The Effects of Natural Resources on Urbanization, Concentration, and Living Standards in Africa

Abstract

Summary This paper examines the effects of natural resource abundance on urbanization and living standards in Africa. Our central hypothesis is that the exploitation of natural resources in a context of poor governance quality creates the conditions for rapid urbanization and urban concentration, and ultimately lowers living standards in primal cities. Using a large panel of African countries, our results show that an increase in the share of natural resources leads to a rapid increase in urbanization and urban concentration, even after taking into account endogeneity issues, or after using more exogenous measures of resource dependency. The paper also establishes a negative association between the resource abundance, the quality of life in large cities and the degree of informality via the increase in urbanization rate and urban concentration. Importantly, we have established that these results mostly hold in the context of bad governance. More specifically, the resource-led urbanization and concentration booms take place mainly in countries characterized by poor governance records. Furthermore, poor governance quality is associated with a more detrimental effect of urbanization and urban concentration on the quality of life in African cities. These results suggest that ongoing transformations experienced by these countries call for complementary policies to ensure a more balanced and efficient urbanization process.