Urban Area:
An
urban area is a location characterized by high human population density and
vast human-built features in comparison to the areas surrounding it. Urban
areas may be cities, towns or conurbations, but the term is not commonly
extended to rural settlements such as villages and hamlets.
Urbanization
Urbanization
is the societal trend where the proportion of people living in cities increases
while the proportion of people living in the country side diminishes. Urban
refers to the geographic territory within or close to a city. The governments
of the world define urban in different ways, but it is safe to assume that
between 2-5,000 inhabitants in a city is the minimum required to call a
geographic territory urban. Some urban areas such as Tokyo, New York, Mexico
City, Shanghai, and Lima range from 35 million down to 7 million people living
in those cities (Retrieved 23 May, 2014)
Impacts of
Urbanization:
Urbanization
and growth go together: no country has ever reached middle income status
without a significant population shift into cities. Urbanization is necessary
to sustain (though not necessarily drive) growth in developing countries, and
it yields other benefits as well. But it is not painless or always welcomed by
policymakers or the general public. Managing urbanization is an important part
of nurturing growth; neglecting cities— even in countries in which the level of
urbanization is low—can impose heavy costs. In terms of development and growth
theory, urbanization occupies a puzzling position. On the one hand, it is
recognized as fundamental to the multidimensional structural transformation
that low-income rural societies undergo to modernize and to join the ranks of
middle- and high-income countries. Some models, explicitly consider how
urbanization affects the growth process (primarily through the enhanced flow of
ideas and knowledge attributable to agglomeration in cities. In a more
historical treatment, Landes (1969, cited in Williamson 1987, p. 6) situates
urbanization as an essential ingredient in modernization:
Industrialization . . . is at the
heart of a larger, more complex process often designated as modernization.
Modernization comprises such developments as urbanization . . . ; the so-called
demographic transition; the establishment of an effective, fairly centralized
bureaucratic government; the creation of an educational system capable of
training and socializing the children of a society . . . ; and of course, the
acquisition of the ability and means to use an up-to-date technology.
On
the other hand, urbanization is a relatively little-studied area of development
economics and policy, as Burgess and Venables (2004, p. 4) note:
Spatial concentration is most dramatically
demonstrated by the role of urbanization, and of mega-cities, in development. .
. . despite the massive diseconomies associated with developing country
mega-cities, there are even more powerful economies of scale making it
worthwhile for firms to locate in these cities. Urbanization is one of the
clearest features of the development of manufacturing and service activity in
developing countries, yet discussion of urbanization is strangely absent from
economic analyses of growth and development.
Due
to the Urbanization population is accumulated In certain regions Hence, The labor
force incentive will be increase in that area. The increased labor force is a
driving power for Industrial activity and production.
Why the Urban
Environment Facilitate Rapidly Growing Sectors – Global Context
Industry
and services are concentrated in cities. These sectors grow more rapidly than
other sectors, so cities must be important to growth. But there is more to this
relation. A large body of literature explains why industry and services locate
in cities.
the
fundamental question in urban economics is why people voluntarily live in close
proximity to one another when there are costs to competing for land. The simple
answer has two parts: efficiency gains and consumption benefits. Recent
theoretical and empirical work provides a sense of the nature and significance
of these gains. The earliest concept of efficiency gain was geographical.
Cities have long tended to locate around waterways to exploit transportation cost
advantages. In the United States and Western Europe, for example, cities on the
coasts, major rivers, or the Great Lakes were vital to industrial development.
During the postwar period, coastal megacities have dominated most Asian
economies (an exception is India). In Japan urban and industrial growth
concentrated in the Tokkaido coastal corridor (Tokyo, Nagoya, and Osaka). The
concentration of producers and suppliers in this area enabled innovations such
as just-in-time production techniques. Industrial development concentrated in
the Seoul/Pusan region of the Republic of Korea and in the Taipei/Kaoshing
region of Taiwan (China). In Indonesia, Malaysia, and Thailand, growth
concentrated in export-oriented labor intensive industries in the metropolitan
megacities of Jakarta, Kuala Lumpur, and Bangkok. In China development has
concentrated in Shanghai and the Pearl River Delta (Mohan 2006; Yusuf, Evenett,
and Wu 2001). As the Asian megacity complexes have shown, location effects
driven by transportation costs also tend to cumulate into other advantages, a
process Burgess and Venables (2004) describe in detail.
Economies
of scale offer both efficiency and consumption advantages to urban economies,
manifested in several ways. Process industries, such as chemicals, steel, and
automobiles, operate more effectively at higher volumes; for this reason they
have traditionally been established in urban areas. Economies of scale in input
markets affect a wide range of industries. Specialized services—such as
accounting, tax advice, and intellectual property management—are easier to
obtain in large cities. Specialization among input producers may also allow
cost reductions, making local purchasers of their inputs more productive.
Public services such as hospitals, theaters, orchestras, and sports stadiums
require a critical mass of consumers to make them economically viable. The
density of urban areas increases the range of such amenities.
Economies
of scale in cities also reduce transaction costs. High densities in cities
allow both workers with differentiated skills and firms with specific needs to
reduce their search costs. This effect can operate even if all producers
operate at constant returns to scale and there are no technological
externalities (Acemoglu 1996). Operating in a dense urban environment offers
efficiencies through the impact of large numbers on risks of fluctuating
demands for both labor and products. If these fluctuations are imperfectly
correlated across firms, both firms and individuals benefit from locating in
cities. Spells of unemployment can be shorter and demand shocks and inventory
costs lower in such environments. Agglomeration effects in cities affect
knowledge sharing. By bringing together large numbers of people, cities
facilitate the kinds of face to face interactions needed to generate, diffuse,
and accumulate knowledge, especially in industries that experience rapid
technological change. This aspect of urban agglomeration economies has received
less theoretical and empirical attention, but it has promise to be one of the
more significant drivers behind dynamic growth in developing country cities.
The theoretical advantages of cities are not limited to high-income countries.
Jane Jacobs put this simply and eloquently, noting, “Cities, not countries, are
the constituent elements of a developing economy and have been so from the dawn
of civilization” (1984, p. 32). In developing countries poor transportation and
communication infrastructure tend to magnify the advantages of cities over the
countryside. Location advantages can thus be even more valuable there than in
developed countries. As developing countries seek to compete in increasingly
integrated world markets, even static advantages conferred by cities help firms
penetrate export markets. The report by the Commission on Growth and
Development (2008) underscores the significance of penetrating export markets
as one of the key elements of sustained, rapid growth. Weak infrastructure
could heighten the congestion disadvantages of cities as well, which may affect
the optimal size of developing country cities.
Henderson’s
(1986) work on Brazil and the United States finds that agglomeration effects
tend to affect industries concentrated in a city (localization economies) more
than all industries (urbanization economies). The effects in Brazil were
broadly comparable with those in the United States. Within-industry
agglomeration effects were such that without any other increases in inputs,
productivity increased roughly 1 percent for every 10 percent increase in the
number of workers employed in an industry in a given city. While this effect
may seem small, it implies that by moving from a city with 1,000 workers to one
with 10,000 workers, a firm would increase its productivity by a factor of 90.
Overman and Venables (2005) summarize the results of studies on urbanization
and localization economies in a variety of developing countries. Apart from one
anomalous study that indicates localization diseconomies in India, the results,
including those of other studies for India, are broadly the same. As in
developed countries, evidence of localization economies in developing countries
is somewhat stronger than for urbanization economies. One significant exception
is high-tech industries in Korea, where a one standard deviation increase in
the index of city diversity increases productivity 60 percent (Henderson, Lee,
and Lee 2001). This finding is particularly interesting because Korea has had
very strong growth performance even after reaching middle-income status. These
findings on localization economies in developing economies are reinforced by
case studies on spatial clusters of firms (Overman and Venables 2005). The
importance of the informal sector may distinguish cities in developing
countries from those in developed countries. Some critics argue that
informality is unproductive and raises the costs to the formal sector, crowding
out agglomeration economies. In fact, the little evidence available on
agglomeration economies in the informal sector suggests that it also benefits
from agglomeration and that informal operators generally have a positive impact
on their formal sector counterparts.
Studies
on developed countries have tried to pinpoint the distance over which
agglomeration economies affect productivity. The evidence points to rapid
geographical attenuation of localization economies— beyond 5 miles in some
studies, beyond 50 kilometers in others—with the distance varying by industry.
Different types of agglomeration economies, such as knowledge spillovers and
labor market pooling, have different geographic scopes. These narrow geographic
agglomeration effects help explain why dense urban areas emerge in spite of
congestion costs and why there is so much spatial concentration of economic
activities. In the continental United States, for example, only 2 percent of
the land area is covered by the urban built environment, home to 75 percent of
the population (Henderson 2005; Rosenthal and Strange 2004).
Cities
offer productivity advantages that are both static and dynamic. Hence it makes
little sense to discourage or try to reverse urbanization. Rural development
cannot be a substitute for healthy urbanization. Indeed, it is hard to imagine
that much rural-based industry could thrive for export in today’s competitive
trade environment. The rapid urbanization and growth of large cities in
developing countries show that, on balance, the powerful economies of scale and
other agglomeration effects at work outweigh the very substantial diseconomies
associated with developing country megacities. The urbanization process needs
support to help reduce congestion costs. Focusing on making urbanization work
would be more productive than trying to stop it.
The
productivity advantages of cities are driven largely by externalities. As a
result, market outcomes may be productive, but the size distribution of cities
is likely to be inefficient, as the clustering effects described above drive
cities to become too large. Unfortunately, in practice, little is known about
either the costs of excessive city size or what does and does not work to
encourage development of more-efficient new cities. Some interesting research
on China (Au and Henderson 2006a, 2006b) suggests that from an economic
viewpoint, it is much more costly to be undersized than oversized. This work
indicates that real output per worker is quite flat at sizes larger than the
optimum city size, so that the costs of a given population reduction below the
optimum are nearly three times higher than the cost of adding that same
population above the optimum.
Caution
is in order when seeking to decentralize productive activities from large
cities. a neutral stance that avoids favoring the main city and possibly a
policy that signals to private investors the desired location for a new city.
This approach may not fully address important practical issues for
policymakers. When capacity, both financial and technical, is scarce,
governments have to make choices about where to locate infrastructure
investments and where to improve services. Many efforts to develop secondary
cities have been wasteful. In contrast, China’s strategy of favoring coastal
cities in the early reform phase reaped rich growth rewards. Because part of
the special privileges accorded those cities included the means to finance
infrastructure improvements, the worst congestion costs were avoided more
successfully than in many other countries (Peterson 2005). Without more
research and a more systematic understanding of experience, the danger of
cities becoming too large remains difficult to document. Identifying effective
policy instruments to address it is thus problematic. If concerns about primacy
or cities being too large become an excuse for neglecting necessary urban
infrastructure investments, such policies will be very costly.
The
realization of agglomeration economies in fast-growing cities is likely to give
rise to very significant spatial inequalities in productivity and income,
across regions and cities, between rural and urban areas, and within cities. As
a result, policymakers will face important noneconomic concerns, such as
political and ethnic tensions, which must be balanced against the economic
benefits of productive cities.
Sri Lankan
Context:
The
Kandy-Colombo-Galle urbanization belt generates more than 80 percent of
national output and is the area that possesses the highest economic potential
in the country. Although poverty rates are higher in eastern and northern parts
of the country, the majority of both the population that lives below the
national poverty line and the vulnerable “bottom 40 percent” of the population
live adjacent to the Kandy-Colombo-Galle urbanization belt — nearly 50 percent
and 75 percent of these populations live within 30 km and 60 km of this
urbanization belt respectively. This spatial transformation process has
profound implications for both economic growth and alleviating poverty and
vulnerability. Key challenges are how to manage the growth of the
Kandy-Colombo-Galle region, in particular, the Metropolitan Colombo Region, and
how to enhance connectivity of other single-city agglomerations with the
Kandy-Colombo-Galle region so as realize their potential for economic growth
and poverty alleviation.
To
better tap into the economic potential that urbanization offers, the report
recommends actions at two levels – the institutional level and the policy
level. At the institutional level, the
region would benefit from improvements in the ways in which towns and cities
are governed and financed. Specifically, the report identified three areas
where reform could address fundamental deficits – in empowerment, resources,
and accountability:
- · Improving intergovernmental fiscal relations to address empowerment.
- · Identifying practical ways to increase the resources available to local governments to allow them to perform their mandated functions.
- · Strengthening mechanisms to hold local governments accountable for their actions.
While
a necessary pre-condition for meaningful progress, these reforms by themselves
will not, according to the report, suffice.
To bring about lasting improvements in both prosperity and livability,
policy changes could also improve the ways in which cities are connected and
planned, the working of land and housing markets, and cities’ resilience to
natural disasters and the effects of climate change.
Conclusion:
The
Urban Area Create a positive Environment for Industrial and Service Activity
development through Agglomeration and Scale of Economy. The Urbanization is
facilitated to develop urban area and increase the extent of urban area.
Specially in Sri Lanka developing the medium and small cities accelerate this
process and its ready to facilitate the small and medium level industries.
Hence the urbanization process is help to national economic growth in positive
way.
Further
these Small and medium level cities motivate or attract local Entrepreneurs to
invest in Industrial or Service sector due to location advantage, Developed
infrastructure and Increased demand of manufacturing products.
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