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Urbanization and per capita income levels in 2011 Urban population (percent) 100 Japan United States 90 Brazil 80 Russian Federation South Africa 70 60 Korea, Rep. Germany China 50 40 India 30 20 10 0 10000 20000 30000 40000 GNI per capita (constant 2000 US $) Structure of labor market and urbanization rate, 1963–2011 (%) 70% 60% Employment in services Employment in industry 60% 50% Urbanization rate (RHS) 50% 40% 40% 30% 30% 20% 20% 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1971 1969 0% 1967 0% 1965 10% 1963 10% 0 United Kingdom (1850-1880) United States (1880-1910) Mean Developing Countries… Mongolia Spain (1960-1990) Netherlands Portugal Saudi Arabia Germany (1880-1910) Mozambique Albania Iran, Islamic Rep. Dominican Republic Brazil Belarus Ghana Paraguay El Salvador Cameroon Ecuador Nigeria Bolivia Lao PDR Jordan Panama Canada (1880-1910) Turkey Oman Korea, Rep. Indonesia Algeria Malaysia China Angola Saudi Arabia (1960-1990) Korea (1960-1990) 50 Change in urbanization rate (percentage points) 1978-2012 45 40 35 30 25 20 15 10 5 • • • • • Rapid urbanization of land have resulted in inefficiencies due to urban sprawl (cities “came” to farmers), congestion Urbanization of people has lagged urbanization of employment – social divisions have increased Industry-led urban growth has been resource intensive and damaging to environment Urban firms have to create high skilled jobs that promote industrial upgrading, structural transformation towards high value added industries and services Urban residents will demand better lifestyles and amenities Productivity growth associated with higher economic concentration, increased specialization and efficient allocation of factors of production Growth will originate in cities Supply Side Y=f(H,K, L) Agglomeration knowledge sharing, labor matching and pooling (Human capital) Demand Side Y=C+I+G+NX Consumption and social amenities associated with density (Consumption) Specialization Economies of scale (TFP) External competiveness (Net Exports) Mobility and connectivity Mobility requires public services and investments (G, I) Free mobility of factors of production lead to higher economic returns Emerging urban middle class will demand better services and lifestyles Higher urban incomes lead to higher consumption Urban middle class is willing to pay more for housing in high density areas that are associated with consumption amenities Figure 1: Higher densities are associated with higher incomes and consumption levels …and consumption levels per capita. Household income per capita and population density in China’s provincial level cities 2010 Retail sales per capita and population density in China’s provincial level cities 2010 4.6 5.3 Log of retail sales of consumer goods per capita in 2010 Log of Household income per capita, 2010 Incomes per capita are higher in cities that are more densely populated... 4.5 4.4 4.3 4.2 4.1 4.0 3.9 1.25 1.75 2.25 2.75 3.25 3.75 Log of Population density 2010 World Bank staff estimates based on CEIC dataset. 4.25 5.1 4.9 4.7 4.5 4.3 4.1 3.9 3.7 3.5 1.25 1.75 2.25 2.75 3.25 3.75 Log of Population density 2010 World Bank staff estimates based on CEIC dataset. 4.25 Low and falling population densities have undermined agglomeration Figure 1: Population densities of Chinese cities have fallen Urbanization of land faster than urbanization of people…. …Population concentration in China is similar to other former planned economies Percentage changes in built-up area and urban population by city size, 2000-2010 Gini coefficients of urban population of cities 0.7 Built-up area Urban population changes > 15 million 300% 250% 200% < 250t 150% 100% 50% 0% 0.6 10-15 million 0.5 0.4 0.3 250t - 500t 5-10 million 0.2 500t - 1 million 1-5 million 0.1 0 Source: World Bank Staff Calculations based on 2000 and 2010 Population Census, CEIC (China). Methodology: Weighted average. Maturing industries are not moving to secondary cities fast enough The largest cities have are not sufficiently specialized in high value added services Figure 1: Despite recent trends, a large share of manufacturing remains in large and medium sized cities LQ manufacturing in the United States and China by city size 3.5 3 LQ financial services in the United States and China by city size 3.5 United States 2.5 United States 3.0 China 2.5 China 2 2.0 1.5 1.5 1 1.0 0.5 0.5 0 - > 15 10-15 5-10 1-5 500t - 1 250t million million million million million 500t < 250t > 15 million 10-15 million 5-10 million 1-5 500t - 1 250t million million 500t < 250t World Bank Staff Calculations based on 2010 Population Census, CEIC (China) and Bureau of Economic Activity (the United States). Compared to other countries of similar levels of income, China’s urbanization is lower Figure 1: Compared to other countries China has lower urbanization rate Urbanization rate and year in which country reached China’s current income per capita level 100 Singapore Belgium Kuwait Qatar Venezuela 90 Australia 80 60 50 Chile Saudi Arabia Czech Sweden Oman Russia Korea Belarus Germany Turkey Japan Spain Bulgaria Hungary Latvia Canada Estonia Austria Malaysia USA Lithuania Armenia FR Italy Poland Finland Netherlands Croatia Slovakia Azerbaijan Ireland Norway Greece Switzerland Kazakhstan China NZ 70 Israel UK Denmark Uruguay Argentina Portugal 40 Slovenia 30 1940 Thailand 1950 1960 1970 1980 1990 2000 2010 2020 Memorandum: China’s income per capita defined at 8825 international dollars. Source: Maddison World Economic History database, WB WDI, UN World Urbanization Prospects: The 2011 Revision, US Census Bureau website and Zhuo Xian’s estimates (2013). Land market distortions result in falling densities Capital market distortions slow specialization Frictions in labor market mobility slow down income convergence