Why Big Cities Matter in the Developing World
Half the world's population lives in cities today, a figure that will increase to 70 percent by 2050. In that same time period, McKinsey Global Institute projects that the economic output of the 600 largest cities and metro areas is projected to grow $30 trillion, accounting for two-thirds of all global growth.
Economists and urbanists have long noted the connection between urbanization and economic development. As Harvard University economist Edward Glaeser points out, “if you compare countries that are more than 50 percent urbanized with countries that are less than 50 percent urbanized," he writes, "incomes are five times higher in the more urbanized countries and infant mortality rates are less than a third in the more urbanized countries.”
But it has been difficult to get at the precise ways that global cities relate to productivity and economic development, mainly because of the lack of comprehensive, systematic, and comparable data. Aside from estimates of their populations, none of the major statistical agencies — the United Nations, the World Bank, or others — collect comparable economic data for the world's urban areas.
Fortunately, the Brookings Institution's Global MetroMonitor has compiled data on GDP per capita for the world’s 300 largest metropolitan economies, most recently through 2012. These metros account for nearly one-half (48 percent) of global output, while being home to less than one in five (19 percent) of its people. Undertaken in collaboration with researchers from the London School of Economics, these data are based on assessments from Moody's Analytics and Oxford Economics.
Not surprisingly, the blue dots, which indicate metros with between $45,000-$90,000 in per capita output, are concentrated in the "Global North." Even though the data do not cover metros in the poorest parts of the world, the yellow dots (metros with between $3,000-$15,000 in economic output per person) are concentrated in in the "Global South." The poorest metros, according to this metric and data, are in India, China, Brazil, and South Africa.
Let’s take a closer look:
$45,000-$90,000 per person: There are 91 metros in this group, found mainly in the United States, Canada, Northern Europe and Scandinavia, Australia, and Japan. These are the peaks of the world economy — places like greater New York, London, Paris, Singapore, Hong Kong, Washington, D.C., San Jose (Silicon Valley), Boston, Pittsburgh, Denver, Sydney, Amsterdam, Geneva, Zurich, Frankfurt, Munich, Vienna, Brussels, Dublin, Oslo, and Helsinki. The list also includes oil-rich rich regions like Calgary and Houston as well as Abu Dhabi and Kuwait City in emerging economies. These very high output metros are home to 3.8 percent of the world’s population and 20.1 percent of the population of the top 300 metros (those covered in the study), but they account for 18.2 percent of global economic output and 37.2 percent of the output of the top 300 metros.
$30,000-$45,000 per person: 103 metros fall into this category. They are sprinkled acrossthe U.S., Canada, Europe, Australia, Japan, South Korea and Taiwan. They include places like Detroit, Miami, Toronto, Vancouver, Brasilia, Melbourne, Brisbane and Adelaide; Barcelona and Madrid; Milan, Rome and Turin; Copenhagen, Glasgow, Berlin, Budapest, Moscow, and Lisbon as well as Tel Aviv and Haifa; and Seoul, Taipei, and several metros in China. These well-performing metros are home to 4.8 percent of the world’s population and 25.7 percent of the population of the top 300, and account for more than 16 percent of the world’s total economic output and 32.8 percent of the total economic output produced by the top 300 metros.
$15,000-$30,000 per person: There are 75 metros in this group. These include metros in Europe, Japan and South Korea as well as Brazil, China, Russia, Mexico, Argentina, Colombia, Kazakhstan, Malaysia, Indonesia and South Africa. The group includes metros like Liverpool, Cardiff, Sheffield, Lille, Leipzig, Auckland, Naples, Seville, Valencia, Naples, Istanbul, St. Petersburg, Krakow, Buenos Aires, Sapporo, Shanghai, Beijing, Bangkok, Mexico City, Guadalajara, Sao Paolo, Rio de Janeiro, Santiago, Bogota, Lima, Cape Town, and Dubai. These middle performing metros are home to 6 percent of the world’s population and 32.2 percent of the population of the top 300 metros, and they account for 11.4 percent of global economic output and 23.3 percent of the output of the top 300 metros.
$3,000 to $15,000 per person: There are 31 metros in this category. Of course, many more metros around the world would likely fall into this group, but they are not covered in the Brookings data. These metros are found mainly in Global South, including China, India, Brazil, Colombia, Egypt, and Indonesia. They include some of the largest cities and metros in the world, like Manila, Jakarta, Cairo and Alexandria, Durban, Medellin and Cali, Mumbai, Kolkata, Delhi and Bangalore, as well as numerous metros in China. These lower output metros are home to roughly 4.1 percent of the world's population and 21.9 percent of the population of the top 300 metros, but they account for just 3.2 percent of total global economic output overall and 6.7 percent of the output of the top 300 metros.
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While metros in the advanced countries remain more affluent than those in the developing and emerging economies, growth is accelerating in the latter. "Three-quarters of the fastest-growing metropolitan economies in 2012 were located in developing Asia, Latin America, and the Middle East and Africa," the Brookings authors write. "By contrast, almost 90 percent of the slowest-growing metro economies were in Western Europe and North America."
What’s even more interesting is how the data enable us to examine to what extent metro economic growth is related to national growth. As the report notes:
Compared to their countries, more than half of metro areas outperformed on employment growth in 2012, but only 40 percent achieved faster GDP per capita growth. Fifty-six metro areas were pockets of growth in their countries, with both GDP per capita and employment expanding at a faster pace than national averages.
To further explore this relationship, I developed a metric I call the urban productivity ratio. The ratio simply compares the per capita economic output of metros to the per capita economic output of their nations. My MPI colleague Charlotta Mellander calculated the urban productivity ratios for these 300 metros based on the Brookings data for metros and World Bank data for nations, using data from 2012. Zara Matheson mapped the results.
As can clearly be seen on the map, the urban productivity ratios tend to be highest in the metros of the developing and emerging economies. The typical large metro in the United States or Europe or Japan has an urban productivity ratio of 1 to 1.25, indicating productivity on par or perhaps 25 percent greater than the national average. At 1.6, San Jose – Silicon Valley – has one of the very highest in the advanced world. Paris is 1.5; Boston and San Francisco 1.4; New York, L.A., Dublin, Frankfurt, Stockholm and Helsinki 1.3; Tokyo, Rome and Hamburg 1.2; Chicago, Toronto, Seoul, and Sydney 1.1; Singapore, Hong Kong, Copenhagen and Dusseldorf around 1.
The urban productivity ratios for metros in the developing and emerging economies is much greater. More than 40 metros spanning China, Brazil, Russia, Poland, Thailand, the Philippines and other developing economies have ratios greater than 2. These include Bangkok (2.7), Delhi (2.6), Shanghai (2.6) Beijing (2.4), and Sao Paolo (2.0). Another 18 – mainly in China but also in Brazil and the Philippines – have ratios of 3 or greater; 10, all in China, have ratios of 4 or more; and 3 have ratios of 5 or more.
While this is the dominant pattern, it does not hold across the board. Mumbai, Cairo, Bogota, and Jakarta – with ratios around 1.6 – are on the high side of what are found in advanced nations. Rio, Cape Town and Abu Dhabi have ratios of 1.4, about the same as Munich; Mexico City and Santiago come in at roughly 1.2, about the same as Minneapolis; Hyderabad and Bangalore around 1.1; and Guadalajara around 1.0; Kolkata 0.9 and Dubai 0.5.
Despite these exceptions the general pattern is clear: Metros in the developing and emerging economies have higher urban productivity ratios than their counterparts in the advanced world. As countries become more developed, the productivity edge that urban regions have over their countries declines. This makes sense, development leads to urbanization which leads, eventually, to the convergence of the productivity of metro areas and the country as a whole.
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The Brookings MetroMonitor data are limited in that they exclude many of the poorest and most disadvantaged cities of the Global South (the maps above show few cities in Africa).
To get a better handle on the urban productivity differentials in the world’s poorest cities, I used data on economic output for a broader sample of cities based on satellite images of the world at night. I developed this measure of "light-related regional product" for 680 metro areas around the world in collaboration with Timothy Gulden and Charlotta Mellander. While questions about the precision of these satellite data remain, the recent American Economic Review study "Measuring Economic Growth from Outer Space" by economists J. Vernon Henderson, Adam Storeygard, and David Weil, notes their utility in just these kinds of circumstances. They write:
[W]e can use night lights data to tell us about economic growth in circumstances where we have no measures of income growth. Most compelling is that night lights data are available at a far greater degree of geographic fineness than is attainable in any standard income and product accounts.
The graph below, from MPI’s Zara Matheson, charts the urban productivity ratio using this light-emissions metric. Notice the predominance of green and blue dots — marking metros with high or very high urban productivity relative to national productivity — in Africa, India, China and Southeast Asia.
Based on this larger data set, we found roughly 125 global metros — mainly in China and India, Southeast Asia, Africa and South America with urban productivity ratio of 3 or above. We found 40 global metros — mainly in Asia and Africa — with ratios greater than 5. And we found seven — again in Asia and Africa — with urban productivity rations in excess of ten times their national average.
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While our analysis is provisional, it suggests that many cities in emerging and developing nations have a considerable productivity advantage over their countries, and also have higher relative productivity than their counterparts in the advanced world.
Understanding the positives and negatives associated with this outpaced development will require better and more systematic data on the economies of global cities. But it remains one of the most important questions in the study of global economic development. Urbanization has become a key part of economic growth in today's world. In many places, cities have provided a critical spur to overall economic growth. But the benefits that come from urbanization have been uneven. In too many parts of the Global South, mega-slums and persistent poverty remain disturbing facts of life. My next two posts will deal with how harnessing the full potential of these great conurbations to spur further development and rising living standards throughout the developing world remains the grandest challenge of our time.
All maps by MPI's Zara Matheson.