Effects of urbanization on economic growth and human capital formation in Africa

Mohamed Arouri, Adel Ben Youssef, Cuong Nguyen-Viet, Agnès Soucat
2014

Summary

Africa’s population is expected to grow to 2.3 billion by 2050, of whom 60% will be urban. This urbanisation is an important challenge for the next few decades. According to several research papers and reports, Africa’s urbanisation was, in contrast with most other regions in the world, not associated with economic growth in past decades.

The objective of this study is to investigate the impacts of urbanisation on human capital and economic growth in Africa. It seeks to contribute to the urbanisation–growth debate by investigating how urbanisation is linked to human capital accumulation and economic growth.

The methodology involves three steps. Firstly, a landscape of African urbanisation is proposed in order to apprehend what makes urbanisation in Africa different from other regions in the world. Second, the researchers test for Granger causality relationships between urbanization and human capital and economic variables. Finally, panel regressions are run to assess the intensity of links between the variables.

Key findings and policy implications:

  • The dynamic panel data regressions used to estimate the effect of urbanization on human capital and per capita GDP of African countries show an inverted U-shape relationship between the urban population share and per capita GDP. Urbanisation also shows impacts on human capital variables, such as enrolment rates and health variables. Africa’s human capital is fostered by these impacts, which are permitting greater and faster growth. Urbanisation is reshaping the sectoral composition of the economy: services account for 51% of GDP in the most urbanised economies, and agriculture 76.1% of total employment in the less urbanised countries.
  • The empirical findings suggest several policy implications. Sub-Saharan Africa now has inadequate planning systems, planning laws and building standards, bureaucratised and inefficient land policy and a shortage of qualified and active planners. Urban policies need to be revised in depth to foster human capital. At least five topics should be considered: training and education for urban decision makers; location management and subsidies, development of secondary towns, data for urbanization management, and management of the informal economy.
  • Rural–urban migration is still an open debate. Subsidies to assist the poor should be location neutral. Individuals rather than policymakers are in the best position to determine where they should live. But saying this implies that “laissez-faire” may lead to an anarchic growth of cities and towns in Africa with huge implications for providing clean water, electricity and waste management. The provision of urban infrastructure is key for boosting the urbanization dividend.
  • At the same time, for long-term rural–urban migration to re-emerge as a major economic and demographic force, African urban economies must deliver greater economic security to the majority of urban residents.26 Security in urban Africa needs to be put on the political agenda. Moreover, as it is well known, big cities need complex skills for their management and to be governed by participatory mechanisms. There is an urgency to address the challenge of skills for urban planners and more generally curricula in urbanization schools. While most academic papers, donor interventions and development agencies focus on big cities, new academic findings stress the possible role of secondary towns for inclusive growth. These new approaches need to be confirmed by further research, but they also imply change in policymakers’ decisions on secondary towns.
  • Finally, one should notice that urban policy in many African countries is simply absent or even sometimes “anti-urban”. Consequently, the precarious living conditions that define slums and informal work continue in a policy vacuum. Further, the data and analysis necessary to inform policy at country and city scales are inadequate or just do not exist. Urbanization management needs to produce open data helping researchers and policymakers to do the right analysis and take the right decisions. Unfortunately, urban statistics for Africa may be “highly suspect,” and many can be shown to be “downright wrong.”

Source

Mohamed Arouri, Adel Ben Youssef, Cuong Nguyen-Viet and Agnès Soucat (2014). Effects of urbanization on economic growth and human capital formation in Africa. Working Paper No. 119, Program on the Global Demography of Aging.