The Effects of the Spatial Distribution of Population on Growth and Poverty Reduction (2010)

Undergraduate: Thomas Ginn

Faculty Advisor: Al Field
Department: Economics

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Population size plays a key role in determining a city’s economic function. Large cities have more externalities for research but higher prices for land relative to smaller cities. As developing countries urbanize, cities grow at different rates and the country’s economic activity is altered. Luc Christiaensen and Yasuyuki Todo are the first to examine the relationship between these changing geographies and reductions in poverty, concluding that only growth in cities of less than one million people is significantly associated with poverty reduction. This paper applies their model to new data that suggests the growth of cities of less than 500,000 people is associated with a significant decrease in poverty at the $2-per-day line but increase at the $0.25-per-day line. This paper will also develop and test a theory on the role of large cities in poverty reduction based on the cost effectiveness decisions of individual firms. The hypothesis, that the externalities present in a large city eventually generate employment for unskilled workers in smaller cities, is supported by the econometric analysis.