Correlation between Urbanisation and Economic Development

THE WORLD BANK ESTIMATES that about 4.2 billion people, or 55 per cent of the world’s population, live in the cities. By 2050, this number will rise to 70 per cent. Urbanisation is often seen as inevitable when a country transforms from a ‘traditional society’ to one which is geared toward ‘high mass consumption’. These familiar terms are the first and last ‘stages of economic growth’ propounded by Walt Whitman Rostow.

- Bibek Debroy, Amit Kapoor & Aditya Sinha

THE WORLD BANK ESTIMATES that about 4.2 billion people, or 55 per cent of the world’s population, live in the cities. By 2050, this number will rise to 70 per cent. Urbanisation is often seen as inevitable when a country transforms from a ‘traditional society’ to one which is geared toward ‘high mass consumption’. These familiar terms are the first and last ‘stages of economic growth’ propounded by Walt Whitman Rostow.

Often, urbanisation is also correlated with economic development. The proof of the pudding is in the eating. Already, 80 per cent of global GDP is generated in cities. There exists a positive correlation between the higher GDP per capita income and urban population (as a percentage of the total population).

The level of the urban population in countries like Switzerland (73.92 per cent), Norway (82.97 per cent), US (82.66 per cent), Denmark (88.12 per cent), Sweden (87.98 per cent), Australia (86.24 per cent) and Canada (81.56 per cent) is significantly high.

Conversely, countries with lower levels of GDP per capita have lower levels of urban population. Burundi (13.1 per cent urban population), South Sudan (20.20 per cent), Afghanistan (26.03 per cent), Rwanda (17.43 per cent), Ethiopia (21.70 per cent), Kenya (28 per cent) and Myanmar (31 per cent) are some examples.

Let us look at the case of India. The Union Ministry of Statistics and Programme Implementation (MoSPI) had in 2019 estimated urban and rural per capita income in terms of Net Value Added (NVA) to be Rs 98,435 in urban areas and Rs 40,925 in rural areas, respectively. It is more than double in urban areas.