Breaking into Tradables: Urban Form and Urban Function in a Developing City

23 Pages Posted: 18 Apr 2016

See all articles by Anthony J. Venables

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

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Date Written: April 2016

Abstract

Many cities in developing economies, particularly in Africa, are experiencing "urbanisation without industrialisation". This paper conceptualizes this in a framework in which a city can produce non-tradable goods and - if it is sufficiently competitive - also internationally tradable goods, potentially subject to increasing returns to scale. The city may get locked into non-tradable production for three distinct reasons. One is high demand for non-tradables, arising if the city receives income from other sources (such as natural resource rents), creating an urban Dutch disease. A second is coordination failure amongst potential producers of tradable goods. A third arises from the way in which the city is built. In a two-period model with sunk construction costs, expectations about second period outcomes shape construction decisions, which in turn shape the competitiveness of the city. There may be two (perfect foresight) equilibria. One in which land values are relatively low, little is invested in buildings, and the city is too low density and too high cost to attract tradable production. The other in which land values are high, the city is built taller and denser and is able to accommodate more workers and attract tradable production; this, in turn, generates the employment and income to support high land values. The former configuration is consistent with the "urbanisation without industrialisation" experience of many African cities.

Keywords: city, economic development, structural transformation., tradable goods, urban

JEL Classification: O14, O18, R1, R3

Suggested Citation

Venables, Anthony J., Breaking into Tradables: Urban Form and Urban Function in a Developing City (April 2016). CEPR Discussion Paper No. DP11212. Available at SSRN: https://ssrn.com/abstract=2766540

Anthony J. Venables (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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