Fostering Growth and Inclusion in Asias Cities Asia ian Development - - PowerPoint PPT Presentation

Fostering Growth and Inclusion in Asia’s Cities

Asia ian Development Outlook 2019 Update Theme Chapter

Rana Hasan

Economic Research and Regional Cooperation Department Asian Development Bank

Disclaimer: The views expressed on this website are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors

• r the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making

any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or

• ther status of any territory or area.

Outline

• Examining urbanization through nighttime lights data
• Urban agglomeration economies in Asian cities
• Managing the city as a labor market
• Managing the urban system

Examining urbanization through nighttime lights data

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Official statistics on urbanization

• UN’s World Urbanization Prospects database
• Based on official statistics of over 200 countries/economies.
• Official statistics on urbanization are often based on different ways of

defining and distinguishing urban settlements from rural ones

• Four types of criteria typically used to define urban areas: administrative

boundaries, economic parameters, population size and/or density, and urban characteristics.

• Due to various combinations, there are 13 known ways to define urban areas

among the 233 countries/economies in the world.

Night-time lights based “natural” city data

• We use nighttime light satellite imagery to delineate the contours of

urban agglomerations, which we call “natural cities” to distinguish them from administratively defined cities, and then fill in each contour with grid population data from LandScan.

• With this methodology, the geographic extent and population size of the

natural cities are consistently defined and estimated across space and time.

• We obtain a geo-coded panel dataset that contains 1,459 natural cities in 42

economies of developing Asia between 1992 and 2016 (population available since 2000).

Cities are expanding beyond administrative boundaries

• “Natural cities” capture actual

urban footprint using nighttime lights satellite imagery.

• 1,459 natural cities are identified,

hosting 34.7% of the population

• n 2.3% of land area.
• Natural cities have expanded

beyond administrative boundaries.

• Some have gotten connected to

form city clusters.

1992 2016 1992 2016 1992 2016

PHILIPPINES Cebu INDIA Kolkata PHILIPPINES Cebu INDIA Kolkata

Source: ADB estimates.

Natural cities versus administrative counterparts

Natural cities by country

Source: ADB estimates using nighttime lights images from the National Oceanic and Atmospheric Administration

Evolution of city sizes

Distributions of Natural City Size by Land Are Distributions of Natural City Size by Population Source: ADB estimates using nighttime lights images from the National Oceanic and Atmospheric Administration and grid population data from LandScan datasets.

Urban population growth, 2000-2016

Urban population growth by size of natural city Increase in urban population by size

• f natural city

Source: ADB estimates using nighttime lights images from the National Oceanic and Atmospheric Administration and grid population data from LandScan datasets.

Shares of urban pop. by city size: 2000 vs. 2016

Source: ADB estimates using nighttime lights images from the National Oceanic and Atmospheric Administration and grid population data from LandScan datasets.

Urban agglomeration economies in Asian cities

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The benefits of agglomeration

Concentration of households and firms enables:

• Learning through spillovers of ideas and knowledge
• Garments in Dhaka, soccer balls in Sialkot, IT startups in Bengaluru
• Matching of input-output markets
• Workers find more suitable jobs
• Firms locate next to suppliers and buyers
• Sharing of resources
• Infrastructure
• Tap into wide-ranging expertise

Why the interest in cities?

• Developed world and Asia’s NIEs:
• Urbanization and growth intimately connected
• A key role for manufacturing historically
• Strong evidence of agglomeration economies
• Developing world:
• Urbanization without industrial development.
• Due to low cost of trade and growing role of scale economies?
• A rise of “consumption” cities over “production” cities?
• “Messy” urbanization?
• Are people agglomerating without agglomeration economies kicking in?

Cities with 1m+ population have higher employment shares in manufacturing

Wage data suggest Asian cities do benefit from “agglomeration economies”

• Nominal wages used to test the

presence of agglomeration economies.

• Nominal wages better capture the

productive advantages of cities than real wages.

• The former reflect how much more

firms are willing to pay in bigger cities to comparable workers.

• Using real wages is appropriate when

analyzing the welfare implications of different types of employment and studies of location choice.

Source: ADB estimates based on labor force surveys .

Big cities pay similar workers more

Urban wage premium relative to rural areas (%)

*

* Small cities’ wage premium over rural areas is not statistically different from zero.

Larger cities have higher returns to education

Human capital and skills seem to be important channels through which agglomeration economies work

…and greater diversity of occupations

Other results

Larger cities have:

• Higher shares of college

graduates

• Greater presence of college

graduates benefits less educated workers as well

• Better opportunities for female

workers

• Presence of universities
• High quality universities enable

firms to be more dynamic

Source: ADB estimates based on World Bank enterprise surveys, QS World University Rankings, and NTL based natural city data.

Firm innovation and universities

Managing the city as a labor market

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So, is it all good news?

Large cities are likely to be limiting their potential Smaller cities need more hard and soft infrastructure to attract modern businesses

Cities thrive when they function well as labor markets

• Key conditions
• Travel within the city is fast and

cheap

• Firms and households have

flexibility to relocate within the city

• Real estate is relatively

affordable

Source: Adopted from Bertaud (2018)

Low mobility scenario High mobility scenario

Congestion and housing affordability are concerns

Source: ADB estimates using Google Maps.

Housing affordability measured by Housing price to income ratio (PIR) , 2018

Average 1.5

1.0 1.2 1.4 1.6 1.8 2.0

Average congestion index of natural cities with population greater than 5 million

Note: 1.5 represents the average index of the 24 cities in the chart.

Note: The price-to-income ratio (PIR) was computed as the average house price (50 m2) divided by the mean annual household income. Source: ADB estimates using data from Colliers International; Global Property Guide; household income and expenditure surveys, various countries; Knight Frank; Makaan; National Bureau of Statistics, People’s Republic of China; Numbeo; World Bank’s PovcalNet; Zameen.

Housing affordability measured by housing price to income ratio (PIR)

PIR 4.0 Developed countries 13.6 10.9 17.2 5 10 15 20 Small (<M) Medium (1-5M) Big (>5M) Small (1<M)

City size

Cities need efficient multimodal public transport system

• Combine trains, buses, and ride

sharing, with better regulated privately provided autorickshaws and jeepneys.

• Demand-side management may

be considered as well to reduce congestion over the longer term.

Share of trips viable by public transit and duration of public versus driving

Share of trips by public transit (%) Ratio of duration via public transit to driving 71.1 63.4 89.8 3.6 3.5 2.5

Good land-use planning is on the decline

Share of residential area laid out before development Share of built-up area within walking distance (625 meters) of an arterial road

Source: ADB estimates using data from Land and Housing Survey of the New York University Urban Expansion Program 2016.

Must ensure that urban expansion is subject to land use planning

Dhaka, Bangladesh Mumbai, India

Some land-use regulations need to be more flexible.

Source: Adapted from Vishwanath et al. (2013)

Construction permit, processing days

Note: Each data point is a regional average across cities. Source: ADB estimates using data from World Bank’s Doing Business database.

City center floor area ratios in selected cities

Housing policy options

Housing policies: Lessons learnt

• 1. Improve data collection and analysis (e.g. using big data).
• 2. Tackle supply side constraints and develop integrated neighborhoods

with access to social services and efficient and affordable transportation system.

• 3. Incentivize the private sector to come in by de-risking their investment

and providing financial incentives.

• 4. Develop coherent housing policies tailored to the need of each income

segment.

• 5. Promote public and private rental market.
• 6. Improve efficiency in implementation of policies which often requires

addressing fundamental problems, e.g. land titles.

Economic development: What role should local governments play?

• Policies to promote entrepreneurship and new activities are common
• Often designed by central and state/provincial governments
• BUT: Firms exist and operate in specific locations. The business

environment there matters.

• Where do local governments enter in decision-making process?

Propensity of cities to attract and retain businesses varies across the region

• Local economic development is an important function of local government in

many developed countries

• Common to attract large firms through tax breaks, etc.
• Recent examples: Competition to attract Amazon’s second headquarter.
• In People’s Republic of China:
• Local economic performance is a major criteria of promotion of local officials
• Local governments keen to attract private and foreign investment (contributes to local tax

base and economy)

• Leads to good de-facto investment climate for firms even through de-jure “doing business”

indicators may be weak

• The empowerment and incentives of local governments observed in the PRC

appears unique in the region.

• Despite the distinct institutional frameworks, there are transferable experiences

that can create conducive environments for enterprises to build and locate within the city (e.g., Special Investment Region Act in Gujarat state India)

Managing the urban system

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Growth requires vibrancy in different types of cities

• Urban system: Cities

connected by glows of goods, services, and people

• Small cities
• Medium size cites
• Large cities
• Hinterland

Some challenges

• How should city clusters be managed?
• Intercity transport development is crucial for efficient urban system
• But, there can be a “straw effect” – smaller cities/towns get bypassed
• Balancing between investing in spatial efficiency and supporting

lagging cities/areas

Broad policy imperatives

• Better coordination of spatial and economic planning needed – at city,

metropolitan, and regional level

• Big cities should draw more on private sector funding
• Allocations should be guided by population flows and economic activity
• When dealing with spatial inequality
• Work with progressive tax rates and transfers that foster human capital development
• Caution on “place-based policies”—provision of basic infrastructure to lagging

regions and support in-line with comparative advantage may be more prudent

• SEZ’s location potential should be carefully considered.

Realizing the promise of cities

Cities

• Multi-modal public

transport system

• Affordable housing
• Land-use planning

and regulations

• Business

environment

Urban systems

• Inter-city

connectivity

• Coordination of

spatial and economic planning

• Metropolitan

governance

Environmental sustainability

Thank you!

https://www.adb.org/publications/asian-development-outlook-2019-update