Urban Concentration: The Role of Increasing Returns and Transport Costs

Abstract

Very large urban centers are a conspicuous feature of many developing economies, yet the subject of the size distribution of cities (as opposed to such issues as rural-urban migration) has been neglected by development economists. This article argues that some important insights into urban concentration, especially the tendency of some developing countries to have very large primate cities, can be derived from recent approaches to economic geography. Three approaches are compared: the well-established neoclassical urban systems theory, which emphasizes the tradeoff between agglomeration economies and diseconomies of city size; the new economic geography, which attempts to derive agglomeration effects from the interactions among market size, transportation costs, and increasing returns at the firm level; and a nihilistic view that cities emerge out of a random process in which there are roughly constant returns to city size. The article suggests that Washington consensus policies of reduced government intervention and trade opening may tend to reduce the size of primate cities or at least slow their relative growth.