Chapter 43 Urbanization in transforming economies The past half century has witnessed a dramatic change in the way in which people live. Fifty years ago only a small proportion of the less developed world lived in cities and world poverty was overwhelmingly rural. In 1950 less than one fifth of the population of the “third world” was urban; in the next five years or so a majority of developing countries populations will be urban. This dramatic social change has captured the attention of development economists and to a lesser degree urban economists. This chapter examines what has been learned in a variety of areas. Section 1 discusses the stylized patterns of urbanization in the developing world while Section 2 turns to models of third world city growth and their empirical estimates discussing partial equilibrium models general equilibrium models economy wide computable general equilibrium (CGE) models demographic economic perspectives and household migration modeling. Section 3 considers the impact of government policies on urbanization. Particular attention is devoted to structural adjustment policies urban biases in public expenditures and issues unique to (ex) socialist economies. Section 4 examines structural impediments to urban development including labor and land markets transportation issues public finance and social infrastructure concerns and urban spatial structure. The final section looks at the macroeconomic impacts of urbanization—on wage gaps and income distribution demand patterns and economic efficiency. 1 1 This survey should be regarded as a complement to Lucas (1997) survey of internal migration in developing countries for the Handbook of Population and Family Economics .