Eco 225 2022 Lecture Note 1 - Intro

URBAN AND REGIONAL ECONOMICS LECTURE NOTE
TOPIC 1: INTRODUCTION
 Urban economics is an intersection of economics and geography.

 Economics is concerned with choices made by different agents in the economy, that is
issue of optimization
 Household maximizes utility
 Firms maximize profit
 Public agency maximizes societal welfare
 Geography is concerned with arrangement of activities across space, that is where human
activity occurs
 Urban economics knits economics and geography
DEFINITION
 Urban economics is a branch of economics that explores the geographical or location choices
of utility maximizing households, profit maximizing firms, and welfare maximizing public
entities while identifying inefficiencies in such choices and exploring alternative public
policies to enhance more efficient choices.
 Regional economics represents a framework within which the spatial character of economic
systems may be understood.
 Thus, regional or "spatial" economics might be summed up in the question "What is where,
and why—and so what?"
 The first what refers to every type of economic activity: not only production
establishments in the narrow sense of factories, farms, and mines, but also other kinds of
businesses, households, and private and public institutions.
 Where refers to location in relation to other economic activity; it involves questions of
proximity, concentration, dispersion, and similarity or disparity of spatial patterns, and it
can be discussed either in broad terms, such as among regions, or micro geographically,
in terms of zones, neighborhoods, and sites.
 The why and the so what refer to interpretations within the somewhat elastic limits of the
economist's competence and daring.
The core areas of urban economics are

1. Market forces in the development of cities
2. Land use within cities
3. Urban transportation
4. Crime and public policy
5. Housing and public policy
6. Local government expenditures and taxes
AXIOM OF URBAN ECONOMICS
1. Prices adjust to achieve locational equilibrium
2. Self-reinforcing effects generate extreme outcomes
3. Externalities cause inefficiency
1
4. Production is subject to economies of scale
5. Competition generates zero economic profit
What is a city?
We start by looking at what urban area is. Classification of a settlement as urban or city is done
through several ways but with three major approaches.
1. Legal and administrative classification e.g as so designated by the executive officer of the
state according to the Land Use Act
2. Census or numerical threshold classification e.g using population or number of
inhabitants. In Nigeria 1963 census put urban area as settlements with a population of
20,000 or more (same as UN definition)
3. Functional classification. This is the definition adopted by urban economist. This is based
on universally acceptable characteristics or features like heterogeneity of the population,
non-agricultural economic base, density of physical development or clustering,
occupational structures etc.
 Thus in urban economics we define urban area as a geographical area that contains a large
number of people in a relatively small area thereby engendering frequent contact between
economic activities due to high concentration of firms and households in such small area.
The core characteristics are:
1. Density of population
2. Frequency of contact among economic activities
Metropolis
A metropolis emerges when settlements grow and merge together due to close interaction. Hence
a metropolis or metropolitan area comprises of a central city and peripheral jurisdictions plus all
surrounding territories (urban and rural) integrated with the central city
URBANISATION
 Urbanization is defined as the agglomeration of people in relatively large number at a
particular spot of the earth surface.
The Process of Urbanization

 Urbanization is the process of a population shift from rural areas to cities, often motivated by
economic factors.
 Urbanization may be driven by local and global economic and social changes, and is
generally a product of modernization and industrialization.
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 Urbanization has economic and environmental effects.
 Economically, urbanization drives up prices, especially real estate, which can force original
residents to move to less-desirable neighborhoods.
CONCEPTS IN URBAN ECONOMICS

 Scale economies: referring to firm specific, micro level concentration of factors of
production at one place. The concept of Fordism is a popular example of that which states
that the centralization of resources lead to mass production and cost reduction.
 Localization economies: it refers to grouping or concentration of related industries and firms
at one location.
 Urbanization economies: it refers to merging or coalescence of cities into mega urban regions
 Globalization economies: it refers to networking of global cities in areas of global concerns
ranging from research and innovations to socio-cultural, economic, and political centers.
 Suburbanization: A term used to describe the growth of areas on the fringes of major cities;
one of the many causes of the increase in urban sprawl.
 Rural flight: A term used to describe the migratory patterns of peoples from rural areas into
urban areas.
 Counterurbanization: A demographic and social process whereby people move from urban
areas to rural areas.
 Gentrification: A shift in an urban community toward wealthier residents and/or businesses
and increasing property values; often resulting in poorer residents being displaced by
wealthier newcomers.
CHARACTERISTICS OF URBAN AREAS THAT DIFFERENTIATE THEM FROM RURAL

AREAs
(1) Occupation
(2) Environment
(3) Size of community
(4) Density of population
(5) Heterogeneity
(6) Social differentiation and stratification
(7) Mobility
(8) System of interactions.
CAUSES OF URBAN GROWTH

1. Population increase
2. Economic causes
3. Rural urban migration
4. Social factors and benefits
5. Rural urban transformation
6. Industrialization
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7. Commercialization
8. Education
9. Modernization
10. Employment opportunities
11. Boundary changes in urban areas
EFFECTS OF URBANISATION
 The concentration of producers and suppliers in this area enabled innovations such as
just-in-time production techniques
 Efficiency and consumption advantages to urban economies
 Economies of scale in input markets affect a wide range of industries particularly
professional services like accounting, law, banking etc
 Specialization among input producers may also allow cost reductions, making local
purchasers of their inputs more productive.
 Public services such as hospitals, theaters, orchestras, and sports stadiums require a
critical mass of consumers to make them economically viable
 Economies of scale in cities also reduce transaction costs.
 High densities in cities allow both workers with differentiated skills and firms with
specific needs to reduce their search costs.
 Agglomeration effects in cities affect knowledge sharing
CHALLENGES OF URBAN AREAS IN LDCs/ Negative effects of urbanisaation

 Urban poverty marked by rising unemployment and underemployment
 Poor housing conditions and continuous increase in net housing backlogs
 Development and growth of slums and squatter settlements and urban ghettoes
 Infrastructure deficit, especially the municipal infrastructure and services
 Deteriorating urban environment with rising levels of solid, air, and water pollution
 Rising transportation costs, yet increasing traffic delays and congestion
 Increasing intensity and frequency of urban disasters such as; urban fire, industrial
disasters, urban floods, epidemics, and other natural/environmental disasters
 Rising levels of crimes and growing issues related to urban governance.
FUTURE CHALLENGES OF URBANIZATION IN NIGERIA

1) As more people will inhabit cities in few decades to come, the by-product of
photosynthesis which is the major source of human life will be greatly depleted
2) Carrying capacity may collapse in the next decades, if the population continues to
increase sporadically in the urbanization process, whereby the available resources in the
future may not sustain the population of urban centres in the next decades
3) The rate of unemployment will be extremely high
4) Insecurity and crime will also increase and take a new dimension
5) There will be a spontaneous change in climate
4
6) High rate of environmental problems like poor waste management, air pollution etc
7) Food insecurity as a threat to human life
8) The problems of urbanization in the future will be a great challenge to the professionals
concerned with the environmental issues (Urban planners, Architects, Geographers,
Social Scientists, Economists, Engineers and others) and all Health workers
SOLUTIONS
1) Rural-urban drift should be addressed more at the local level that is closer to the members
of the countryside, by making them to know the environmental and economy
implications
2) provision of basic infrastructural facilities, services and social amenities (equipped
schools, water supply, good roads, health facilities, stable electricity, relaxation centres
and other things) in rural areas
3) Government should provide necessary incentives to promote agricultural activities in the
countryside through zero-interest loan to farmers, low cost agricultural tools, good
market for agricultural produce and other incentives.
4) Planting of trees in the cities is imperative.
5) There is a need to review various laws in charge of environmental management in
Nigeria
6) There is a need to encourage mass transit in urban centres
7) Government should demolish all slums in urban centres and make these areas return back
to green zones, by planting trees.
8) Comprehensive development plans should be developed with citizen participation, and
adopted by the local government councils.
9) Government should create a more enabling environment for the populace in both the rural
areas and urban centres to practice agriculture
10) More enlightenment programs should be available for the members of the public on the
implications of natural increase.
11) Governments at all levels (local, state, and federal) should embrace “Ideal Governance”.

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URBAN AND REGIONAL ECONOMICS LECTURE NOTE

 Urban economics is an intersection of economics and geography.

The core areas of urban economics are

The Process of Urbanization

CONCEPTS IN URBAN ECONOMICS

CHARACTERISTICS OF URBAN AREAS THAT DIFFERENTIATE THEM FROM RURAL

CAUSES OF URBAN GROWTH

CHALLENGES OF URBAN AREAS IN LDCs/ Negative effects of urbanisaation

FUTURE CHALLENGES OF URBANIZATION IN NIGERIA

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