Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/163152
Authors: 
Beladi, Hamid
Chao, Chi-Chur
Ee, Mong Shan
Hollas, Daniel R.
Year of Publication: 
2017
Series/Report no.: 
ADBI Working Paper Series 653
Abstract: 
This paper examines the short- and long-term effects of urbanization, via favorable urban development policies, on income distribution and social welfare for a developing country. The urban manufacturing sector is characterized by imperfect competition and free entry. Urbanization shifts rural workers to the highly productive urban sector, while causing production in urban firms to expand because of scale economies. However, urbanization may worsen wage inequality between skilled and unskilled labor in the short term. In the long term, urbanization can attract new firms to the urban sector, and favorable urban development policies may result in excessive entry of firms, which can amplify wage inequality in the economy. This entry-amplifying effect is confirmed empirically, especially for low- and lower-middle-income countries. If the entry effect is not considered, the impact of urbanization on wage inequality could be understated by 18% for low- and lower-middle-income countries.
Subjects: 
Economics
Industry and trade
Urban development
JEL: 
J31
R23
R58
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

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