The Urban Part of Rural Development: the Role of Small and
Intermediate Urban Centres in their Regional and Local Economies,
Including Rural Development and Poverty Reduction
Cecilia Tacoli and David Satterthwaite
International Institute for Environment and Development
prepared for the working group on secondary towns and rural growth
European Forum on Rural Development Cooperation
Montpellier, 4-6 September 2002
1. Introduction: why small and intermediate urban centres?
A large proportion of the urban population in most nations lives in small and
intermediate urban centres. In both the North and the South, more than half of the
urban population is in urban centres with less than half a million inhabitants, with
sizeable proportions in market towns and administrative centres that have between
5,000 and 100,000 inhabitants. This distribution pattern is expected to continue, and
it is estimated that the increase in the population of small centres in the South will
account for over 40 percent of the total growth of the world’s urban population
between 2000 and 2015. As a result, it is estimated that by 2015 over 27 percent of
the world population will reside in centres of less than 500,000 inhabitants. To put
these figures in their broader context, the proportion of urban dwellers in the world
rose from 30 percent in 1950 to 47 percent in 2000. At the current rate of change, the
number of urban residents will equal that of rural residents by 2007. 1
These figures give a good indication of the demographic significance of small and
intermediate urban centres. However, it is also important to keep in mind that there
can be wide variations between nations in the definition of what is an urban centre,
and of what is a ‘small’ one. This, in turn, makes generalisations problematic and can
result in the failure of policy initiatives, as described later in this paper.
Population thresholds are commonly used for the definition of urban centres, but
while many Latin American and European nations use the relatively low threshold of
2,000-2,500 inhabitants, other nations use much higher thresholds. A large
proportion of the rural population of Asia lives in settlements that, under other
nations’ urban definitions, would be classed as urban. The lack of urban status can
have important implications on the level of public investment and on the structure,
resources and decision-making power of local governments.
There is also no universal definition of small and intermediate urban centres, since
this depends largely on the national urban structure. In large countries with large
cities, such as India, a ‘small’ town can have a population of several tens of
thousands and an intermediate centre as many as 500,000 inhabitants. In smaller
size nations, the population of the largest city can be less than 500,000.
It is probably more useful to consider small and intermediate urban centres on the
basis of their functions, including the provision of services, facilities and
infrastructure to their own population and that of their surrounding region. However,
such detailed data is not easily available, especially in poor nations. Moreover, the
1
United Nations Population Division, World Urbanization Prospects: The 2001 Revision
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wide differentiation of small and intermediate centres’ size and shapes affect their
functions and roles. A useful alternative is to consider the functions of these urban
centres within the wider national or regional system of urban centres.
The empirical evidence on the capacity of small and intermediate towns to play a
positive role in regional and rural development and in the reduction of poverty is
mixed. This points to the important issue that space, in itself, is not the key
determinant: a better balance of economic activities, with small and intermediate
centres strategically located within their surrounding rural region, does not
necessarily imply economic growth within the region, nor a more equitable
distribution of resources and incomes.
The potential role of small and intermediate centres can be summarised as follows:
 Act as centres for the production and distribution of goods and services to
their rural region. Such concentration is assumed to reduce costs and improve
access to a variety of services, both public and private. To a large extent, small
and intermediate centres are more likely to fulfil this role when the structure of
agricultural production in the region is relatively equitable, as small producers
must be able to afford such goods and services, while large commercial farms
and wealthier households often rely on larger urban centres;
 Act as markets for agricultural produce from the rural region, either for local
consumers or as links to national and export markets. Infrastructure plays an
important role here. However, in some cases better road and transport networks
have meant that small and intermediate centres are by-passed, especially when
agriculture is dominated by large commercial producers with direct links with
larger centres, and when they cannot provide additional services such as market
information and facilities, and value-adding activities such as processing and
packaging;
 Become centres for the growth and consolidation of non-agricultural
activities, either through the development of local small and medium enterprises
or through the relocation of branches of large private and parastatal enterprises.
Again, this does not always happen and especially for small local enterprises, it
is linked to access to a number of assets, including financial capital, market
information and skills and education;
 Attract rural migrants who might otherwise move to larger cities. Here too,
spatial location is not so much the issue, but rather the existence of opportunities
for migrants and commuters from the surrounding rural settlements.
2. Relevance to rural (and urban) poverty reduction
The social dimension of small and intermediate urban centres is an important
element in their role in regional and rural development and in poverty reduction.
Complex social networks, kin and family ties linking urban-based and rural-based
individuals and households are often stronger than in larger cities. Although there are
significant differences between rural-based and urban-based livelihoods, evidence
suggests that these strong ties are often central in the development of household
strategies which rely on both rural and urban resources. For example, continued
access to rural land can be an important income source (and a safety net in times of
crisis) for urban residents. For rural-based households, access to urban-based nonfarm employment by one or several of its members (either by migrating over various
periods of time or by commuting) can be critical. The potential role of small and
intermediate urban centres in poverty reduction is better understood and supported
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by focusing on the interactions and linkages between urban and rural populations
and settlements.
The main aspects relevant to poverty reduction are:
 The provision of markets for agricultural produce. This is vital for small-scale
producers; however, access to markets (and market information) in itself is not
sufficient. Small farmers also need to have access to natural resources (land,
water), financial resources (credit) and agricultural inputs if they are to benefit
from demand from urban consumers. Related to this, it is important to underline
the crucial role played by small and medium-scale traders in collecting and
channelling produce from diverse and often geographically dispersed small
farms. These traders are also frequently a major source of credit for small
producers; however, they are vulnerable to losses due to lack or limited
affordable transport and storage facilities;
 The provision of non-farm income-generating activities and employment
opportunities. As a result of rising cash requirements (for example to pay for
basic health and education services) and generally declining revenues from
farming, income diversification into non-farm activities is increasingly significant in
rural settlements, especially among younger generations. Opportunities in local
urban centres can allow individuals to combine farm and non-farm activities,
taking advantage of seasonal fluctuations in agricultural work. In this way they
can maximise the use of available resources and avoid the costs of migration
(which often also results in labour shortages on the farm). However, the poorest
groups are often confined to the lowest-paid non-farm activities because they
lack skills and basic education, and appropriate training is not available or
unaffordable;
 Small and intermediate towns can provide manufactured and processed
goods and services for household consumption and for production (for example,
agricultural inputs). This can benefit both local small and medium-scale
enterprises and rural populations. However, it is difficult for such a ‘virtuous’
circle to develop where there is unequal access to land in the rural areas and
unequal income distribution within the urban centres, and therefore a large
proportion of poor households with limited demand capacity. At the same time,
small centres often cannot supply the more specialised goods and services
demanded by the wealthy few. In addition, it is important to better understand the
impact of trade liberalisation on local markets, as cheaper imports can undermine
local processing of goods (for example, foodstuffs such as vegetable oil, and
cloth weaving);
 The provision of infrastructure and services. For the rural population in the
surrounding region, small and intermediate urban centres often provide a wider
range of health services than rural clinics, secondary schools and higher
education institutions. Within these urban centres, access to water, sanitation,
drainage, primary health care and education are crucial for poverty reduction.
Institutions that protect citizen rights and the possibilities of exercising democratic
rights are also often located in small and intermediary urban centres. The quality
of governance in small and intermediate urban centres is a critical determinant of
the extent to which many aspects of deprivation are addressed for both urban
residents and for the population of the surrounding rural region.
3. Key policy issues
Various policies for small and intermediate urban centres have been proposed and
tried in low, middle and high income nations, with varying degrees of success and
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notable failures, sometimes involving serious economic costs. Three key reasons for
the failure of these policies are:
 Basing policies on generalisations on the nature and characteristics of small and
intermediate urban centres, with little, if any, attention to their tremendous variety;
 Assuming that such policies will benefit the whole region and populations, with
little attention to social end economic differentiation and to issues of control of
and access to key resources;
 Focusing on the attributes of the towns themselves and neglecting the
characteristics of their surrounding rural region. By contrast, evidence shows that
the quality and diversity of the functions of small and intermediate centres
depends largely on the nature of the activities, including the distribution of
resources, in their region.
The policies which have the most impact on small and intermediate centres and on
their role in rural and regional development are often the ones which are not seen as
specific for these centres. They include:
 Improving transport and communication infrastructure. This is key in linking
small and intermediate towns to their region as well as to the wider, national (and
sometimes international) urban network. However, transport and communication
infrastructure in its own is not a guarantee for local economic development, as it
can increase the extraction of resources and, in some cases, the use of cheap
labour for manufacturing, by large enterprises which may invest their profits
elsewhere rather than locally;
 Decentralisation. This can play a key role in increasing the role of small and
intermediate centres, since local government and other local actors are best
placed to identify local needs and priorities and provide an adequate response to
them. Local decision-making can help avoid the neglect of forward and backward
linkages so common in agricultural programmes and projects. It can also
negotiate and regulate the use of natural resources by rural and urban residents
and enterprises, which can otherwise become a major cause for conflict.
However, while decentralisation has great potential in terms of both efficiency
and accountability, there may be costs and constraints involved. Local
government may be unable provide the services needed, either because of the
reduction in central government public investment or because they fail to
generate sufficient revenue at the local level. While local decision-making
supported by adequate resources can be decisive in stimulating development in
both small and intermediate urban centres and their surrounding region, wider
issues such as land tenure systems, institutional structures of markets and
broader national development strategies (especially those focusing on the
development of growth regions linked to export) are likely to affect local initiative.
Better integration of local development strategies in national planning is therefore
crucial. Finally, especially in nations where decentralisation is relatively recent,
substantial efforts are necessary to improve the capacity of local institutions to
carry out their new functions;
 Strengthening of local democracy and civil society. Local decision-making
can make it easier for poor groups, both rural and urban-based, to have their
needs and priorities taken into consideration. Other groups, often neglected, can
also receive more support. These may include migrants and migrant associations
that can make important contributions to local development through the transfer
of skills, capital and social networks. In many nations, migrant associations play a
significant role in the provision of basic infrastructure and services (for example,
schools and water facilities) to their home areas. This is especially important for
small and intermediate centres with limited public resources.
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Other relevant policies include agricultural programmes – since the
characteristics of the rural region are so important. Key issues include equitable
access to natural resources, credit and market information. The provision of basic
education and training in appropriate skills (related to local opportunities) is also
crucial to improve access to better-paid non-farm activities. Finally, support to
small and medium-sized local enterprises in the urban centres is also essential.
This can include specific interventions to improve input supply, production
processes and marketing, as well as collaboration and cooperation between firms
to increase collective efficiency and better compete with large firms.
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