May 07, 2018
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Posted by NCID
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Rapid urbanization throughout the world has shown that people escape rural areas in search for better lives. The Oxford Poverty & Human Development Initiative estimates that one third of the population is poor. However, this ratio more than doubles in rural areas to 71.4%. Approximately three out of every four persons living in a small town or village are poor. What are the factors that influence the large gap in income between rural and urban areas? Could it be that urban areas have lower amenities such that individuals must earn more to compensate for the discomfort?

Martina Kirchberger tries to answer those questions in her paper In Search of a Spatial Equilibrium in the Developing World, which she presented last Monday 7th May at the University of Navarra. Two main things came to her mind when approaching this topic: “First is that cities are more expensive, but that is offset by higher wages. Then comes in place the idea of sorting heterogeneous workers”, said Kirchberger. “What if the most educated and productive people move to urban areas? Then we could explain the difference... However, research finds it is unlikely the income gap happens only due to sorting”.

Why doesn’t everyone then move to cities as per the Spatial Equilibrium Theory? In her work, Kirchberger dives into three prime amenities to analyze if they are worse in urban areas, hence pushing back people from leaving rural areas despite potentially higher incomes: the availability of public goods, crime and pollution. Using data from 20 African countries and linking it to population data the study sets out to test this theory.

The availability of public goods is equal or better in urban areas. Crime is slightly higher in urban areas, but no there is no statistically significant difference relative to rural areas. Finally indoor air pollution, measured by the proportion of households who cook indoors with solid types of cooking fuels, is even higher for households on rural areas. Kirchberger compliments these amenities with health outcomes, housing quality and subjective well being, which are all also better in urban areas. Therefore, results go against the existence of a spatial equilibrium in the selected African countries which suggest the existence of frictions that disincentivize moving towards urban areas.

“Results suggest that the large gaps that we see in income levels between urban and rural areas isn’t likely to be explained by disamenities in urban areas”, said Kirchberger. “These results are important if we want to understand urbanization processes in low income countries”, she concluded.