Urban Growth, Uninsured Risk, and the Rural Origins of Aggregate Volatility

Steven Poelhekke

No ECO2008/26, Economics Working Papers from European University Institute

Abstract: The level of urbanization has increased by over 5 percentage points per decade outside the developed world since 1960. Rapid urbanization was accompanied by fast economic growth and job creation in most parts of the world. However, notably Africa (and Latin America after 1980) has had a different experience: while growth in GDP per capita slowed significantly or even reversed, the rate of urbanization continued its fast pace. This paper aims to explain this by introducing an aggregate risk differential between the countryside and the city. Uninsurable expected risk will lead to rural-urban migration as a form of ex-ante insurance if households are liquidity constrained in incomplete markets and cannot overcome adverse shocks. Macroeconomic volatility finds its origins in risk-prone natural resource production including agriculture and has a robust positive effect on urban growth, especially when economic growth is slow. The effect stands up to the transitional view on urbanization of economies shifting from an agricultural to an industrial base.

Keywords: urbanization; risk; natural resources; volatility; rural-urban migration (search for similar items in EconPapers)
JEL-codes: O1 R11 R23 R51 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-geo and nep-ure
Date: Written 2008
View list of references

Downloads: (external link)
http://cadmus.eui.eu/dspace/bitstream/1814/8891/1/ECO_2008_26.pdf main text

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute
Address: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Contact information at EDIRC.
Series data maintained by Marcia Gastaldo ().