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CEP discussion paper

Cities in the Developing World


Rapid urbanisation is a major feature of developing countries. Some 2 billion more people are likely to become city residents in the next 30 years, yet urbanisation has received little attention in the modern development economics literature. This paper reviews theoretical and empirical work on the determinants and effects of urbanisation. This suggests that there are substantial productivity benefits from cities, although unregulated outcomes may well lead to excessive primacy as externalities and coordination failures inhibit decentralisation of economic activity. Policy should operate both by identifying and addressing these market failures, and by seeking to remove institutional obstacles to decentralisation.


Henry Overman and Anthony J. Venables

July 2005     Paper Number CEPDP0695

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This CEP discussion paper is published under the centre's Trade programme.