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Urbanization and Growth : Setting the Context

Urbanization and growth go together: no country has ever reached middleincome status without a signifi cant population shift into cities. Urbanization is necessary to sustain (though not necessarily drive) growth in developing countries, and it yields other benefi ts as well. But it is not painless or always welcomed by policymakers or the general public. Managing urbanization is an important part of nurturing growth; neglecting cities— even in countries in which the level of urbanization is low—can impose heavy costs. In terms of development and growth theory, urbanization occupies a puzzling position. On the one hand, it is recognized as fundamental to the multidimensional structural transformation that low-income rural societies undergo to modernize and to join the ranks of middleand high-income countries. Some models, such as Lucas’s (2004, 2007), explicitly consider how urbanization affects the growth process (primarily through the enhanced fl ow of ideas and knowledge attributable to agglomeration in cities. In a more historical treatment, Landes (1969,