Urbanization and Economic Development

J. Vernon Henderson

This paper provides a survey and guide to the literature relevant to urbanization and economic development. The paper starts with some basic facts and trends about urbanization worldwide. It then reviews the traditional two sector urban-rural model, but focuses on the modern version, Krugman’s core-periphery model. However, two sector models do not capture the notion of an economy composed of many cities; nor do they represent modern agglomeration economies. Models and empirical evidence on agglomeration economies are reviewed. Then the paper turns to empirical evidence on the evolution of the size distribution of cities. It reviews the large literature on systems of cities models, focusing on an endogenous growth version. This part of paper concludes with a review of recent work integrating systems of cities models with the new economic geography. The final section reviews urbanization in China, focusing on policy issues such as migration, under-agglomeration and spatial biases in the FDI policy.