Urban development, excessive entry of firms and wage inequality in developing countries

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ADBI Working Paper ; No. 653

Classification and Topics

• Classification: Wirtschaft ; Wage Level and Structure; Wage Differentials ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics ; Regional Development Planning and Policy
• Subject: Economics ; Industry and trade ; Urban development

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beladi, Hamid ; Chao, Chi-Chur ; Ee, Mong Shan ; Hollas, Daniel R.
• Event: Veröffentlichung
• (who): Asian Development Bank Institute (ADBI)
• (where): Tokyo
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/163152
• Last update: 10.03.2025, 11:44 AM CET