Urbanization & Growth: Chicken & Egg?

As China’s policymakers pursue urbanisation as a driver of the country’s economic rebalancing, The Economist explores the merits of such a strategy:

[…] In a paper released in July, two scholars argue that “the direction of causality likely runs from growth to urbanisaton, rather than vice versa.”

There are caveats galore about their findings, especially as they relate to China. The scholars, Anett Hofmann of the London School of Economics and Guanghua Wan of the Asian Development Bank, seek not only to determine the impact of on urbanisation, but also that of industrialisation and education. And, while they seek and find indications that growth causes urbanisation, they do not themselves investigate the reverse sort of causality. They leave off noting instead that “attempts to identify a causal effect of urbanisation on growth have so far been unsuccessful” [emphasis theirs].

More relevant still is the fact that China is not betting the farm, as it were, on urbanisation. True, some influential figures have hinted at the belief that it might be sufficient as a spur to future growth. For instance Zhang Liqun, of the State Council’s Development Research Centre, recently said that “the growth momentum gained from the processes of industrialisation and urbanisation alone will support the country’s steady growth.”

But the senior leader most closely identified with the idea is the current prime minister, , and he has outlined a more nuanced position. Elaborating his position in an article published in May in a theoretical journal of the Communist Party, Qiu Shi (here in Chinese), Mr Li wrote that “China is experiencing exponential urban growth which will spur investment and consumption and play a significant role in expanding domestic demand.” [Source]

August 5, 2013, 8:37 PM
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Categories: Economy