Urbanisation without industrialisation

One of my favourite papers from the past 10 years is Gollin, Jedwab and Vollrath’s paper on ‘Urbanisation with and without industrialisation‘. They note the difference between ‘production cities’, where manufacturing dominates, and ‘consumption cities’, where the services sector rules. They connect this with natural resources, and with non-homothetic preferences in consumption: a natural resource boom brings ‘manna from heaven’ (essentially, income without opportunity cost), and this can be spent on food, manufactures or services. As incomes grow, the demand for food grows too, but not in proportion to income. People demand more manufactures and more services. Since manufactures can be imported, consumers purchase manufactures from abroad and services produced domestically.

In a new draft paper, I make new estimates of per capita GDP for the turn of the twentieth century, roughly doubling currently available estimates. One of the advantages of my method is that is produces an estimate for the share of agriculture in GDP. I can then estimate two things: the compound annual growth rate of GDP per capita across the twentieth century, and the decline of agriculture’s share of GDP (in percentage point) across the same time period. I graph these separately, and highlight African countries in yellow:

The results are startling: agriculture is a much lower share of African countries’ GDP in 2000 than in 1900, but these countries have witnessed much slower GDP growth in the 20th century. Perhaps the most astonishing country, though, is Burma, which actually became more agricultural over the course of the century, as well as witnessing a negative annual average growth rate. I take these results as fairly good evidence for ‘urbanisation without industrialisation’, but with a caveat: some of the countries that have witnessed slow growth have urbanised without natural resources, especially in Africa.

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