on urban decisions. But the urban future appears to be with smaller scale, informal, enterprises. There is a disconnect which needs to be addressed.

# 5. **Conclusion**

Two of the great stylized predictions of development theory, and two of the great expectations of policy makers as indicators of progress in development, are inexorable urbanization and inexorable formalization. Urbanization is indeed happening, beyond the “tipping point” where half the world’s population is now urban. In this paper we have explored trends in informality, and the interactions between urbanization and formalization. Our main conclusions can be stated as follows.

**Cities create the space for structural transformation, entrepreneurship and jobs** . The world’s urban population is expected to swell to over 60% in the next two decades, and continue to rise. Almost 90 percent of that growth will happen in the developing world: an expansion of almost two billion people. Africa and South Asia, the only regions still mostly rural, will see their urban populations double in that time. Much of this transformation will take place through the informal sectors, and in small and intermediate-size cities which often lack the skills, facilities, and services necessary to cope with the human tide.

**The informal sector is large and persistent** . Informal sectors in cities account for more than 50 percent of jobs, as discussed earlier. In India, 80 percent of manufacturing employment is in the informal sector. Informal sectors also account for a majority of entrepreneurship. In India, informal sector accounts for over 99% of establishments in the manufacturing sector. Nearly a billion people live in slums, and most of them work in the informal sector. While the formal sector has grown rapidly, and propelled growth higher in developing countries, the informal sector has kept pace. The persistence of informal sector is not due to some industries becoming less formalized and others more so, although technologically advanced and capital intensive industries tend to have lower informal sector shares.  Persistence is more systematic and an integral part of the urbanization. The persistence is due to many more new enterprises that locate in cities are in the informal sectors, and many more people who migrate into cities seeking better paying jobs and living conditions, and thus create persistence. Indeed, informal sectors seem to thrive in cities that have dynamic formal sectors. Fast growing state-industries tend to experience increasing informal sector activity in India. All in all, informal sectors have become an integral part of urbanization and structural transformation.

**Cities provide the ecosystem and generate agglomeration economies in the informal sector** . Most empirical studies on cities and agglomeration economies have focused on developed economies and formal sectors. But there is emerging evidence that agglomeration economies in developing countries also operate in the informal sector. Related to the agglomeration economies, is the fact that entrepreneurs often find it difficult to work with large, vertically-integrated suppliers, and small entrepreneurs work better with many more small entrepreneurs. A diverse and large number of entrepreneurs in garment industry in New York made it more competitive.  Pittsburgh with one large and vertically integrated steel factory has become a ghost town.

**Formal firms are moving out and informal firms are moving into cities** . There is striking difference in the movement of firms. Formal firms are moving out of more expensive cosmopolitan cities in search of lower land and labor costs. This is taking place at an even earlier stage of development in developing countries. The traded nature of manufacturing products allows more rural settings for firms, and manufacturers often seek cheaper environments than the wages and rents associated with large and high density areas. Industries in India with high capital and land intensity are more likely to locate in rural areas.

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