Growing through Cities in Developing Countries

This paper examines the effects of
urbanization on development and growth. It begins with a
labor market perspective and emphasizes the importance of
agglomeration economies, both static and dynamic. It then
argues that more productive jobs in cities do not exist in a
void and underscores the importance of job and firm
dynamics. In turn, these dynamics are shaped by the broader
characteristics of urban systems. A number of conclusions
are drawn. First, agglomeration effects are quantitatively
important and pervasive. Second, the productive advantage of
large cities is constantly eroded and must be sustained by
new job creation and innovation. Third, this process of
creative destruction in cities, which is fundamental for
aggregate growth, is determined in part by the
characteristics of urban systems and broader institutional
features. The paper highlights important differences between
developing countries and more advanced economies. A major
challenge for developing countries is to reinforce the role
of their urban systems as drivers of economic growth.