Econ 145 Literature Review
Professor Charles Becker
Sarah Chan
22 September 2010
The Issue of Urban Concentration and Urban Primacy in Asia: Consequences and Strategies
Asia-Pacific is emerging in the spotlight for the extent of the primacy of its capital cities. The mega
cities of Tokyo, Beijing, Seoul and Jakarta each have close to or more than 10 million residents each, making
them larger than some countries. This disparity in size is even more apparent when comparing the capital cities
to they next largest cities; revealing the second cities as only being a fraction of the size of these primate cities
(Ho, Hsiao 2006). Various aspects of urbanization in primate cities – including the rapid growth of urban,
especially metropolitan populations, rural-urban migration and the infrastructure needs generated by these
trends – are problems that come hand-in-hand with being the most economically powerful city in the country.
Many authors have attempted to quantify the economic costs and benefits of urbanization, and this
literature survey aims to outline a few varied approaches and conclusions. Arguably, the urban-rural migration
is one of the most focused upon aspects of urbanization; of which there are strong proponents of continued
urbanization and urban concentration (Mera 1973) and those who prefer to examine it on a situational basis
(Tolley in Henderson 2000). Overall, there appears to be a different scope of findings between urbanization
effects in developed countries as opposed to developing countries, as countries from the developing world
have been used as empirical data for many of the models examined. It has nevertheless been brought forth by
policy makers and academics that many of today’s large metropolitan areas have exceeded the ‘optimal’
population size and concentration, and thus brings up the dilemma of whether to direct development efforts
away from the main city in order to decentralize over-concentrated mega-cities, and what policies can, have
and should be implemented to this effect (Simmons 1979; Yeung 1986). However, there is yet another point of
view that suggests that policies that encourage decentralization and that curb urbanization in fact do more harm
than good (Bertinelli and Black 2004).
I am interested in examining what in fact constitutes “too big” when looking at urban economies of
cities. This would involve analyzing what factors, and at which level of urbanization can the optimal point be
struck between the positive and negative externalities of continual urbanization. Furthermore, as in the cases
noticeably present in Asian countries, the extremity of primate cities, such as the case of Bangkok having 72
percent of Thailand’s population giving it virtually complete dominance over Thailand’s economic, social,
political and cultural activities, represents is an issue of significance that I would be interested in looking
further into. The rapid urbanization has brought to forefront many problems such as deteriorating services,
congestion, and social inequality, which arguably counter urbanization’s benefits to economic growth.
Cost-Benefit Analysis of Urbanization
Mera (1973) challenges the notion of cities growing larger than their ‘optimal’ size, suggesting that
even the largest metropolitan areas in the world are likely to be less than this ‘optimal’ size. He disputes the
grounds for the diseconomy hypothesis by countering two of the main arguments used against highly
urbanized cities; exceedingly high social overhead costs and declining marginal productivity. Using empirical
data, he rejects the notion that social overhead costs of highly urbanized areas are sufficiently higher to cancel
out the gross-income advantage. The case of per capita expenditure of prefectural and sub-prefectural
governments of Japan show that is in fact a higher expenditure in less densely population prefectures,
seemingly reflecting the national governments assistance to less developed regions. However, this may be a
reflection of the particular case in Japan, where public resource allocation depends more on the autonomy of
the government rather than the willingness of the residents to pay.
Mera also uses the findings of the multi-regional econometric model developed by The Economic
Research Institute of the Japan Economic Planning Agency that tested the effects of several alternative policies
regarding centralization and decentralization. The model showed that while the distribution of industrial capital
is the most effective policy for reducing interregional disparity of income, this has a negative impact on GNP.
However, interregional transport investment provides encourages results in both improving GNP as well as
decreasing the coverall income disparity. Although population migration is accelerated in this case, and the
distribution of population tends towards a similar outcome as other centralization policies.
However, given that the urbanization of cities is assumed to be on average beneficial for GNP, the
more pressing issue at hand is whether the further urban concentration in a particular city is conducive to the
economic development of both the city itself and its country. Mera conducted empirical analysis on developing
countries in particular, regressing the per capita GNP against the change in primacy (where primacy was taken
as the share of a certain number of largest cities in the country population). Notably, his data was confined to
the period in which he wrote. He showed a strong positive relation between a change in primacy and per capita
GNP, and further demonstrated with countries over 10 million in population, that this positive relationship held
even stronger. Through these findings he then concludes that the primacy of larger cities is more conducive to
economic development than primacy of smaller cities, as the largest city in a large country is usually bigger
than the largest city in a small country. These findings on urban concentration are important as they hold a
precedent for conducting similar analysis with developed countries, especially those with mega-cities of over
10 million in city population.
Effects of Urban Primacy on Non-Primate Cities
Further literature on the impact of urban concentration can be found in Henderson’s paper on “Urban
Primacy, External Costs, and Quality of Life” (2000), which also uses a model also concerning urban primacy,
based on urban concentration, that can be appended to the previous related analysis by Mera. Henderson
provides a very focused examination of the aspects of the costs of excessive primacy, meaning the single
dominantly largest city, on the internal economic environment of other non-primate cities. Thus, Henderson’s
model provides a dimension that Mera’s analysis was unable to do so effectively, which is separate the impact
of the largest city from that of the second and third ones. He uses a sample of 90 non-primate cities within
countries that have varying levels of primacy, where primacy is defined as the size of the largest city in the
country divided by national urban population. The general relationship being estimated is given by
Yij = a + bXij + cZj + uj + eij
where Yij is the outcome measure in city i in country j, Xij is a determinant (e.g. city size) in city i in country j,
Zj is a country characteristic of country j (e.g. urban primacy), eij is an i.i.d. error term and uj is a country
random or fixed effect. His regression for cost of living is taken as a function of variables of national income,
metro-area population and national primacy. The cost of living, Y variables, are then represented by
commuting costs (mean travel time to work) in the metro area, and housing rental costs (rent to income ratio).
His results show that metro-area size is directly influential of own city commuting time, which is not a
surprising finding. However he also found that national urban primacy increases the non-primate city
commuting times, which is a result that is not immediately intuitive. This he attributes to the drain of public
resources away from investment in non-primate city transport infrastructure. However, there is no such
correlation in rental costs.
This analysis is taken to another level when he measures the urban quality of life, using variables such
as child mortality rate, access to potable water and waste collection, as well as children per classroom. In this
regression, his results showed that while the metro-area size has no effect on the quality of living, primacy
affects the four variables of urban quality of life negatively. His findings are important in framing the question
of urban primacy in the context of the whole country, as he examines the costs for surrounding cities, rather
than the primate city itself. This has larger implications for central planning governments in demonstrating a
need for governmental awareness to invest appropriately in inter-regional infrastructure, rather than favoring a
single primate city.
Henderson’s model may have its weaknesses in the variables that he selected as measurements of
urban living costs or quality of living. For example, variables such as child mortality rate may be unrealistic
indicators in developed countries, as compared to the developing countries which he chose to focus on.
However, this is nevertheless a useful basis of a model used to examine the effects of urban primacy on cities
other than the primate city itself.
Dynamic Gains from Urbanization: Human Capital Accumulation
The case for or against urban concentration can be further deepened with the broader analysis of
whether government intervention in curbing urban growth is beneficial, necessary, or even detrimental to the
growth of cities. Bertinelli and Black (2004) highlight how there are dynamic gains from statically oversized
cities. This is shown through their analysis of the trade-off between optimal and equilibrium city size, when
the variable of dynamic human capital externalities (positive) are taken into consideration on top of the
classical congestion externalities (negative).
Bertinelli and Black use a dynamic model of rural-urban migration with human capital investment. At
low initial levels of technology, a development trap can occur, with the levels of urbanization and human
capital investment insufficiently high to promote growth. They postulate that without government intervention,
equilibrium levels of urbanization ted to be statically inefficient due to congestion effects. The first stage of
their model is static, and comes up with a proposition that the optimal city size to maximize the economy’s per
capita output net of congestion losses is
  

 zˆ N
  1 t
where


 > 1 represents the inverse intensity of the congestion externalities, N is the population of the country,
zˆt is the proportion of population located in the city under costless migration. Hence, they demonstrate that

since individuals do not consider the impact of their migration on others, it may be privately optimal to
migrate, but it is also socially inefficient, as cities will tend to grow too large, albeit taken only from a static
perspective.
More importantly, the authors make the model more realistic by adding the dynamic aspect, where the
technological change in the economy is increasing as the human capital investment of the preceding period
increases. Intuitively, this is true as more rural to urban-migration would tend to lead to more human capital
available in the city. This leads to 3 possibly dynamic paths of the economy represented by the function Y(A t)
where At is a determined level of technology. These dynamic paths are, 1) The economy remains at initial
levels of urbanization as the development path does not intersect the steady state; 2) The economy converges
to a steady state by experiencing growth if it is within the range where the convex development path is above
the steady state line; 3) The economy experiences unbounded growth with full urbanization in the long run if
technology levels are advanced enough. Out of these 3 cases, it seems to show that if technology levels do not
lead to a development trap, there can by dynamic gains as the economic moves along the graphed
developmental path towards a new equilibrium point (A2) as the increase in human capital acts as an engine for
economic growth, as shown in the figure below.
Case 2 is probably the most realistic case and provides a suitable model for examining the effect of
government policies on the developmental path, which they use in the next section. However, the caveat
imposed on this model is that the state of technology is exogenous, and should fall within a range such that it is
not higher than the upper intersection point on the steady state line, yet not low such that it is stuck in a
development trap, making it fairly difficult to quantify realistically.
Evaluating Policies to Control Metropolitan Growth
The severe primacy that many countries, especially developing countries, are experiencing leads to
many governments having enacted deliberate policies in order to try and decrease the extent of urban
concentration. Yeung (1986) presents an analysis of metropolitan-growth resistant policies in three categories;
physical control, regional planning and management and social policy, citing examples from Asian cities.
Some of the interesting findings relates to the notion of creating satellite cities, self-contained, balanced
communities that are near to the mega-city but distant enough to prevent daily commuting. This is also brought
up by Simmons (1979) under the larger umbrella of ‘growth pole schemes’. The examples given show that
countries such as South Korea and China, creating satellite cities to slow down growth in Seoul and Shanghai
respectively, have been relatively successful. In the 1970s, during the implementation of these incentives to
relocate people and investment to satellite cities, Seoul’s growth fell to 4.5 percent per year, while satellite
cities around it grow at 12.7 percent per year (Simmons 1979), and the proportion of firms on South Korean
industrial estates Seoul accounted for fell from 23.4 percent in 1973 to 13.1 percent in 1978 (Yeung 1986). On
the other hand, this policy did not have an equally effective effect for the region surrounding Tokyo as due to
the efficient transportation available, the cities around Tokyo did not become self-sufficient but instead
commuted to and fro. This resulted in the greater Tokyo metropolis area expanding rather than diversifying
into independent cities.
The second category Yeung mentioned was regional planning and management, which is becoming
increasingly important as the understanding of the implications on the wider region recognized as essential to
solving problems of metropolitan growth. The main problem encountered in this area is the absence of
adequate fiscal provisions, as well as the difficulty in reorganization and coordination of governments.
However, Yeung does not provide suggestions to how these factors can be overcome. The final area is that of
social policy, such as the ‘closed city’ policy of Jakarta implemented in 1970, which required migrants to show
evidence of employment and housing before being issued a residence permit. This was purportedly was
intended to have a psychological effect rather than a physical effect to prevent excessive migration into the
already crowded city. Simmons countered that these regulations were exceedingly difficult to administer; city
officials rounded up 13000 people in one night that did not have proper authority to enter the city, while
another negative consequence was the rise in corruption and bribery caused by people wanting to enter
illegally. These are demonstrated examples of how such policies may or may not achieve their aims, however,
in examining the bigger picture there is also need for developing a format for analyzing projected strategies
and their potential success.
The model previously outlined by Bertinelli and Black (case 2) is important in supporting their
analysis on policies. Bertinelli and Black conduct a thought experiment by putting forth a case of a ‘myopic
planner’, who designs based on a static model to maximize per capita income, although in reality the world
operates in the dynamic arena. Myopic government policies designed to remove these inefficiencies may not
necessarily achieve their objective, but instead slow economic growth and in the worst cases leave the
economy in a development trap. This is an interesting example as it provides a demonstration of the
detrimental effect of attempting to limit the number of people in the urban areas. To summarize their
methodology, their equations graphed shows that restricting urban entry rotates the development path of the
economy downwards, and the range over which the economy is stuck in a development trap is increased, while
the upper steady state level of technology is also lower than the equilibrium case. However, it is to be noted
that this for a given steady state level of technology, and at very high levels of technology, the dynamic
benefits are more likely to be offset by static losses. This hypothetical analysis of policies can be extended to
examine the empirical impact of urban policies to decentralize urban growth away from the main city, which
leads to the second methodology for evaluating policies.
In “Managing Urban Growth in a Transforming China”, Zhao (2010) developed another methodology
to evaluate urban containment strategies, illustrating it with the case study of Beijing. He evaluates the
performance of these strategies by examining the gaps between their objectives and development facts. The
first group of indicators is the urban growth indicator, represented by population growth, housing growth and
the growth of industrial development. The second group of indicators is related to urban form, represented by
density (population, households, employment), mixed land use, concentration and continuity, with its primary
purpose being used to measure the changes in the functional and physical urban compactness. He used these
indicators to map the change in concentration and continuity of urbanization in Beijing’s city center, main
urban area, and suburban area before and after the policy implementation.
Zhao’s analysis from the period of 1990-2009 showed that development of sub-districts around the
immediate city center of Beijing had taken a more compact urban form due to the containment strategies
employed, while the city center also had a relatively higher value with developments having high continuity.
However, similar results were not achieved on the rural-urban fringe as there was evidence of urban sprawl
still occurring on the fringe of Beijing despite urban containment strategies. Thus, through this model he was
able to quantitatively map each impact the urban policies had on the regions, which can give a clearer idea on
whether the policy is moving in the right direction. A salient issue that Zhao raised is that the reasons for urban
sprawl differing between Western cities and a country like China. While urban sprawl in Western cities stems
from low-density housing and dependency on automobile use, promoted by lifestyle changes; in China, this is
strongly influenced by political decentralization and marketization. Local governments have an incentive to
promote local industrialization to boost fiscal income, which in tern contributes to the scattered town-village
enterprises, contributing to urban sprawl. While this may be a case confined to China itself, it is useful to note
that urbanization and urban policies are closely linked to the local and national context of each country.
These policy related papers, while addressing the strategies taken to control metropolitan growth,
admit that they are not dealing directly with the more pressing question of whether these cities are indeed “too
large”. The premise of their analysis takes it as granted that the uncontrolled growth of metropolitan areas
leads to negative externalities, thus ‘justifying’ the rationale for containment and growing-slowing policies.
Conclusion
Given the backdrop of today’s ever-growing urban populations, containment and decentralization
strategies have become increasingly employed. However, as shown in both theoretical and empirical analysis,
while these policies may succeed in improving one area of over-urbanization by reducing the negative
externalities, there is a conflict of economic interests. Since these trade-offs are inevitably, who is to say when
a city should begin curbing its urbanization growth or concentration? Current literature provides various
approaches to carry out the cost-benefit analysis of urbanization and urban primacy, focusing on the effect of
primacy on GNP or other non-primate cities. However, there is significant room for further revision in the
context of today’s cities, especially the emergent Asian mega cities. Using a variety of models to measure the
multitude of effects of increasing primacy and urban concentration may give policy makers a clearer idea on
when large becomes “too large”, which would then require a qualitative stance on whether economic or social
concerns should be at the forefront of policy planning. Moreover, it is essential that there are methods
developed to assess the effectiveness of containment policies, such as Zhao’s methodology, as the quantitative
results of such policies are often hard to justify. It remains to be that there is perhaps no ‘optimal’ size of a
city, as each city is bounded by unique economic, social and political conditions, and it appears that the only
certainty in planning for the success of these cities and their greater regions is ensuring a proper mix of
policies, availability of investment capital and a coordinated administration system.
References
Bertinelli, L., Black, D. (2004) Urbanization and Growth. Jounal of Urban Economics 56, pp. 80-96
Henderson, V. (2002). Urban primacy, external costs, and quality of life. Resource and Energy Economics,
24(1-2), 95-106.
Ho, K.C., and Hsiao, H.H. (2006) Capital Cities in Asia-Pacific: Primacy and Diversity. Taipei: Center for
Asia-Pacific Area Studies,. Print.
Mera, K. (1975). On the urban agglomeration and economic efficiency. Economic Development and Cultural
Change, 24(1), pp. 207-210. Retrieved from http://www.jstor.org/stable/1152788
Simmons, A. B. (1979). Slowing metropolitan city growth in asia: Policies, programs, and results. Population
and Development Review, 5(1), pp. 87-104. Retrieved from http://www.jstor.org/stable/1972319
Yeung, Y. (1986). Controlling metropolitan growth in eastern asia. Geographical Review, 76(2, Thematic
Issue: Asian Urbanization), pp. 125-137. Retrieved from http://www.jstor.org/stable/214619
Zhao, P. (2011). Managing urban growth in a transforming china: Evidence from beijing. Land use Policy,
28(1), pp. 96-109.