Giants and midgets: the effect of public goods' provision on urban population concentration

Bigger cities increase income per capita and provide access to a largerpool of public goods, but also require higher living costs. Since individualutility is increasing both in private consumption and public goods(but at a... [ view full abstract ]

Bigger cities increase income per capita and provide access to a largerpool of public goods, but also require higher living costs. Since individualutility is increasing both in private consumption and public goods(but at a decreasing rate), there exists some optimal city size that maximises the utility of its citizens and not only income. Moreover, all cities in the economy are interrelated and migrants affect economic outcomes both at the cities of origin and the destination. This paper presents a theoretical model (supported by empirical evidence) that explains migration decisions within a system of cities and provides an explanation for the existence of urban giants in developing countries. The model suggests that (1) differences in public goods’ provision create incentives to migrate to the primate cities; (2) better national infrastructure development decreases these incentives and, hence, urban population concentration; (3) uneven distribution of public goods leads to the emergence of urban giants. These findings are especially relevant for developing countries, where rapid urbanisation is currently taking place.

Keywords: primacy, public goods, growth, urbanisation
JEL Codes: O1, R12, R53, H41, H71, E20