Relationship between Economic Growth, Urban Concentration and Trade: Evidence from the Asia-Pacific

Abstract

There is a significant relationship between economic growth and the degree of urban concentration, as measured by primacy or the share of the largest city in an urban system. In accordance to urban economic theories, there is an inverse-U shape relationship between urban concentration â urban primacy- and economic growth. That is, as economy grows, urban concentration increases, approaches an optimal level and then declines. If distortion from the optimal level is happened, it can lead economic growth to reduce. Some countries have significantly excessive primacy and some have too little. Additionally, trade is one of the key factors that can affect urban concentration. In this study, urban primacy of some selected Asia- Pacific countries is computed and its effect on economic growth is tested using Solow-Swan growth model. It also looks at the determinants of primacy and policy instruments that might be effective in reducing excessive primacy. Results show that primacy has significant effect on economic growth. Moreover, as trade influences primacy, it can be thus considered as an effective policy instrument in controlling urban over-concentration. JEL Classification: O47, R19, F43, O53