
• Based on Henderson’s estimates, primacy in Bangladesh is
more than 2 standard deviations higher that the optimal range.
• At this income range and urban scale, one standard deviation
increase from optimal values reduces growth by 1 percent. A
lower bound estimate of moving from two standard deviations
above optimal value to the optimal value would increase GDP
per capita growth rates by at least 2 percent points.
How do we improve the contribution of the
urbanization process to economic growth?
• Improving management of the largest
agglomerations
• Dhaka (and other major cities) will continue to attract
rapid population growth unless other urban centers
become viable investment decisions.
• Performance of major agglomerations need to be
enhanced
– Institutional reform
– Provision of serviced land
– Enhancement of own source revenues
• Investments in inter regional infrastructure to deconcentrate standardized manufacturing
How do we improve the contribution of the
urbanization process to economic growth?
• Developing alternate locations
• Enhance the ability of Pourashavas to provide local
services that are valued by local resident (but how?)
• BMDF may be a useful vehicle for local infrastructure
improvements
• There may however be adverse welfare
consequences if resources are spread too thinly or
large cities are starved in order to stimulate smaller
centers