1. Welfare Impacts of Urbanization and
Growth in South Asia: Perspective from
New Economic Geography
Muhammad Zeshan, Dr. Vaqar Ahmed and Muhammad Sohaib
24-02-2013
Center for Jawaharlal Nehru Studies
Jamia Millia Islamia (Central University)

2. Outline
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Introduction
Urbanization, Poverty and Inequality in South Asia
The New Economic Geography
Gains from Trade
Inclusive Urbanization
Econometric Model
Findings
Recommendations

3. Introduction
• Urban areas are now hubs of production activities
• Urban Population of South Asia will increase to
around 1188 million by 2050 (World Urbanization
Prospects 2011)
• Urban inclusion is helped in these ingredients
o Open markets
o Provision of public goods and services
o Strengthening mechanism of Voice and accountability

4. Projection of Urban
1000000
900000
800000
700000
600000
500000
Year 2010
Year 2050
400000
300000
200000
100000
0
Afghanistan
Bangladesh
Bhutan
India
Maldives
Nepal
Pakistan
Sri Lanka

5. Growth Rate of Urbanization
1.4
1.2
1
0.8
0.6
0.4
0.2
0
South Asia
European Union
High income: OECD
Latin America & Caribbean (all income levels)
North America
OECD members
World
Source: World Development Indicators

6. GDP Growth Rate
12
10
8
6
4
2
0
19811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012
-2
-4
-6
South Asia
European Union
High income: OECD
Latin America & Caribbean (all income levels)
North America
OECD members
World
Source: World Development Indicator

7. Urbanization, Poverty and Inequality in
South Asia
India
Bangladesh
90
80
70
60
50
40
30
20
10
0
100
80
60
40
20
0
Urbanization
Poverty
Inequality
Urbanization
Poverty
Inequality
Pakistan
100
80
60
40
20
0
1985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012
Urbanization
Poverty
Inequality
Source: World Development Indicators

8. Urbanization, Poverty and Inequality in
South Asia
Nepal
Sri Lanka
100
60
90
80
50
70
40
60
50
30
40
30
20
20
10
10
0
0
19851987198919911993199519971999200120032005200720092011
Urbanization
Poverty
Inequality
Urbanization
Poverty
Inequality

9. Urbanization, Poverty and Inequality in
South Asia
Countries
Bangladesh
Time
India
Nepal
Pakistan
Sri Lanka
Urbanization (measured by Urban Population/Total Pupulation)
1980s
18.7
24.9
8.1
30.0
17.6
1990s
21.9
26.7
11.2
32.0
16.4
2000s
26.4
29.8
15.6
34.9
15.2
Poverty (measured by USD 2 a day)
1980s
89.4
83.5
92.6
88.8
50.8
1990s
87.8
80.7
87.9
81.0
46.3
2000s
79.6
73.6
68.2
63.7
31.4
Inequality (measured by Coefficient of Variation, population weighted)
1980s
29.4
82.9
12.2
29.3
11.6
1990s
29.3
81.8
12.4
29.5
10.6
2000s
28.4
73.7
12.1
28.3
8.4
Source: World Development Indicator
During 2000, poverty in Pakistan reduced more than India

10. New Economic Geography
• The externalities emerging from demand and
supply spillovers also increase market
interaction and reduces the transportation
cost
• The new economic geography discusses
economic activity based on location,
increasing returns, monopolistic competition,
and transaction costs

11. Gains from Trade
• A key role of Trade is contribution to Economic
Growth
• Trade induced urban migration has important
implications for poverty and income distribution
• Trade activities in urban areas provide new
opportunities to the migrant labor and also equalize
the wage rate across different regions.

12. Is Urbanization Inclusive?
• New Opportunities for the Poor rural workers
• Impact of urbanization on poverty reduction
• The clustering of urban population in a few places can
promote economies of scale which may reduce poverty
(World Bank, 2009)
• The urban migration includes a significant share of the rural
poor, which reduces the overall poverty and inequality
(Ravallion et al., 2007).

13. Theoretical Framework
We formalize the framework as follows:
rit = f(g it, y it, s it, u it), (1)
pit = f(g it, y it, s it, u it), (2)
i = 1, …, N (South Asian Countries)
t = 1, …, T (Time)
r:Measur of inequality
p: Poverty rate
g: Growth rate of GDP
y: GDP per capita
s: Trade integration
u: Urbanization

14. Econometric Model
Seemingly Unrelated Regression equations (SURE)
framework to estimate the impact of urbanization,
regional trade and economic growth on poverty and
inequality
;
(i = 1, 2, …, 8)

15. Results- Impact on Poverty
Seemingly unrelated regression
Dependent Variable: Poverty rate (USD 2 per day)
Bangladesh
India
Nepal
Pakistan
Sri Lanka
Urbanization
-1.198
***
-1.642
***
-1.783
***
-4.715
***
4.441
***
Regional Trade
-0.043
0.899
-0.123
***
-1.41
***
-0.509
***
GDP per capita
-0.003
-0.002
***
-0.014
***
0.018
***
-0.002
***
GDP growth rate
-0.065
-0.007
-0.014
-0.104
0.004
Constant
114.7
***
124.0
***
117.5
***
232.1
***
-19.0
***
R-sq
0.86
0.97
0.97
0.93
0.99
P-value
0.00
0.00
0.00
0.00
0.00
***, ** and * indicate 1%, 5%, and 10% level of significance respectively.

16. Results-Impact on Inequality
Variables
Afghanistan
Bangladesh
Bhutan
India
Nepal
Maldives
Pakistan
Sri Lanka
Urbanization
-0.0003
0.0008
***
-0.0001
***
-0.003
***
0.0005
***
0.0001
***
0.004
***
0.003
***
Regional Trade
0.0004
***
-0.0002
***
-0.000002
***
-0.004
**
0.000005
-0.000003
***
-0.0004 ***
0.00003
**
GDP per capita
-0.0001
***
-0.00006
***
-0.000001
***
-0.0001
***
-0.00002 ***
-0.000002
***
-0.00005 ***
-0.00001 ***
GDP growth rate
0.0003
***
0.00001
**
-0.000007
*
-0.00002
0.000004
-0.000001
-0.000008
0.000004
Constant
0.123
***
0.023
***
0.965
***
0.122
***
0.01
***
0.004
***
0.064
***
0.296
***
R-sq
0.87
0.99
0.98
0.99
0.97
0.99
0.99
0.99
P-value
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

17. Fix Effects Model
Dependent Variable: Poverty
Variables
South Asia
Urbanization
-1.264***
Regional Trade
-0.189***
GDP per capita
-0.01***
GDP growth rate
-0.068
Constant
111.9
F-stat
254
***, ** and * indicate 1%, 5% and 10% level of significance.

18. Fixed Effects Model
Dependent Variable: Inequality
Variables
South Asia
Urbanization
-0.0001
Regional Trade
0.00002
GDP per capita
-0.000008***
GDP growth rate
-0.0002**
Constant
0.225***
F-stat
3112
***, ** and * indicate 1%, 5% and 10% level of significance.

19. Recommendations
• Impact of trade liberalization on poverty is
smaller, it is essential to revisit the trade policies
across South Asia.
• Attention should be paid towards strengthening
mechanism of community voices and gender
empowerment.
• There is need to revisit tariff and non-tariff
barriers in South Asia
• It is important to have in place commerce and
environmental friendly urban zoning and building
regulations.

20. Thank You
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