Date: 2008
Type: Working Paper
Urban Growth, Uninsured Risk and the Rural Origins of Aggregate Volatility
Working Paper, EUI ECO, 2008/26
POELHEKKE, Steven, Urban Growth, Uninsured Risk and the Rural Origins of Aggregate Volatility, EUI ECO, 2008/26 - https://hdl.handle.net/1814/8891
Retrieved from Cadmus, EUI Research Repository
The level of urbanization has increased by over 5 percentage points per decade outside
the developed world since 1960. Rapid urbanization was accompanied by fast economic
growth and job creation in most parts of the world. However, notably Africa (and Latin
America after 1980) has had a different experience: while growth in GDP per capita slowed
significantly or even reversed, the rate of urbanization continued its fast pace. This paper
aims to explain this by introducing an aggregate risk differential between the countryside
and the city. Uninsurable expected risk will lead to rural-urban migration as a form of
ex-ante insurance if households are liquidity constrained in incomplete markets and cannot
overcome adverse shocks. Macroeconomic volatility finds its origins in risk-prone natural
resource production including agriculture and has a robust positive effect on urban growth,
especially when economic growth is slow. The effect stands up to the transitional view on
urbanization of economies shifting from an agricultural to an industrial base.
Cadmus permanent link: https://hdl.handle.net/1814/8891
ISSN: 1725-6704
Series/Number: EUI ECO; 2008/26
Publisher: European University Institute
Keyword(s): urbanization risk natural resources volatility rural-urban migration O1 R11 R23 R51 D81