Urbanization and Rural-Urban

Migration: Theory and Policy

• In this unit we would:
• 1.1 Examine the potential role of cities both
modern sector and urban informal sector-in
fostering economic development
• 1.2 Rurual –urban labour transfer in the
context of rapid growth and high urban
unemployment
• 1.3 Evaluation of various policies options for
LDC governments may wish to pursue
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 Urbanization and Development
• Economic development causes urbanization

• There is a positive correlation with economic

development and urban population growth

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Urbanization and Development

Highest- income countries such as Denmark and Luxenborg are among the
most urbanised while the verry poor countries such as Rwanda are among
the least urbanised

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 Urbanization Across
Time and Income

Each line represents the trajectory of one country, starting

from the solid dots(1970 income and urbanization level for a
given country ending at the end of the line segment marked
by a diamond representing the corresponding 1995 income
and urbanization level for the same country ) 7 -5
 Urbanization Trend

World urban population distribution (in billions)

2000 2025
World 3.2 5.1
MDCs 1.0 (31%) 1.1 (22%)
LDCs 2.2 (69%) 4.0 (78%)

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 Distribution of Urban Population

Urban population shares of Asia and Africa

are expected to rise at the expense of Latin
America:
2000 2025
Africa 18% 20%
Latin America 22% 15%
Asia 60% 65%

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Urbanization in the World

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Projected Urban and Rural Population
MDCs and LDCs, 1950-2030

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 Most Populated Cities

• Of the 15 largest cities, 4 are in MDCs (LA,

NY, Tokyo, and Osaka) and 11 are in LDCs

• By 2015, the ranking of these largest cities

will change in favor of the LDCs (e.g., NY
falls from no. 3 to 11)

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Largest Cities in the World

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 Mega-Cities:
Cities with 10 Million+ Inhabitants

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Size of Largest Cities

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 Location of Migrant Workers
• Migrant workers move to nearby towns and
large cities, and especially the capital city

• They reside in slums and shanty towns where

low cost housing is available

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Slums in Urban LDCs

C o p y r ig h t © 2 0 0 9 P e a r s o n A d d is o n - W e s le y.
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A ll r ig h ts r e s e r v e d .
 Urbanization

The LDCs experience rapid urban population

growth because of

• Natural increase: birth rate > death rate

• Rural-urban migration: movement of rural

workers to urban areas

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 Contribution of R-U Migration

• On average, about 50% of urban population

growth of the LDCs is due to R-U migration

• Rapid R-U migration has resulted in the

construction of slumps and shanty towns that
house a large percentage of urban population

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Extent of R-U Migration

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Components of Migration

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 Dualistic Economic Structure
• Formal sector: organized and regulated
economic system (e.g., government agencies,
banks); it generates 2/3 of GDP

• Informal sector: fragmented and unregulated

economic system (e.g., street vendors, loan
sharks); it generates 1/3 of GDP

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 Dualistic Labor Market

• Formal labor market: skilled labor (e.g.,

government employees, teachers) and
professionals with education and license

• Informal labor market: semi-skilled and

unskilled labor (e.g., small business, street
vendors)

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 Urban Informal Sector

• Most rural migrants find jobs in the

“informal” urban labor markets

• The “informal” urban labor force is a

large component of the urban labor force

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Informal Urban Labor Force

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Informal Employment

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 Developing Urban Informal Sector

Advantages of investment in urban “informal” sector

• Contributes to economic growth

• Requires small capital investment

• Requires low cost of training and education

• Supplies semi-skilled labor to industry

• Uses labor-intensive technology to create jobs

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 Developing Urban Informal Sector

Disadvantages of investment in the urban

“informal” sector

• Induces R-U migration

• Exerts pressure on urban infrastructure

• Adds to pollution, congestion, and crime

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 Women in U-Informal Sector
• Represent the bulk of the informal sector labor
supply

• Earn low wages in unstable jobs with no benefits

(e.g., housekeeping)

• Run micro-enterprises (e.g., home-made foodstuffs

and handicrafts)

• Engage in illegal activities (e.g., prostitution)

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 Urban Unemployment
• Urban open-unemployment is in double-digits
in many LDCs

• The problem is much more serious because

– Discouraged workers are excluded
– Underemployment is not measured

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Urban Unemployment

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 Todaro’s R-U Migration Model
• Factors affecting migration decision
– Expected urban income
– Probability of finding an urban job
– Cost of living in urban areas

• Decision criterion:
– Migration will take place if the present value of
“expected” benefits exceed costs

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 Todaro’s R-U Migration Model
Benefits from migration:

• Higher urban wage

• Enjoyment from urban entertainment

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 Todaro’s R-U Migration Model
Costs of migration:

• Transportation cost
• Opportunity cost of being unemployed
• Greater living expenses
• Psychic cost of being away from home and family

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 Todaro’s R-U Migration Model
Non-economic factors inducing migration:
• Distance: the farther the distance, the larger is
the transportation cost

• Relatives living in urban areas helping reduce

living expenses

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 Todaro’s R-U Migration Model
Non-economic factors inducing migration:
• Information flow about job openings in the
“informal” sector

• City lights: movie theaters, restaurants,

amusement parks, etc.

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 Policies Inducing R-U Migration
• Neglect of agriculture: industrialization at the
expense of agricultural development

• Urban bias development strategies: investment in

urban industrial development

• Job creation in urban areas by government and

manufacturing and services industries

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 Policies Inducing R-U Migration
• Educational opportunities in urban areas: R-U brain
drain

• Cash and in-kind subsidies to government employees

and factory workers

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Policies Reducing R-U Migration
• Eradicate poverty and reduce population growth

• Promote rural and agricultural development

• Create jobs in rural areas: expand small-scale, labor-intensive

industries

• Eliminate factor-price distortions and adopt “appropriate”

production technologies

• Modify direct link between education and employment

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