Cities in the Developing World

The fast and often chaotic urbanization of the developing world generates both economic opportunity and challenges, like contagious disease and congestion, because proximity increases both positive and negative externalities. In this article, we review the expanding body of economic research on developing-world cities. One strand of this literature emphasizes the economic benefits of urban connection, typically finding that agglomeration benefits are at least as high in poor countries as they are in rich countries. Yet there remains an ongoing debate about whether slums provide a path to prosperity or an economic dead end. A second strand of research analyzes the negative externalities associated with urban density, and the challenges of building and maintaining infrastructure to moderate those harms. Researchers are just beginning to understand the links between institutions (such as public-private partnerships), incentives (such as congestion pricing), and the effectiveness of infrastructure spending in addressing urban problems. A third line of research addresses the spatial structure of cities directly with formal, structural models. These structural models seem particularly valuable when analyzing land-use and transportation systems in the farmore fluid cities of the developing world.