Costs and Benefits of Urbanization

Urbanization has both benefits and costs. This chapter summarizes research findings on how urbanization enhances productivity and economic growth in both rural and urban sectors, taking the case of India. It studies the relationship between urbanization and growth. Based on extensive data analyses of urbanization, it finds no impact of urban–rural inequalities on urbanization, but significant impact on the population of the largest city in the state. When accounting for the two-way relationship between urbanization and the rural–urban income ratio, it finds that urbanization increases urban–rural inequalities initially, but at higher levels reduces them. Urbanization benefits rural development since the chapter finds that it has a positive impact on increasing the rural–urban income ratio, and the evidence regarding remittances. Policy implications regarding telecommuting and investments in urban infrastructure are summarized. Lessons from India and the People’s Republic of China for each other’s urbanization are discussed.