July 7, 2016
The City That Shrinks Poverty
By Luc Christiaensen and Ravi Kanbur
Lead Agricultural Economist in the World Bank’s Jobs Group; T. H. Lee Professor of World Affairs at Cornell University.

Megacities get all the attention but as world leaders gather in Singapore to explore urban issues, they ought to consider the important role that ‘second cities’ provide in helping to counter poverty and spur economic activity.

World leaders, industry captains and city mayors will gather in Singapore July 10-14 for the fifth annual World Cities Summit to exchange views on how to best make our cities more sustainable. The success of the event, anchored in the annual World Cities Summit Mayors Forum, is testimony to the increasing role cities play in our economic and social lives.

In Triumph of the City, Edward Glaeser, a Harvard urban economist, even dubbed them “simply our greatest invention.” Cities clearly have an important role to play in economic growth and job creation. They bring people together to sprout innovation, reduce distance between products and customers, and help put the right people in the right jobs. When people leave their farms for urban centres, economic development and poverty reduction ensues. Are large urban centres – megacities – the answer? Or do secondary urban centres offer the best opportunity for the most people?

Most of the research into urbanization focuses on megacities, urban centres with populations exceeding 10 million inhabitants. By 2025, there will be at least 40 megacities worldwide. By 2050, seven out of 10 people will live in megacities. These behemoths of urbanization have long been the traditional focus of scholars, bureaucrats and policy officials who study the effects of cities on sustainable development, poverty reduction and job growth.

But there is another side to the urbanization story that gets much less attention: smaller urban centres, also known as “second cities.” With more than 2,400 of these worldwide, each with populations of between 150,000 and five million, most people who live in urban centres today live in second cities.  The bulk of new urbanites in developing countries are appearing in these second cities.

In Tanzania, for example, the population of megacity Dar Es Salam has accounted for approximately one-third of Tanzania’s total urban population in every year since 1950. But the urban population of Tanzania has grown considerably over that time period, most of it in smaller cities, whose share of the total has increased from less than 10 per cent in 1950 to more than 30 per cent today.

These second cities are particularly interesting for their apparent role in poverty reduction. Cross-country evidence suggests that poverty declines faster when people leave agriculture for secondary cities and their rural outskirts, than when they move to megacities. 

Perhaps most telling is research that tracked the population of Kagera, a rural province in northwestern Tanzania, over two decades from 1991 to 2010. The researchers examined, among other things, migration patterns and the fate of each individual in the original households to determine who moved where and how they fared.

The results showed that people who left the farm for cities were invariably more likely to escape poverty than those who remained behind. But not all cities are created equal. Those who moved to megacities saw their wages increase threefold, compared with a doubling for those who went to second cities. But more than twice as many people went to second cities, where a doubling of wages reduced the poverty rate from 64 per cent in 1994 to 25 per cent by 2010. Overall, migration to second cities and their hinterlands contributed most to poverty reduction.

To better understand this phenomenon, reasons for demanding and supplying labor must be considered. At first sight, labor demand forces would seem to play against smaller urban centers. Since companies benefit from the density of available skilled labor in cities, megacities should be the key drivers of economic of growth and employment generation.

Yet, these presumptions are not so clear cut. The economies of scale associated with many of the activities most developing countries focus on can be captured at much smaller urban scales. There is no clear indication that megacities create more jobs in their outskirts than second cities do. And if second cities received the preferential treatment from governments that megacities do, there is no telling how much more effective they would become.

From the perspective of the poor and rural agricultural worker, secondary urban centres are more attractive than megacities for a number of reasons. First, they’re closer to home so jobs in these cities are easier to find thanks to social linkages and connections. In addition, they are less costly to reach and more likely to match worker skills. Jobs nearby also allow the worker to better maintain family responsibilities, which is crucial in times of family need because of illness or unemployment. These considerations are bound to hold even more for the poorer segments of society, who still live concentrated in rural areas and who basically only have their labor at hand to lift them out of poverty.

To be sure, these insights do not prove that secondary cities are automatically better at generating jobs and increasing earnings for the poor. Yet, they do call attention to the links between the nature of the urbanization, jobs generation and poverty reduction. Broadening discussions of the urbanization discourse and policy debate beyond the issues relating to large cities is bound to be good for jobs, poverty and, given their fast expansion, the sustainability of the cities themselves. Participants at the World Cities Summit may well want to take note.

Luc Christiaensen and Ravi KanburLuc Christiaensen is lead agricultural economist in the World Bank’s Jobs Group. He has published extensively on poverty and food security, structural transformation and urbanization in Africa and East Asia. He co-led the 2016 World Bank Africa Region flagship report: Poverty in a Rising Africa and was a core member of the team that produced the World Development Report 2008: Agriculture for Development. During 2009-2010, he was Senior Research Fellow at UNU-WIDER in Helsinki and he is an honorary research fellow at the Maastricht School of Management. Ravi Kanbur Is T. H. Lee Professor of World Affairs at Cornell University.  He has served on the senior staff of the World Bank including as Chief Economist for Africa. He is President-Elect of the Human Development and Capabilities Association, Past-President of the Society for the Study of Economic Inequality, Chair of the Board of UNU-WIDER, Co-Chair of the Scientific Council of the International Panel on Social Progress, member of the OECD High Level Expert Group on the Measurement of Economic Performance, and a member of the Core Group of the Commission on Global Poverty.