Michel DIMOU

English

Research Papers in Economics

Région et Développement n° 27-2008 
URBANISATION, AGGLOMERATION EFFECTS AND 
REGIONAL INEQUALITY : AN INTRODUCTION 
 
 
 
Michel DIMOU
*
 
 
 
 
The Kuznets inverted U curve which focuses on the relationship between 
economic growth and income inequality is an old and well-studied theme in 
development economics. According to Kuznets (1955), except for traditional 
societies that do not have or  that merely initiate the process of modern 
economic growth and industrialisation, developing countries have a less 
egalitarian distribution of incomes than developed ones, because income 
inequalities increase during the first and middle stages of economic 
development while they decrease in more advanced stages.  
 
Using cross-sectional evidence upon a panel of 24 countries, Williamson 
(1965) applied the inverted U curve hypothesis to regional economics, 
stipulating that regional inequalities also follow an inverted U curve according 
to the general level of a country’s development. Williamson’s initial assumption 
boosted important empirical literature (Amos, 1988, Fan  and Casetti, 1994, 
Azzoni, 2001, Petrakos, 2003, Rey, 2004), while Henderson’s (1974) 
pioneering work introduced urbanisation issues, by considering that the 
relationship between urban concentration and per capita income or utility, also 
follows an inverted U pattern (Henderson, 2003). 
 
These studies initiate some major concerns in regional economics: firstly, 
does economic growth lead to spatial or urban inequality and, if this is the case, 
for how long ? Secondly, does inequality depend upon the pace or t he 
specialisation patterns of economic growth? Finally, is there any adequate 
public policy response to spatial inequality due to growth processes, in order to 
preserve social cohesion? Several studies have attempted to provide explanatory 
evidence on the relation between economic growth and regional inequality or 
urbanisation. 
 
In the most common interpretation of the Kuznets curve, the inverted U 
pattern arises from a rather mechanistic process of reallocation of labour from a 
stagnant poor rural and agricultural sector (where the mean and standard 
deviations of incomes are low) to an expanding urban industrial sector (where 
the mean and standard deviations of incomes are much higher). It assumes 
perfect labour mobility and a time-constant ratio of the mean incomes between 
urban and rural areas, while income distribution is supposed to be more uneven 
in urban than rural areas (Ros, 2000). During the first stages of development, 
inequality increases as the reallocation of labour leads to a higher standard 
                                                 
* CERESUR, Université de La Réunion, 29 Rue Cézanne, 97432, Saint Pierre, France.  
   dimou@univ-reunion.fr. 8      Introduction 
deviation in the country’s per capita income distribution, while the spatial 
patterns of inequality are explored under the traditional rural/urban distinction. 
In subsequent stages of development however, the inequality gap starts 
declining, with the appearance of a middle income urban class which demo-
graphically represents the most important social group. Wheaton and Shishido 
(1981), Mac Kellar and Vining (1995), Moomaw and Alwosabi (2004) use 
cross-sectional evidence over different samples of developed and developing 
countries, in order to study urban primacy. Their conclusion assumes that urban 
concentration rises until a certain level of per capita income, and then falls. 
 
A second interpretation of the inverted U curve assumes imperfect labour 
mobility and the presence of diminishing returns in agriculture and increasing 
returns to scale in the urban sector. In a Myrdallian cumulative process, labour’s 
reallocation towards the urban sector, during the early stages of development, 
leads to an increase of the productivity differential in favour of urban industrial 
areas (Ros, 2000). Backwash effects dominate, leading to a widening of 
inequalities. In later stages of development, the appearance of spread effects 
may reverse the tendencies and lead to a decline in interregional and 
intraregional disparities. Inequality traps may however occur and produce 
deviations from the inverted U pattern. This is often the case with the formation 
of megapoles and persisting urban primacy. Krugman and Venables (1995), 
Fujita and Hu (2001), Fujita and al. (1999) follow economic geography models 
and consider that agglomeration economies and trade costs are the key 
explanatory factors in the relation between economic growth and urban 
concentration.  
 
One should note that while Kuznets’s assumptions led to a huge amount 
of papers on development economics, a more recent endogenous growth 
literature also developed on the subject.  It specifically focuses on how income 
distribution or spatial inequality may affect growth (Bertola, 1993, Alesina and 
Rodrik, 1994, Tamura, 1996, Partridge, 1997, Barro, 2000, Lucas, 2000, 
Azzoni, 2001). 
 
Finally, by relaxing some assumptions of the previous theories (mainly 
the increasing returns to scale for the urban sector), Ades and Glaeser (1995), 
Henderson and Becker (2000), Davis and Henderson (2003) use human capital 
models to consider the relationship between economic growth and spatial or 
urban inequality due to skill and knowledge acquisition. In these models, 
government policies, institutional frameworks and democratization play an 
important role in modifying factor (mainly human capital) endowment. They do 
not necessarily deliver an inverted U relationship, although Penalosa (1994) or 
Perotti (1996) point out the cases in which the reverse may hold. 
 
The present issue of  Région et Développement gathers together eight 
papers and a note which focus on different aspects of the relationship between 
regional inequality, urbanisation and agglomeration effects. 
 
A first set of papers studies, through different methodological options, the 
relationship between economic growth and regional inequality.    Région et Développement  9 
 
Mark Janikas and Sergio Rey consider a spatial framework allowing for a 
simultaneous interaction between regional growth and inequality. They provide 
evidence for inequality being a partial function of economic growth but not the 
opposite, in the United States from 1969 to 2000. The Kuznets curve results 
then from a Myrdallian process of cumulative causation. A second interesting 
feature of their paper concerns spatial clustering and its effects on economic 
growth. The authors find that intra-state spatial clustering seems to have no 
effect on growth, while it is negatively correlated with intra-state inequality. 
This indicates that states with high initial levels of spatial clustering will have 
lower growth rates of inequality. These results lead them to incorporate a spatial 
dependence analysis within the study of regional economic change. 
 
John Carruthers, Michael Hollar and Gordon Mulligan’s paper concerns 
the relationship between growth and convergence in the space economy, using 
United States’ data for the 1982-1997 period. This paper seeks to expand the 
traditional two equations land use based regional adjustment model (containing 
population and employment density), by adding a third equation for wages, in 
order to provide more robust evidence on geographic relationships investi-
gation. Two main conclusions can be drawn from this study: firstly, taking into 
account the spatial interdependencies substantially enhances the robustness of 
land use based adjustment models; secondly, even if productive decentralisation 
trends seem to characterise the United States’ post-industrial economy, the 
longstanding urban and regional hierarchy patterns remain unchanged.  
 
By focusing on the forty main European metropolitan areas, Christian 
Longhi’s paper builds empirics on the evolution of their productivity patterns, 
during the process of economic integration that took place on this Continent 
during the 1975-2000 period. By combining geographical, industrial and 
temporal dimensions at the level of cities, the author provides several arguments 
supporting the existence of structural convergence across the main European 
metropolitan areas. The paper specifically highlights  related movements of 
convergence between metropolitan areas in terms of industrial composition, an 
issue which seems rather neglected by relative literature. 
 
A second set of papers stresses more specifically the urbanisation process 
and city size distribution, with regards to regional disparities. Different urban 
systems are considered and the validity of statistical laws, such as Zipf’s or 
Gibrat’s law, on urbanisation are also examined. Two main questions arise from 
these studies: firstly, is urbanisation linked to economic growth; secondly, is it 
positively or negatively correlated with regional inequality? Metropolitan 
policies are also considered here. 
 
Maurice Catin, Said Hanchane and Abdelhak Kamal deliver an empirical 
model in order to examine the d eterminants of urbanisation and primacy in a 
panel of 56 developing countries, over the 1950-2000 period. This model 
considers different stages of economic development and specifies the rural-
urban migration effects from the factor accumulation and productivity ones.  
The aim of their paper is to examine whether the inverted U curve hypothesis 10      Introduction 
holds when it comes to urbanisation issues. The authors provide evidence that 
urbanisation rates, compared to economic growth, follow the inverted U 
patterns, at its upward curve, while the degree of primacy responds in a more 
erratic way. International integration, productive specializations, transport costs 
and trade policies seem to play an important role on the primacy rate’s changes. 
 
Michel Dimou, Alexandra Schaffar, Zhihong Chen and Shihe Fu focus on 
Zipf’s and Gibrat’s law, using Chinese cities data for the 1984-2005 period. The 
main issue of the paper is to examine whether urban growth depends upon city-
size or not. The authors use ADF and co-integration tests, as well as Markov 
matrices, in order to study the nature of urban growth in China. One of the main 
conclusions of the paper is the existence of a threshold, above which cities seem 
to grow in a parallel way, while smaller towns’ populations tend to rapidly 
converge towards this threshold. This leads to a dichotomous urban system, 
characterised by great instability when it comes to small towns, but providing 
longstanding stable patterns when it comes to metropolitan areas.  
 
Paschalis Arvanitidis and George Petrakos explore the role and 
importance of four close located metropolitan areas (Skopjie, Sofia, 
Thessaloniki and Tirana) in South-East Europe. The authors show that the 
economies of the four metropolitan areas have undergone significant structural 
changes over the last twenty years, in an attempt to adapt to internal and 
external forces related to globalisation, European integration and urban 
competition. A second issue in their paper concerns cooperation strategies 
among these cities, both on hard infrastructure and on soft policy, in order to 
create an integrated regional urban network. Such a cooperation goes against 
the fragmentation of economic policies and competition that prevailed until 
recent years. 
 
A third set of papers allows one to consider  a larger spectrum. These 
papers do not clearly deal with the relationship between regional inequalities, 
agglomeration effects and economic growth. They deliver results however that 
should be taken into account within a more general concern on the subject. 
 
Simonetta Longhi, Peter Nijkamp and Jacques Poot present an original 
contribution aiming to examine the impacts of immigration on the labour 
market, by carrying out a meta-analysis on 45 primary studies published 
between 1982 and 1997 on this subject. They consider three possible outcomes 
(positive, negative and null effect) of immigration over a broad range of labour 
market indicators such as wages, employment and labour force participation. 
Their results deliver evidence that the impact of immigration on the labour 
market of the native born population is quantitatively very small, while it is 
much higher on the market of earlier immigration waves. Although the authors 
essentially focus on the meta-analysis methodology, their results can be used in 
enlarging the regional growth and inequality approaches. 
 
Within a theoretical framework involving hypothetical examples, Daisuke 
Nakamura’ paper introduces a four case typology of spatial structure, in order to 
reveal the mechanisms that lead to the appearance  of several irregular spatial   Région et Développement  11 
formations of market areas and the corresponding structures of supply areas. 
His analysis also provides information on the methodological connectivity 
between central-place system and agglomeration economies. The author thus 
explores the importance of the additional location factors, with respect to the 
spatial constraints and spatial enhancement forces of economies.  
 
Finally, a short note by Maurice Catin, Christine Cuenca and Abdelhak 
Kamal presents a case study of Morocco’s urban structure, dominated by the 
importance of Casablanca. The authors show, however, that the decrease in the 
primacy rate goes along with the 1970-2000 demography, leading to a new gap 
between the most important urban centres and smaller towns, where each city’s 
productive forces tend to specialize in specific industrial segments. This 
provides some explanatory arguments about the inverted U curve, when it 
comes to urbanisation trends.  
 
During these last years, much consideration has been given, by regional 
science scholars, to the relationship between regional inequalities, urbanisation 
and agglomeration effects. The papers gathered in this issue of  Région et 
Développement do not pretend to provide  an exhaustive state-of-the-art 
overview ; they outline, however, the new theoretical and methodological issues 
on the question. 
 
 
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Distributive politics and economic growth,

Economic growth and income inequality in Brazil,

Economic growth and income inequality,

Evidence on the political economy of the urbanisation process,

From decay to growth: a demographic transition to economic growth,

Globalization and the inequality of nations,

Growth, income distribution and democracy : what the data say?

Inequality and growth : a note on recent theories, Investigaciones economicas,

Inequality and Growth in a Panel of Countries,

Intra-industry specialisation and urban development,

Is inequality harmful for growth? A note,

Market structure and income distribution in endogenous growth models,

Peripheral European Transitions : The trade relations of the Balkan countries,

Population concentration in less developed countries : new evidence,

Regional disparity in China 1985-1994: the effects of globalization and economic liberalization,

Regional inequality and the process of national development,

Some macroeconomics for the 21 st century,

Spatial dependence in the evolution of regional income distributions, in Getis

The sizes and types of cities,

The spatial and temporal dynamics of US regional income inequality , 1950-1989,

The Spatial Economy,

The urbanization process and economic growth : the sowhat question,

Trade and circuses : explaining urban giants,

Unbalanced regional growth and regional income inequality in the latter stages of development,

Urban concentration, agglomeration economies, and the level of economic development,

URBANISATION, AGGLOMERATION EFFECTS AND REGIONAL INEQUALITY : AN INTRODUCTION

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URBANISATION, AGGLOMERATION EFFECTS AND REGIONAL INEQUALITY : AN INTRODUCTION

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