What is Different About Urbanization in Rich and Poor Countries? Cities in Brazil, China, India, and the United States
Are the well-known facts about urbanization in the United States also true for the developing world? We compare American metropolitan areas with analogous geographic units in Brazil, China, and India. Both Gibrat’s Law and Zipf’s Law seem to hold as well in Brazil as in the U.S., but China and India look quite different. In Brazil and China, the implications of the spatial equilibrium hypothesis, the central organizing idea of urban economics, are not rejected. The India data, however, repeatedly rejects tests inspired by the spatial equilibrium assumption. One hypothesis is that spatial equilibrium only emerges with economic development, as markets replace social relationships and as human capital spreads more widely. In all four countries, there is strong evidence of agglomeration economies and human capital externalities. The correlation between density and earnings is stronger in both China and India than in the U.S., strongest in China. In India the gap between urban and rural wages is huge, but the correlation between city size and earnings is more modest. The cross-sectional relationship between area-level skills and both earnings and area-level growth are also stronger in the developing world than in the U.S. The forces that drive urban success seem similar in the rich and poor world, even if limited migration and difficult housing markets make it harder for a spatial equilibrium to develop.
Featured in the NBER digest (May 2016)
Gender segmentation in the labor market is widespread. However, most existing studies of the effects of labor demand shocks on local economies assume away gender. In this paper, I show that local labor demand shocks can lead to different outcomes depending on whether they favor male or female employment. I develop a spatial equilibrium model that features gender segmented labor markets and joint mobility frictions, which predicts that couples are more likely to migrate in response to male opportunities. As a result, positive shocks to local labor demand for men lead to population growth, increases in female labor supply, and housing demand growth. Meanwhile, equivalent shocks to labor demand for women lead to smaller inflows of migrant workers, and labor force participation is a relatively more important margin of adjustment in this case. I find strong empirical support for the model’s predictions in the context of Brazil during 1991-2010. Comparing the effects of gender-specific labor demand shocks, I show that male shocks produce a higher migratory response and make localities more populated and expensive. These results imply that place-making policies that create jobs for females are more likely to benefit residents while those that create male jobs are more likely to benefit immigrants and landlords.
Do primary education investments improve local labor market outcomes? In principle, education could lead to higher local productivity, but potential benefits to local economies could be muted if workers migrate in search of better opportunities, or if shifts in the supply of skills outpace demand growth. I use a large program that redistributed public education finance across Brazilian municipalities (FUNDEF) as a source of exogenous variation to empirically study the effects of expansions in public education expenditure on attainment and labor market outcomes at the individual and the local economy levels. The program was successful at improving primary educational attainment levels for individuals and microregions (local labor markets). High-exposure individuals experienced higher wages and a higher likelihood of migrating to a different local economy. High-exposure microregions saw negative effects on the growth of average wages and other labor market outcomes with the exception of employment, suggesting that the increased supply of educated workers was not matched by demand growth.
As cities in developing countries continue to grow rapidly, there is insufficient empirical evidence on how this affects growth in surrounding rural economies. We study the effects of shocks to labor demand in cities on village-level economic outcomes, using a new dataset with administrative data from multiple sources on the universe of urban and rural economies in India.