Thematic Investing by Raphael Olszyna-Marzys
Urbanization has been a defining trend in economic development for millennia, but the past two de... more Urbanization has been a defining trend in economic development for millennia, but the past two decades have witnessed urbanization at an unprecedented scale and speed. In 2008, for the first time in history, the human race became predominantly urban (Chart 1). By 2025, there will be 37 cities with more than 10 million people in them; only 7 will be in the developed world. This trend is a key part of the economic growth and development narrative. No prosperous nation is predominantly rural, and no urbanized countries are poor. While it is impossible to forecast accurately the path that human history will take under future demographic and environmental change, urbanization is likely to be a key trend during the next half century at least. China is urbanizing at 100 times the scale, and 10 times the speed of the UK. By 2025, there will be more than 600 cities exceeding one million inhabitants. This will not only boost capital stocks through the need of cities for basic infrastructure, but will also contribute to the domestic and global economies through increased consumption of goods and services (Chart 2). This will predominantly benefit those companies exposed to emerging markets which still have room to urbanize further and enjoy a burgeoning middle class. We identify 4 main ways in which urbanization can cause economic growth: improved agricultural productivity as small farms are replaced by larger holdings enabling greater scale economies; the reallocation of labour away from agriculture towards higher productivity manufacturing and service sectors; higher economic growth and consumption due to urban incomes exceeding rural incomes; and greater spill over and scale effects in urban areas. But economic, social and policy changes must accompany new infrastructure if urbanization is to be a success.
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Thematic Investing by Raphael Olszyna-Marzys