Urbanization and Economic Growth What’s the Connection
The growth of urbanization is widely regarded as one of the most important phenomena characteristic of the 21st century.
While people in cities increasingly fill every corner, millions of people moving from rural areas in search of a better future, the proximity between urbanization and economic growth has never been so important.
On one hand, urbanization tends to come along side several problems such as infrastructure necessity, environmental impacts and so on but on the other hand it is a great powerful tool for increasing the economic development.
In this blog, we look at the major conduits through which urbanization fuels economic development and why cities are becoming viewed as growth machines.
Increased Productivity and Innovation
a) Concentration of Talent and Resources
Population density in urban places entails centralization of people and resources hence rapid growth of productivity.
Because of increased population density, one is able to get larger and pluralized workforce, which results to increased efficiency and creativity.
The availability of highly skilled labour, institutions of learning, companies and research facilities are found, easily sharing ideas making the environment very conducive for knowledge sharing and generation of new ideas.
It means cities ensure human capital in fields of their specialization, including technology, finance, health and art, which enhances corporate sectors and boosts the economy growth.
There are other advantages also associated with concentration of human capital, including economies of scale.
The business environment is advantageously characterized for those companies that are installed in the urban context, in terms of a higher quantity and quality of customers and suppliers that lead directly to lower costs and productivity.
In addition, workers can get training in cities than in the countryside meaning that; they will be more productive in the society, thus co-relating urbanization and economic growth.
b) Entrepreneurial Opportunities and Startups
The relationship between urbanization and economic growth can also be assessed by entrepreneurship, as it thrives in urban area.
Availability of financial institutions, venture capital and most importantly, corporation-friendly and versatile consumer markets make it all possible in cities.
Businessmen and businesswomen have the advantage of accessing investors, mentors, and customers in cities which motivates growth of such businesses.
Large cities and specifically Californian start-up epicenter, such as Silicon Valley is home to countless successful new economy firms thanks to which local or in turn global economic success is fueled.
Also, the diversification of culture and economic forces that accompany population density are likely to foster creativity on the part of would-be entrepreneurs.
Because cities are compact and integrated, capital is pooled and circulated far more intensively, and market opportunities and shifts are disseminated and seized much more frequently, engendering an ethos of dynamic economic responsiveness.
Infrastructure Development and Economic Expansion
a) Investment in Infrastructure
As urbanization and economic growth are directly proportional, therefore it is invariably accompanied by major capital investments in infrastructure, which is one of the main sources of economic growth.
That is why with the development of cities the need for transport, living conditions, electricity, gas, water, and telephones all need to be upgraded.
The construction of infrastructure also employment opportunities, increase the demand for clients on raw materials and lift the economy in the regions.
For instance, through the construction of roads, public transport and or ports it becomes easier for businesses operate and the costs of the end product are are also cut down for both the producer and consumer.
Modern infrastructural development also fosters development of new sectors for instance renewable energy, telecom and information technology.
Large industries are capable of growing in cities that have solid infrastructure and they achieve competitive advantage than small industries in the global market.
In addition, investment in efficiency enhances the trade in goods and services, national and global through enhancing the provision of market access, lowering the costs of transactions, and support formation of economic nexus.
b) Smart Cities Control and Sustainable Development
Championed by massive urbanization, smart cities refer to city infrastructures that apply information technologies and metrics to improve the living standards of citizens and overall economic productivity.
Smart cities encompasses; green building, smart transportation systems and smart ways of waste management.
They contribute to cutting of costs, on the other hand enhancing sustainability and leading to better designed cities.
ICT on the smart infrastructure is not only important for the economic development of cities through providing them with competitive advantages in business and investment attraction, but also for providing solutions to make cities responsive to any possible threats such as climate change, traffic jams, and scarcity of resources.
Through effective application of data to resource utilization, the smart cities can eliminate waste, enhance delivery of services, and spur development of requisite economic drivers.
Thus providing another prime example of relationship between urbanization and economic growth.
Global Connectivity and Access to Markets
a) Urbanization as a Gateway to Global Markets
Increasing urbanization and economic growth tends the cities to be seen as a harbinger to globalization.
Cities have the basic facilities, people, and transport linkages upon which the firms can depend and use to sell their products in the global market, attract foreign capital, and engage in exports.
New York, London and Shanghai are examples of cities that operation the global financial cites, whereas Nairobi and Bangalore are examples of cities that operations centers of innovation on technology.
States and Urban Areas are also important in trade both import and export due to availability of ports airport and railways all which help in the movement of goods and services.
Businesses are well placed in cities where there is centralization of many companies, financial organizations and various logistics networks, because this makes it possible for any business to expand, and access customers all over the world.
Furthermore, cities mean cultural diversity which may help in promoting convergence of idea and even goods and services across the borders.
b) Access to Capital and Investment
It is in urban areas that the money is in circulation. Hedge fund investment and banks also gravitate towards the cities, thus making it easier for businesses including start-ups get funding.
There are reasonable grounds to believe that funds such as venture capital, private equity, and others that are available to business entities in urban settings assure the fast growth of businesses and stimulate economic activity.
The second advantage of cities is that they give the focus of talent and ideas, where investors look for to put money.
For instance, some noted cities include San Francisco, London and Berlin as cities infamous for supporting investment systems.
They head to these cities because the network of investors and business partners potential enough is almost unending.
It helps firms expand, and thus, promotes the general economy by creating new sectors and employment chances.
Conclusion: Urbanization and Economic growth
The relationship between urbanization and economic growth is as strong phenomenon concentration of people in urban areas gives more possibilities of harnessing value from congregation of various factors of production.
They are centers of several production demanding the facilities, skilled workforce, and markets for fast and sustainable economic development.
On one hand there are problems associated with congestion, pollution or sustainable development; nonetheless the economic advantages are seen.
Continued expansion of urban areas will and the prospects for continued economic development of urban areas remains bright for businesses, workers and governments.
Thus, the identification of the relations between urbanization and economic growth is the crucial step toward the successful use of cities as the growth drivers of the 21st century.
Also read: What is Urbanization? A Global Phenomenon