It has been most succinctly put forth by the author that urbanization holds the key to growth in per capita GDP as a result of increased economic activity. While rural areas are most agrarian in nature the urban areas command a greater share of manufacturing, services and activities which look for skilled rather than unskilled labor as is the case with rural areas. The greater access to skilled labor enhances the level of education and demands on enhanced infrastructure capabilities increases. This is the sole reason why there is seen greater economic activity in urban areas when compared to rural areas.
The direct correlation between urbanization and per capita GDP has been supported by laying down certain key facts which have led to the following conclusions; Per capita GDP of urban areas is greater than that seen by rural areas, the larger cities have higher GDP than their smaller counterparts due to greater economic activities, the developed nations have about equal GDP in both urban and rural areas unlike the emerging economies and that mass migration to urban markets often results in increased economic activity.
The paper puts forth the idea that the coming decades till 2050 will see a major migration of the rural population to the urban cities. As a result of this there would be an overall increase in the per capita GDP. The argument that urbanization leads to an increase in per capita GDP is supported with data from various countries which shows how an increase in urbanization has led to an increase in the per capita income levels of the people residing in urban cities.
Segmenting of the countries into various groups
Developed countries which are already seeing a bulk of their population cornering the urban cities form the first segment. The next is the set of emerging countries which have majority of their population occupying the rural lands. Another set of countries are those which are outliers who despite having the bulk of their population residing in urban areas are not able to harness the full potential of their economic activity which results in an increase in per capita GDP.
Without proper welfare schemes for equitable income distribution, the migration of rural population to urban areas are a bane rather than a boon. For tapping the full potential of a rural to urban shift that the government of a country does not find itself stuck in a policy paralysis. For example, Indian countries are seeing a shift from rural to urban cities but without proper social welfare schemes the mass migration is resulting in the developments of shanty townships and slums rather than an equal garland of opportunities for all. China on the other hand ensures that the shift is controlled and that the rate with which migration is happening concurs with the rate with which the welfare schemes manifest themselves.
The importance of proper implementation of policies that spearhead equitable distribution can be seen through the example of countries in South America. These countries have a greater number of their populations residing in the urban areas rather than rural areas. Countries like Argentina, Brazil, Peru, Columbia and Chile are seeing only half of the economic potential that they are actually capable of. Why is it so? The reason was that the migration was extremely rapid due to an extreme economic depression in the rural areas of these countries. A period when there was economic mismanagement and hyperinflation distorted policy making. The highlight is clear. Migration from rural to urban cities has to be controlled and economically managed with implementation of good policies so that equitable distribution of income is ensured.
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With respect to future lucrative markets for investors it can be deciphered from the text that since urbanization is the buzz word for increase in economic viability the countries which have the maximum potential to see urbanization would be the most enriching in terms of returns on investment. However, this urbanization has to be earmarked with government policies which match the rate of urbanization. Counties with growth potential due to urbanization but bound by a policy paralysis could only be a pain for the investors in the future.
In the light of the above statements it can be seen that India and China offer significant growth opportunities. That said, the articles also mentions that rampant corruption in India, leakages and pilferages in government oriented welfare schemes is worsening the investment prospects there. Therefore the need of the hour for India and countries which might be the future leaders is to focus their attention on making intelligent investments, indulge in urban planning, develop infrastructure, and bring about crisp and corruption free social programs.
Countries with large overall populations
It is evident from the study that emerging markets would be the most promising countries in terms of growth prospects due to the potential of urbanization left in them. The author posits that those countries which possess the following characteristics would be the ones who would drive the growth engine of the coming time; Countries with large overall populations, a current urbanization rate between 30-50%, a low GINI coefficient, easy accessibility of capital markets, declining corruption levels. Countries such as China, India, Indonesia, Egypt, Pakistan, the Philippines seem to fit the description and hence would be the silver lining of the future for the investors across the globe.
The evolving structure of families is worth sparing a thought. Where on the one hand the average household size is decreasing, the space required per household is increasing. Urbanization would put an enormous amount of pressure on the housing development of urban cities. If policies are not put in place to create equal living conditions for all who dwell in urban cities then it would lead to creation of shanty towns and slums. China follows the system of Hukou by which they control the flow of migration from rural to urban cities.
Higher the per capita GDP, higher would be the disposable household income. There is a direct correlation between urbanization and per capita GDP which means that with greater degree of urbanization the personal disposable income would be higher too. This in effect means a greater demand of consumption and an enhanced level of economic activity. Transportation, telecommunication, education, services, manufacturing all would increase. As the emerging markets possess the highest potential for urbanization they also possess a potential for growth provided there is support from government in terms of policy support else they see the fate of some of South American countries.
Rural cities are majorly agrarian in nature. In contrast, urban cities due to higher economic activity are seen to employ skilled labor. This can come only with the induction of better education in order to enhance the human capital. The human capital acts as a driver for growth. Poorer the development of human resource due to lack of standard education infrastructure the slower the growth would be. It is therefore pertinent that emerging countries need to invest well on infrastructure associated with education. Higher the investment in technology, research and development higher would be the urbanization rates. Urbanization is not only about migration of people from rural to urban, it is also about how this shift is garnered by the deployment of infrastructure.
It must also be mentioned here than only through efficient management of economic resources and a proper planning during this transformation can lead to improvements in environmental impacts due to human activities in the urban cities.
Empirical Robustness of the Document
The paper is replete with facts and figures. Data across the years and from several countries is used to support the arguments. A group of 34 countries has been taken with 27 of them emerging markets and the remaining the G7 countries. The facts and figures illustrated have been based on the United Nations projections.
Based on United Nations projections it is estimated that within a time span of 40 years the urban population is expected to increase by a substantial 2.8 billion people, 94% of which will be from the rise in urban population in the emerging nations. At the same time the rural population is expected to decline by 558 million, 85% of which is said to take place from the emerging nations. The conclusion is lucid that the developed nations are already seeing a massive population in the urban regions while the emerging nations are lying in the sweet spot between 30-50%.
The argument that urbanization leads to an increase in the per capita GDP is supported by data sets under 5 different heads. Based on data analyzed it has been concluded that per capita GDP is generally higher in the urban areas than in the rural areas across the world. Data from United States population from 1900 to 2000 has been collected based on which it has been observed that states with urban cities comprising over 50% of population has risen from 47 out of 50 and the contribution to GDP from the top seven states which have the highest rate of urbanization is well over 46%. This can be attributed to the increase in economic activity since over these 100 years; urbanized cities touched an overall 80% from 40% in terms of population. The derivation is simple; that urban cities contribute more to the GDP than the rural cities.
To emphasize on the fact that the document is indeed robust in terms of supporting its arguments, it has also been shown that the larger cities of a country contribute more in terms of per capita GDP than the smaller ones. The megacities of China, for example contribute more than the average of the considerably large 35 Chinese cities.
Based on data derived from United Nations projections it is evident that urbanization does lead to an increase in per capita GDP growth. Another point that has been put forth in the text is that unless government deploy a healthy mix of economic policies urbanization will deter the economic progress. This fact has been clearly illustrated taking the example of South American countries of Argentina, Peru, Chile etc. It has been argued that urbanization in these countries took place during a time when hyperinflation rocked these countries. There was rapid migration due to extremely poor economic conditions in the agrarian sector of rural areas. The government was unable to control the influx and come out with policies to ensure equitable distribution of income. As a result of which currently the amount of economic activity in these countries is about half of what it should have been.
Statistical inferences, figures and numerical data all have been used based on United Nations projection to showcase the arguments put forth. It does indicate that the study is empirically robust and provides a clear understanding about the state of countries decades from now. It can be derived from the study the countries which can drive the growth in the future and what policies would need to be put in place to cater to the successful investment.
Learnings from the Document
As an investor one would be delighted to invest in markets which are robust and see a good growth potential in the future. This document helps in determining the avenues of investment which would hold a promising future. I have learned that urbanization would mean an enhancement in the per capita GDP growth due to rise in the economic activity. This increase in per capita GDP has to be supported with a good mix of social welfare policies and infrastructure developments. While making an investment I would keep in mind the government policies currently in place in markets which have an enormous potential for urbanization.
I have also learned that since urbanization leads to increase in economic activity the focus would be on skill enhancement which would require educational support. Equitable distribution of income demands proper infrastructure support in terms of housing developments. As the rate of urbanization advances so would the need to construct houses. The amount of steel and cement needed to support such development would be immense which means that steel and cement as well as real estate are sectors which hold promising future and therefore are good for investment purposes.
Power and energy too would be essential since urbanization would demand extensive construction activities. Power and energy would be essential to keep this activity running. It has been also reported in the document that with urbanization there is an increase in the household disposable income which would mean greater consumption. Automobile, telecommunications, consumer goods would see a meteoric rise.
The biggest market as my learning goes, due to their potential rate of urbanization would be the emerging markets. In particular, the Chinese markets, India and Indonesian markets would be the drivers of future growth. In fact all markets which lie in the sweet spot of 30-50% of urbanization currently are promising. However, as has been suitably explained with the example of South American countries, growth can only occur provided the government of these countries offer policies which ensure infrastructure and skill development. For example, the National Rural Employment Guarantee scheme of the Indian government which even though is a good social welfare scheme to ensure equitable distribution of income, is suffering from leakages due to rampant corruption.
The learning from the document is that government in order to tap the potential that urbanization has to offer, need to indulge in infrastructure development, urban planning, social welfare schemes etc.
A country which has a large population, a low GINI coefficient, declining corruption levels and easy accessibility to its capital markets would be the most suitable for investment purposes. It can be said that countries which do have a large population in their rural areas must place enough check on their corruption levels since they would deter the growth due to urbanization. Also the regulators of the capital markets must put in place policies that ensure that foreign direct investment is not hampered due to poor accessibility as a result of weak regulation.
This document therefore supplements my understanding of various countries and helps me in knowing about which countries offer great growth perspectives, which ones are the outliers and what are the loopholes that may result in improper tapping of these possibilities. The document enhances understanding about various sectors and how they fit into the scheme of things; Steel, cement and education to name a few.
Agreement and Disagreement
It is mentioned in the document that urbanization leads to increase in per capita GDP provided that the mix of economic and social policies are well framed to take advantage of the same. Weak economic policies do not lead to an increase in productivity levels due to urbanization. This has been clearly illustrated with the example of South American countries. I agree with this argument put forth in the document.
A government bound by a policy paralysis will not be able to tap the potential in the rise in the rate of urbanization. Government must shatter all bottlenecks and invest in infrastructure development in order to harness the capability of its people and places. Thus I support this stance taken by the author of the document that sharp policies are needed for growth.
The document speaks about how the household size is declining and how the household space requirement is increasing. India has a household size of 5.4 while China has a 4.7. Urbanization means more number of people dwelling in urban cities but needing more area as a housing unit. There would be a tremendous pressure on the urban cities to provide a dwelling to all the people. Structures are anyways shifting to skyscrapers. Even if the government is able to plan the cities well there would be cities full of people and there would be millions still left homeless. I, therefore disagree with the document in putting forth the idea that urbanization inputted with proper policies would result in equitable distribution to all. No matter how much effort is put in place there would be chaos due to the lack of land and development of shanties and slums is inevitable.
A Question Left Unanswered
The document speaks about the improvements in environment through efficiently planned and managed urban areas. This however is not supported with factual data. It has been seen that developed nations such as the United States, have the most urbanized cities across the globe. They are the most efficiently managed cities as well. But the meetings on climate change between nations across the global to curb carbon emissions have been compounded with problems with no apparent solutions to the problems of global warming. These developed nations have been the largest contributors to carbon emissions. When the danger of global warming loomed large on the heads and committees were formed with representatives from all across the nations there was no major consensus reached on carbon emissions since the developed nations are not willing to undergo a decline in their economic activities due to lower carbon emissions. They force the emerging and least developed nations to check their carbon emissions through their considerable superpower. It clearly demonstrates the fact that urbanization despite effective management has not led to a decrease in the deterioration of the environment. In fact greater urbanization means greater exploitation of the natural resources. Petroleum products which are a conventional source of energy are projected to perish by 2050. This might be due to the rate with which urbanization is taking place. There has been no explanation as to how exactly would environmental degradation be reduced. This could have been done through facts explaining the current predicament of nations investing in renewable sources of energy. The document has left this question largely unanswered.
Thus, even though the document speaks about urbanization being a boon it leaves everything unanswered as far as the impact of the increase in economic activity on the environment is concerned.