percent. Of course, in some countries like China, the national government intervenes to fund local city development directly. While people point to the creation of Shenzhen as a success, there are also spectacular failures, like Ordos.

World Bank (2012a) analyzes property rights problems in India that inhibit large scale-developers. The country has limits on private assembly of land, and public taking (through eminent domain) is an opaque system tainted by years of corruption. More generally, it has poorly defined property rights and a judiciary system that operates too slowly to effectively enforce rights and decide disputes. This creates insecurity in tenure rights and increased risk to development projects. For eminent domain to work and for the local public sector to use property tax revenues, a proper system for land evaluation is needed. That requires trained appraisers, public assessments (to deter corruption), and transparency and consistency in evaluation (to get public acceptance). For large-scale developers and city land markets to work, India needs comprehensive reforms focused on well-defined and enforceable property rights and local governments that offer transparency, expertise, and limited corruption.

For developing countries, the issue is whether market formation of new cities works well enough to ensure reasonable outcomes and, if not, whether the national or regional governments can fill the gap by planning new cities. In this context, there is the need not just for existing cities to grow but for towns to expand into major urban centers. Over 1960–2000, new city formation accounted for more than 30 percent of urban population growth in developing countries.<sup>24</sup> National governments do not have a great record in economic planning (hence the collapse of planned economies), and the scant evidence on new planned cities suggests that they do no better in planning city formation.

World Bank (2012b) illustrates Egypt’s poor performance in new city planning. For market formation of cities, two issues emerge. First is the national government’s willingness to allow local hinterland towns working with the private sector to develop, and thus compete with, say, the primary city. Henderson and Wang (2007) suggest that this could be linked to democratization. They show that a one standard deviation increase in the polity measure of democracy noted above increases the growth in numbers of cities in a country 37 percent more than the typical increase. The effects are robust, linking growth in numbers of cities to democratization and implied regional representation.

Second, even if national governments are willing to encourage the development of hinterland cities, there is the needed timely development of local fiscal autonomy and access to capital markets for small towns ripe for expansion and development. Perhaps as critical, land markets in developing countries are often largely informal and with limited property rights, discouraging the evolution of large-scale real estate developers. We know property rights are important on a micro scale in house and labor markets,<sup>25</sup> but on a larger scale, there is no research on their effects on timely city formation and the achievement of desirable sizes. Aspects of property rights issues are also noted in box 5.

To be clear, we have little idea what the optimal size of any type of city should be. Not knowing optimal sizes, we also do not know corresponding optimal numbers. Au and Henderson (2006b), using a unique dataset and unusual context, look at the sizes of cities that maximize GDP per 19