Abstract
As countries develop, they restructure away from agriculture and urbanize. But structural transformation and urbanization patterns differ substantially, with some countries fostering migration out of agriculture into rural off farm activities and secondary towns, and others undergoing rapid agglomeration in mega cities. Using cross-country panel data for developing countries spanning 1980–2004, it is found that migration out of agriculture into the missing middle (rural nonfarm economy and secondary towns) yields more inclusive growth patterns and faster poverty reduction than agglomeration in mega cities. This suggests that patterns of urbanization deserve much more attention when striving for faster poverty reduction.
Highlights
Abstract *They undergo a structural transformation from agriculture to manufacturing and services as well as a spatial transformation from rural to urban
As countries develop, their economies restructure away from agriculture into manufacturing and services and people move from rural to urban areas
To explore whether the spatial dynamics of the transformation affect the rate of poverty reduction, columns (1) and (2) are augmented with the rate of rural diversification and the rate of metropolitan development (Table 2, columns (3) and (4))
Summary
They undergo a structural transformation from agriculture to manufacturing and services as well as a spatial transformation from rural to urban This process has been far from uniform across countries, with some fostering rural diversification out of agriculture and others undergoing rapid agglomeration in mega cities. Migration to the missing middle leads to more inclusive growth patterns, while agglomeration in mega cities widens income inequality, even though it generates faster economic growth, as predicted by the new economic geography. These findings bear on the longstanding debate about the appropriate balance of public investment in both portable (education, health) and non-portable (infrastructure) public goods across space
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