ch 7

Question 1

the more developed the economy, the more?

Answer 1

urbanized

Question 2

developing countries are often excessively ________________ or too-rapidly __________________

Answer 2

urbanized/urbanizing

Question 3

Cities with 10 Million or More Inhabitants

Answer 3

Megacities

Question 4

The Role of Cities

Answer 4

1. Agglomeration economies: Urbanization (general) economies, localization (industry or sector) economies
2. Saving on firm-to-firm, firm-to-consumer transportation
3. Firms locating near workers with skills they need
4. Workers locating near firms that need their skills
5. Firms benefit from (perhaps specialized) infrastructure
6. Firms benefit from knowledge spillovers in their and related industries

(Also: consumers may benefit from urban amenities)

Question 5

is a key to sectoral efficiency

Answer 5

Quality of clusters, or Industrial Districts,

Question 5

Smaller cities may be expected in

Answer 5

labor-intensive developing countries

Question 6

More extensive (expensive) capital, infrastructure required in

Answer 6

urban areas

Question 7

Causes of Urban Giantism:

Answer 7

Import substitution industrialization: less trade, incentive to concentrate in a single city largely to avoid transportation costs

“Bread and circuses” to prevent unrest (evidence: stable democracies vs. unstable dictatorships)

Hub and spoke transportation system (rather than web) makes transport costs high for small cities

Compounding effect of locating the national capital in the largest city

Question 7

The Urban Giantism Problem

There may be general urban bias

Cities are capital intensive, so may expect that
large cities are commonly located in developed
countries

But urbanization in developing countries has taken
place at unexpectedly rapid pace

Huge informal sectors in shantytowns, favelas

Large fraction of workers outside formal sector

Much urban growth is in mid-size cities, but urban
bias remains a serious issue in many developing
countries

There may be First-City Bias (favoring largest city)

Question 8

Why promote the urban informal sector?

Answer 8

Generates surplus despite hostile environment

Creating jobs due to low capital intensivity

Access to (informal) training, and apprenticeships

Creates demand for less- or un- skilled workers

Uses appropriate technologies, local resources

Recycling of waste materials

More benefits to poor, especially women who are concentrated in the informal sector

Question 9

Rural-to-urban migration was viewed positively until recently

Question 10

The current view of Rural-to-urban migration is that this migration is?

Answer 10

greater than the urban areas’ abilities to
— Create jobs
— Provide social services

Question 11

° A Verbal Description of the Todaro Model
— Migration is a rational decision
— The decision depends on expected rather than actual wage differentials
— The probability of obtaining a city job is inversely related to the urban unemployment rate
— High rates of migration are outcomes of rural urban imbalances
° A Diagrammatic Presentation

Question 12

WA is agricultural income,

LM is employment in manufacturing

LUS is total urban labor pool

WM is the urban minimum wage

Question 12

7.6 Toward an Economic Theory of Rural-Urban Migration (cont’d)

Five Policy Implications

Answer 12

Reduction of urban bias

Imbalances in expected income opportunities is crucial

Indiscriminate educational expansion fosters increased migration and unemployment

Wage subsidies and scarcity factor pricing can be counterproductive

Programs of integrated rural development should be encouraged

Question 13

If informal-sector income is greater than zero, we
include it as a weighted component of expected
urban income (on the right side of Equation 7.1),
specifically we add (as in Endnote 30):

The informal-sector wage WUI times the probability
of receiving it:

WUI(1 - LM/LUS)

where (1 - LM/LUS) is the probability of not receiving
the preferred urban formal wage.

We can further elaborate with other wages for
different activities - and probabilities of receiving them
- in this period; and, more generally, in future periods

Answer 13

Generalizing the Harris-Todaro Model

Question 14

7.7 Summary and Conclusions: A Comprehensive Migration and Employment Strategy

Create a urban-rural balance

Expand small-scale, labor intensive industries

Eliminate factor price distortions

Choose appropriate labor-intensive technologies of production

Modify the linkage between education and employment

Reduce population growth

Decentralize authority to cities and neighborhoods

Question 14

In-Class Example of the Harris-Todaro Model

Start with equation on the previous slide:

Rural wage = $1.50 per day

Urban modern wage = $3 per day

Urban traditional income = $.25 per day

Suppose there is a .5 probability of getting a modern
job. Will there be migration?

Calculate expected urban income and compare to rural
income. Important: you cannot work in two sectors at
the same time!

E(YURB) = (.5)(3) + (.5)(.25)

= 1.50 + .125 = 1.625 > 1.50 = YRUR

So the individual migrates - even though half receives
just a small fraction of the rural income.