Urban agglomeration and regional economic performance connectedness: Thin ice in developing regions

Abstract

This paper evaluates the evolution of urban agglomeration from 2000 to 2020 in 66 developing and developed economies from Asia, Europe, and Sub-Saharan Africa (SSA) and examines how urban agglomeration changes impinge on economic performance changes. The aim is to overcome the limitations of the empirical literature by constructing a nuanced measure of urban agglomeration using the Herfindahl-Hirschman Index calculation, which captures nations’ urban demographic structure more robustly than the indicators in the literature. The findings demonstrate that urban agglomeration has, on average, declined across world economies, contrary to a long-held assumption in the recent two decades. Empirically, the findings show a significant deleterious effect of urban agglomeration on economic performance in developing economies (i.e., Sub-Saharan Africa and Asia) and a beneficial effect in developed economies (i.e., Europe) in the short-run. However, the effect turns out to be beneficial in the developing economies in long-term. Based on the findings, we conclude that the relationship between urban agglomeration and economic performance is country-specific. Therefore, this paper professes that country-specific industrialization policy frameworks and governance effectiveness can enhance long-term positive economic effects of urban agglomeration in developing economies.