1. Chapter 8: Urbanization & Rural-Urban Migration

2. Urbanization and Development
Economic development causes urbanization
There is a positive correlation with economic development and urban population growth

3. Urbanization Across Time and Income

4. Urbanization The LDCs experience rapid urban population
growth because of
Natural increase: birth rate > death rate
Rural-urban migration: movement of rural workers to urban areas

5. Contribution of R-U Migration
On average, about 50% of urban population growth is due to R-U migration
Rapid R-U migration has resulted in the construction of slumps and shanty towns that house a large percentage of urban population

6. Dualistic Economic Structure
Formal sector: organized and regulated economic system (e.g., government agencies,banks); it generates 2/3 of GDP
Informal sector: fragmented and unregulated economic system (e.g., street vendors, loan sharks); it generates 1/3 of GDP

7. Dualistic Labor Market
Formal labor market: urban & rural: skilled labor (e.g., government employees, teachers) with education and license
Informal labor market: urban & rural: semi-skilled and unskilled labor (e.g., small business, street vendors)

8. Urban Informal Sector
Most rural migrants find jobs in the “informal” urban labor markets
The “informal” urban labor force is a large component of the urban labor force

9. A Model of R-U Migration
Urban “informal” sector hires labor from
Urban “informal” markets (e.g., shop keepers)
Rural “formal” markets (e.g., tractor drivers)
Rural “informal” markets (e.g., farm workers)
Urban “formal” sector hires labor from
Urban “formal” markets (e.g., teachers)
Urban “informal” markets (e.g., drivers)

10. R-U Labor Movement Formal: Formal: Urban Sector Rural Sector Informal:

11. Todaro’s R-U Migration Model
Factors affecting migration decision
Expected urban income
Probability of finding an urban job
Cost of living in urban areas
Decision criterion:
Migration will take place if the “expected” benefits exceed the costs (in present value)

12. Todaro’s Framework of Migration Decision

13. Todaro’s R-U Migration Model
Benefits from migration:
Difference between “expected” urban income and rural income (R-U wage differential)
Psychic benefits
Costs of migration:
Transportation cost
Opportunity cost of being unemployed
Difference in living expenses
Psychic costs

14. Todaro’s R-U Migration Model
Non-economic factors inducing migration:
Distance
City lights: movie theaters, restaurants, etc.
Relative living in urban areas helping reduce living expenses
Information flow about job openings in the “informal” sector

15. Policies Inducing R-U Migration
Neglect of agriculture
Urban bias development strategies
Job creation in urban areas
Educational opportunities: R-U brain drain
Urban wage subsidies

16. Policies Reducing R-U Migration
Eradicate poverty and reduce population growth
Promote rural and agricultural development
Expand small-scale, labor-intensive industries
Eliminate factor-price distortions and adopt “appropriate” production technologies
Modify direct link between education and employment