Urban and Regional Development

Khin Chaw Myint

Associate Professor

Department of Applied Economics

Terms and Concepts• Urban Economics - A study of location choices of firms and

households - examines the where of economic activities - a household chooses where to work/ live - a firm chooses where to locate its factory/

office/ retail outlet - Urban economics explores the spatial aspects

of urban problems and public policy

• Urban problems – poverty, urban decay, crime, congestion, pollution are intertwined with location decisions of households and firms:

• Location decisions contribute to urban problems and urban problems influence location decisions

• Three reasons for the urban in urban economics

• 1. most location decisions involve an urban choice ( majority of people living in urban areas)

• 2.urban economics is concerned with location choices within cities

• 3. most of the pressing problems caused by location choices occur in urban areas.

• Urban area

- an area with a relatively high population density.

- Municipality –the area over which a municipal corporation provides local government services such as sewage, crime protection, water supply etc.

- Urbanized area- includes at least one large city and the surrounding area with pop. density exceeding 1000 people per acre. Total pop. must be at least 50,000.

The role of cities• Why do cities exist?

- for individuals are not self-sufficient.

- cities are where the jobs are/ opportunities

- higher living standards/ more pollution, crime, noise, congestion.

- three main reasons for concentration of jobs in cities

-comparative advantage

-internal scale economies

-agglomerative economies

-Comparative advantage/ trade between regions market cities

-Internal scale economies/more efficient production for firms industrial cities

-Agglomerative economies in production/marketing firms cluster in cities large industrial/market-based cities

A model of a rural region

• A region without cities

• Assumptions that prevent the development of cities/When these assumptions are dropped, cities will develop

• Assumptions

-Only two commodities are produced(wheat and wool cloth) and consumed

(1) Inputs, labor and land only.

(2) Equal productivity

Cont’d (3) No scale economies/constant returns to scale

(4) Travel time – travel within the region is by foot only with a speed of four round-trip miles per hour.

-These assumptions-strong enough to prevent trade.

-No advantages from trade or centralized production/every household, self-sufficient

- population distribution will be uniform.

Market Cities

• If the assumption of equal productivity is relaxed, a region or part of a region may be able to produce than the other part of that region

• Thus, there will be a comparative advantage to produce the good that it is more efficient/based on the opportunity cost concept.

• Comparative advantage in one good may lead to a surplus and trading activity will emerge.

• With specialization, both parts of the region can gain from trade.

• If trading takes place, people engaged in and linked to this activity will settle in such places.

• Mostly trading takes place in places where goods can be delivered and transported easily, examples are ports, road junctions/crossroads..

• If more people become settled in this area, the population density will increase/a market city appears

• But transport costs must be reasonable so that trade can be beneficial.

• But three conditions must be satisfied:

• The agriculture sector/rural areas feeds the urban population

• Transport costs must be low for trading activity to exist

Industrial cities

• If the assumption of constant returns to scale is relaxed, industrial or factory cities may emerge

• For this, the factory price(one yard) for the assumed cloth production must be able to underprice home made cloth

• Suppose the time or price for a yard of cloth is 1 hour

• If the factory can produce with less than one hour, people will no longer produce at home

• They will turn to the factory and as factory production survives, people will settle near this factory and pop. density will rise/a factory city or an industrial city appears

• But certain conditions must be satisfied:

• The agri. surplus feeds the factory workers

Large Industrial cities

• Agglomerative economies in production:

• Localization and urbanization economies

• Localization economies

• -- an increase in the total output of a particular industry

• Three principal reasons

• -scale economies in inputs

• -labor market efficiency

• -communication economies

• Scale economies– same input supplier/ reduce costs

• Labor market efficiency– low search costs/low moving costs because of job information received through informal channels/ advertisements

• Communication economies– diffusion of technology, ideas, product designs etc.

• Urbanization economies—same reasons as localization economies but the total output increase is due to the increase in total output of the entire urban area not just of a particular industry

• In urban areas employment condition is stable as businesses can reduce or increase their labor force easily

• Urban areas have people of diverse backgrounds and innovation is easy to take place

Large market based cities

• Agglomerative economies in marketing:

• Shopping externality occurs as sales of one store increases as it becomes located to another or other stores

• Imperfect substitute goods --- comparison shopping e.g. car show rooms..

• Complementary goods--- one stop shopping e.g. pants/coats and shoes/socks

• Save transport costs and more convenient

Location of cities• Commercial firms

• Trading related firms—cities located depending on the trading activity

• River ports, junctions, crossroads etc.

• Different size of cities exist depending on the location of economic activities concerned

Transfer- oriented firms• Raw materials/ market oriented firms

• Firms locating in the vicinity of input source/market

• Depends on the product, whether weight gaining or volume gaining after production and whether weight losing or volume losing

• If the good produced is weight losing/volume losing the location should be near the input source as to save transport costs

• If the good produced is weight gaining or volume gaining, the firm should locate near the market

• Transport costs can be less if location is near the market