Urban Concentration: The Role of Increasing Returns and Transport Costs

Very large urban centers are a conspicuous feature of many developing economies, yet the subject of the size distribution of cities (as opposed to such issues as rural-urban migration) has been neglected by development economists. This article argues that some important insights into urban concentration, especially the tendency of some developing countries to have very large primate cities, can be derived from recent approaches to economic geography. Three approaches are compared: the well-established neoclassical urban systems theory, which emphasizes the tradeoff between agglomeration economies and diseconomies of city size; the new economic geography, which attempts to derive agglomeration effects from the interactions among market size, transportation costs, and increasing returns at the firm level; and a nihilistic view that cities emerge out of a random process in which there are roughly constant returns to city size. The article suggests that Washington consensus policies of reduced government intervention and trade opening may tend to reduce the size of primate cities or at least slow their relative growth. O + ver the past several years there has been a broad revival of interest in issues of regional and urban development. This revival has taken two main directions. The first has focused on theoretical models of urbanization and uneven regional growth, many of them grounded in the approaches to imperfect competition and increasing returns originally developed in the "new trade" and "new growth" theories. The second, a new wave of empirical work, explores urban and regional growth patterns for clues to the nature of external economies, macroeconomic adjustment, and other aspects of the aggregate economy. Most of this work has focused either on generic issues or on issues raised by the experience of advanced market economies like the United States. Yet arguably the issues raised by the recent work are most salient for smaller, less-wealthy countries like Mexico and Brazil. Why might the "new economic geography" be more relevant for the developing world than for industrial countries? First, the matter is an urgent one for real-world