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Chapter 8: Urbanization & Rural-Urban Migration

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Presentation on theme: "Chapter 8: Urbanization & Rural-Urban Migration"— Presentation transcript:

1 Chapter 8: Urbanization & Rural-Urban Migration

2 Urbanization and Development
Economic development causes urbanization There is a positive correlation with economic development and urban population growth

3 Urbanization Across Time and Income

4 Urbanization The LDCs experience rapid urban population
growth because of Natural increase: birth rate > death rate Rural-urban migration: movement of rural workers to urban areas

5 Contribution of R-U Migration
On average, about 50% of urban population growth is due to R-U migration Rapid R-U migration has resulted in the construction of slumps and shanty towns that house a large percentage of urban population

6 Dualistic Economic Structure
Formal sector: organized and regulated economic system (e.g., government agencies,banks); it generates 2/3 of GDP Informal sector: fragmented and unregulated economic system (e.g., street vendors, loan sharks); it generates 1/3 of GDP

7 Dualistic Labor Market
Formal labor market: urban & rural: skilled labor (e.g., government employees, teachers) with education and license Informal labor market: urban & rural: semi-skilled and unskilled labor (e.g., small business, street vendors)

8 Urban Informal Sector Most rural migrants find jobs in the “informal” urban labor markets The “informal” urban labor force is a large component of the urban labor force

9 A Model of R-U Migration
Urban “informal” sector hires labor from Urban “informal” markets (e.g., shop keepers) Rural “formal” markets (e.g., tractor drivers) Rural “informal” markets (e.g., farm workers) Urban “formal” sector hires labor from Urban “formal” markets (e.g., teachers) Urban “informal” markets (e.g., drivers)

10 R-U Labor Movement Formal: Formal: Urban Sector Rural Sector Informal:

11 Todaro’s R-U Migration Model
Factors affecting migration decision Expected urban income Probability of finding an urban job Cost of living in urban areas Decision criterion: Migration will take place if the “expected” benefits exceed the costs (in present value)

12 Todaro’s Framework of Migration Decision

13 Todaro’s R-U Migration Model
Benefits from migration: Difference between “expected” urban income and rural income (R-U wage differential) Psychic benefits Costs of migration: Transportation cost Opportunity cost of being unemployed Difference in living expenses Psychic costs

14 Todaro’s R-U Migration Model
Non-economic factors inducing migration: Distance City lights: movie theaters, restaurants, etc. Relative living in urban areas helping reduce living expenses Information flow about job openings in the “informal” sector

15 Policies Inducing R-U Migration
Neglect of agriculture Urban bias development strategies Job creation in urban areas Educational opportunities: R-U brain drain Urban wage subsidies

16 Policies Reducing R-U Migration
Eradicate poverty and reduce population growth Promote rural and agricultural development Expand small-scale, labor-intensive industries Eliminate factor-price distortions and adopt “appropriate” production technologies Modify direct link between education and employment

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