Chapter 7: Urbanization and Rural-Urban Migration – Theory and Policy from Todaro’s Economic

Development:

Urbanization Trends
●​ Developing economies are rapidly urbanizing, often faster than their economic growth can support.
●​ Urbanization is linked to income growth, but too-rapid migration leads to overcrowding and slums.
Role of Cities
●​ Cities offer agglomeration economies: businesses and workers benefit from proximity.
●​ However, they also face congestion costs, infrastructure strain, and inequality.
Urban Giantism
●​ Overconcentration in a single major city (First-City Bias) is common due to political and economic
centralization.
●​ Import substitution, unstable politics, and transportation patterns contribute to this.
Informal Sector
●​ Vital for employment in developing cities, especially for women and low-skilled workers.
●​ Informal work provides flexibility and income but lacks security and regulation.
Migration Theories
●​ Harris-Todaro Model: migration is driven by expected income, not just wage gaps.
●​ Migration persists despite high urban unemployment due to the chance of getting higher-paying jobs.
Policy Implications
●​ Reduce urban bias and encourage rural development.
●​ Avoid policies that worsen urban congestion (e.g., indiscriminate wage subsidies).
●​ Support balanced development and appropriate education-employment alignment.

Agglomeration Benefits that firms and workers gain by locating near each other, such as shared
Economies infrastructure, labor pooling, and knowledge spillovers.

Congestion Overcrowding in urban areas or transportation systems, leading to reduced

productivity and increased costs like pollution and longer commutes.

Efficiency Wage A wage higher than the market rate, paid by employers to boost worker productivity,
reduce turnover, and attract higher-quality labor.

Harris-Todaro Model A migration model suggesting people move from rural to urban areas based on
expected income, even when urban unemployment is high.

Induced Migration Migration that occurs in response to changes in economic opportunities, policies, or
social conditions, rather than spontaneous movement.

Informal Sector The part of the economy that operates without formal regulation or taxation, often
including street vending, small-scale services, and home-based work.

Labor Turnover The rate at which workers leave and are replaced in a job or organization, affecting
recruitment costs and productivity.

Localization Cost savings and productivity gains that occur when firms in the same industry cluster
economies together in a specific area.

Present Values The current worth of a future sum of money or stream of income, discounted using a
specific interest rate.

Rural-Urban The movement of people from the countryside to cities, usually driven by the search
Migration for better jobs, education, and services.
 Social Capital The networks, trust, and norms within a community that facilitate cooperation and
economic or social benefit.

Todaro Migration A theory that explains rural-urban migration as a rational decision based on expected
Model urban income, adjusted for unemployment risk.

Urban Bias A policy preference that favors urban areas over rural ones in terms of investment,
services, and political attention.

Urbanization Advantages that arise from the size and diversity of cities, such as improved access to
Economies services, innovation, and large labor markets.

Wage subsidy Government payments that supplement wages, encouraging employment and
reducing the burden on employers.

Review Quiz​
What is the main idea behind the Harris-Todaro model of migration?​
A. People migrate due to housing shortages in rural areas​
B. Migration is based solely on wage differences​
C. Migration decisions are based on expected income, not actual wages​
D. Urban jobs are guaranteed upon arrival​

Which of the following best describes "Urban Giantism"?​

A. Rapid population growth in rural villages​
B. One city grows disproportionately large compared to others​
C. Urban areas are evenly developed​
D. Giant corporations dominate the economy​

What is a common feature of the informal sector in urban areas?​

A. High regulation and taxation​
B. Government-supported benefits​
C. Job security and formal contracts​
D. Small-scale, low-paid, and unregulated employment​

What does "agglomeration economies" refer to?​

A. High unemployment due to overpopulation​
B. Cost savings when firms and people locate near each other​
C. Pollution caused by dense populations​
D. Decline in rural populations due to migration​

Which of the following is a recommended policy to manage urban congestion?​

A. Increase urban subsidies​
B. Encourage rural development and decentralization​
C. Raise urban minimum wages​
D. Eliminate agricultural investments

False – The Harris-Todaro model assumes not all migrants find jobs immediately; urban unemployment is a key
part of the model.​

True – The informal sector is crucial for urban employment, especially for the poor.​

True – Urban bias leads to more resources being allocated to cities at the expense of rural areas.​

False – Migration can lead to urban poverty and does not always improve rural migrants' incomes.​

True – Agglomeration economies help improve efficiency and innovation by clustering people and firms
together.

Chapter 8: Human Capital – Education and Health in Economic Development from the Todaro textbook

Health and Education as Core Goals & Inputs

●​ Both are central to development—improving individual capabilities (Amartya Sen’s approach).
●​ They are investments that enhance productivity and growth.
Mutual Benefits
●​ Better health improves education outcomes (attendance, learning, returns).
●​ More education boosts health (hygiene, access to care, health personnel training).
Human Capital Approach
●​ Investments in education/health yield future income; evaluated using present value.
●​ Private returns (especially higher education) often exceed social returns.
Child Labor
●​ Linked to poverty; tackled via education incentives (e.g., Progresa), regulation, or bans.
●​ "Multiple equilibria" model suggests policy shifts can reduce child labor sustainably.
Gender Disparities
●​ Girls receive less education/health care, reducing productivity and perpetuating poverty.
●​ Educating women yields high returns: lower fertility, better health, and poverty reduction.
Educational Systems & Equity
●​ Imbalances in access cause inequality; brain drain affects skilled labor supply.
●​ Education has both private and social benefits and costs.
Health Challenges in Developing Countries
●​ Issues include HIV/AIDS, malaria, and neglected tropical diseases.
●​ Health affects productivity (wages tied to health status).
Policy Example – Progresa (Mexico)
●​ A CCT program improving education, nutrition, and health through conditional incentives.

Acquired A life-threatening condition caused by the Human Immunodeficiency Virus

immunodeficiency (HIV), which weakens the immune system and increases vulnerability to
syndrome (AIDS)
infections and diseases.

Basic education The foundational level of education, typically including primary and
sometimes lower secondary schooling, aimed at achieving literacy, numeracy,
and life skills.

Brain drain The emigration of educated or skilled individuals from a country, often seeking
better opportunities abroad, which can weaken the home country’s labor force.

Conditional cash transfer Government programs that provide cash to poor families on the condition that
(CCT) programs they meet certain requirements, such as school attendance or health
check-ups.

Derived demand Demand for a resource (like labor) that arises from the demand for the goods
and services it helps produce.

Discount rate The interest rate used to calculate the present value of future costs and
benefits in economic decision-making.

Educational certification Official recognition (like diplomas or degrees) that confirms a person has
completed a certain level or type of education.

Educational gender gap The difference in educational access or achievement between males and
females, often favoring boys in developing regions.

Health system The organization of people, institutions, and resources that deliver health care
services to meet the health needs of populations.

Human capital The skills, knowledge, and health that individuals accumulate, which
contribute to their productivity and economic potential.

Human immunodeficiency A virus that attacks the immune system and, if untreated, can lead to AIDS;
virus (HIV) transmitted through blood, sexual contact, or from mother to child.

Literacy The ability to read and write at a basic level, essential for accessing education,
employment, and civic participation.

Neglected tropical A group of infectious diseases that primarily affect poor populations in
diseases developing countries and receive limited global attention and funding.
 Private benefits of The personal advantages of education, such as higher income, better
education employment opportunities, and improved quality of life.

Private cost of education The direct expenses borne by individuals or families for schooling, including
tuition, books, uniforms, and transportation.

Social benefits of The broader advantages education provides to society, such as lower crime
education rates, better civic engagement, and economic growth.

Social cost of education The total costs society bears to provide education, including infrastructure,
teacher salaries, and opportunity costs.

World Health Organization A specialized agency of the United Nations responsible for international public
(WHO) health, disease prevention, and health system support.

Review Quiz

Why are health and education considered core elements of development?​

A. They are both free in most countries​
B. They are luxury goods in modern economies​
C. They directly enhance productivity and well-being​
D. They are provided only through the private sector​

How do health and education reinforce each other?​

A. They are both unrelated sectors​
B. Better health reduces school funding​
C. Educated individuals make better health choices; healthy students learn better​
D. None of the above​

What is the primary goal of Conditional Cash Transfer (CCT) programs like Mexico’s Progresa?​
A. Increase government revenue​
B. Encourage rural-to-urban migration​
C. Provide financial support in exchange for education and health commitments​
D. Promote free-market healthcare​

Which of the following is a major consequence of gender inequality in education?​

A. Improved fertility rates​
B. Decrease in national health expenditure​
C. Loss in economic productivity and human capital​
D. Reduction in brain drain​

In the Human Capital Approach, the value of education or health investments is calculated using:​
A. Interest income​
B. GDP growth rate​
C. Present value of future earnings​
D. Tax incentives

False – Private returns to higher education are often higher than social returns.
True – Poverty is a major cause of child labor, often due to lack of access to school.​
True – Educated mothers tend to have fewer children and take better care of them.​
False – The informal sector typically lacks health benefits and formal protections.​
True – Good health increases a worker’s productivity and earnings potential.​