The Developing Country Urban Productivity Puzzle

The Developing Country Urban Productivity Puzzle

The canonical measure of these agglomeration forces is the elasticity of wages with respect to density. Measured values are large: 0.043 in the United States, 0.03 in France, and 0.025 in Spain. This means that a 10 percent increase in density increases productivity by 0.3 percent to 0.5 percent. Strikingly, some recent estimates for developing countries are multiples higher: 0.19 in China, 0.12 in India, and 0.17 in Africa. That is, a 10 percent increase in density increases productivity by 1.7 percent in Africa.2

However, these measures and magnitudes seem somewhat implausible and call into question exactly what these measures mean. For example, the night time light intensity in the largest cities of low-income countries is around the same level as the smallest cities of high-income countries (see figure 2.1). Satellite and geographic information system data covering large cities across the Sub-Saharan Africa region suggest that they are crowded and disconnected—a far cry from the dense packing of educated workers sharing ideas in Chicago.

Investments in infrastructure and industrial and commercial structures have not kept pace with the concentration of people in many cities in developing countries, nor have investments in affordable formal housing, making it costly to do business. Whereas Kinshasa, the capital of the Democratic Republic of Congo, and Hong Kong SAR, China, have similar density, the vertical stacking of population, while expensive, is exactly what makes Hong Kong SAR, China, livable and connected, Lall, Lebrand, and Soppelsa (2021) show.3 While building taller is partly a question of finances, cities in developing countries often have inefficient land markets, overlapping property rights regimes, suboptimal and ineffective zoning regulations, and limited infrastructure, including transport—all of which hinder efficient concentration and raise costs (Lall, Lebrand, and Soppelsa 2021; Fujita and Ogawa 1982; Heblich et al. 2018). Heavy congestion, high rates of walking, informal collective transportation, and the spatial distribution of jobs and residents lead to low accessibility to employment in Nairobi and the misallocation of labor, Avner and Lall (2016) find. Those who travel on matatu (privately owned minibuses) can access only 4 percent of jobs within 30 minutes, on average, compared with almost double that share in Buenos Aires (Peralta-Quirós 2015). In Ugandan cities, 70 percent of work trips are on foot (Uganda Bureau of Statistics 2010), with only 19 percent of jobs reachable within one hour, on average (Bernard 2016). The gains that Adam Smith and Alfred Marshall identified for cities are just not obviously there. People are concentrating—the share of Africa’s urban population rose from 31 percent in 2000 to 41 percent in 2019—but not because industrial dynamism is attracting them or because they are attaining the productivity benefits of urbanizing. Developing country cities are not so much densely productive as simply crowded. We term this urbanization without productivity gains “sterile agglomeration.”