Urbanization, source of ideas and growth

According to the United Nations, more than half of the world's population lives in urban areas, amounting to 4.2 billion people. The trend is expected to increase in the coming decades, to include 66% of the world's population by 2050. Cities are at the heart of economic growth, generating more than 80% of global GDP. Economists have extensively written about the fact that workers are attracted to cities where they can benefit from higher wages, and urbanisation has long been seen as a consequence of economic growth. On closer examination, however, the link between urbanisation and growth may be more complex.

Economists Cecilia García-Peñalosa and Liam Brunt have combined elements from development economics and economic geography, using a new model to explore the links between urbanisation and innovation: that is, the creation of new ideas and technologies. Their goal is to understand how the two factors may have interacted at a time when economic growth began to gain momentum at the dawn of the Industrial Revolution. Although the conditions in the first countries to industrialise were different from the situation of low-income countries today, this study could nevertheless shed light on the advantages of urbanisation in countries that are still predominantly rural.

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Dialogues économiques is a digital magazine published by the Aix-Marseille School of Economics (AMU, CNRS, EHESS, Centrale Méditerranée) A bridge between academic research and society, Dialogues économiques provides all citizens with the keys to economic reasoning. Articles are published every two weeks.

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The researchers looked at Europe, and in particular England, as data show an increase in the rate of urbanisation and in the size of cities prior to the Industrial Revolution. Their model considers an economy with an agricultural sector and a manufacturing sector, with production taking place, respectively, in rural and urban areas. Two mechanisms come into play. First, the manufacturing sector is described as traditional craft activity, distinct from modern industrial production. The productivity of manufacturing workers depends entirely on the number of ideas each of them possesses, and this productivity will rise as long as there is an increase in the number of ideas available. This results in higher wages and prompts agricultural labourers to leave the countryside for a life in the city. Therefore, an increase in the number of ideas leads to more employment in the manufacturing sector and a higher rate of urbanisation.