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CEP discussion paper

Measuring urban economic density

At the heart of urban economics are agglomeration economies, which drive the existence and extent of cities and are also central to structural transformation and the urbanization process. This paper evaluates the use of different measures of economic density in assessing urban agglomeration effects, by examining how well they explain household income differences across cities and neighborhoods in six African countries. We examine simple scale and density measures and more nuanced ones which capture in second moments the extent of clustering within cities. The evidence suggests that more nuanced measures attempting to capture within-city differences in the extent of clustering do no better than a simple density measure in explaining income differences across cities, at least for the current degree of accuracy in measuring clustering. However, simple city scale measures such as total population are inferior to density measures and to some degree misleading. We find large household income premiums from being in bigger and particularly denser cities over rural areas in Africa, indicating that migration pull forces remain very strong in the structural transformation process. Moreover, the marginal effects of increases in urban density on household income are very large, with density elasticities of 0.6. In addition to strong city level density effects, we find strong neighborhood effects. For household incomes, both overall city density and density of the own neighborhood matter.

J. Vernon Henderson, Sebastian Kriticos and Dzhamilya Nigmatulina

6 September 2018     Paper Number CEPDP1569

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