Millions of people are expected to move from rural regions into cities in the next two decades. The developing world is experiencing rapid urbanization, with the number of city dwellers set to reach four billion in 2030 – double its 2000 level. In many respects, urbanization is rational. After all, cities are the hubs of prosperity, where more than 80% of global economic activity is concentrated. And their density facilitates the delivery of public services, including education, health care, and basic services. Indeed, as shown in figure 11, low income countries in Africa seem to be urbanizing at a faster pace and there is global convergence in urbanization.

But there are also differences across sectors. Large scale manufacturing establishments, for example, may have broader resources that reduce dependency on local infrastructure and household finance. Likewise, the informal sectors depend less on educated workers than the formal sector, but rely a lot more on city infrastructures. The traded nature of good and services allows more rural settings for firms, and entrepreneurs often seek cheaper environments than the wages and rents associated with high-density areas. While entrepreneurs avoid the high costs of urban areas, they also avoid the most remote areas of in favor of settings that are relatively near large population centers likely to access customers directly or to connect to shipping routes.

Manufacturing and services sectors behave differently with urbanization (Desmet and RossiHansberg 2009). In both the USA and Europe, manufacturing is becoming more equally spread across space, whereas the service sector is becoming increasingly concentrated in medium-sized locations. China too exhibits spatial growth patterns in the service industry more similar to those in the US. In those intermediate places agglomeration economies dominate congestion forces, making them attractive locations for service industries to grow and expand. If the US and Europe provide any guidance, service engines of growth should be its medium-density cities.

<mark>There are many policy levers that can be used by policy makers to promote entrepreneurial growth and make cities more competitive</mark> <u><mark>(</mark></u> **<u><mark>What Makes Cities More Competitive?</mark></u>** <mark>"World</mark> <u><mark>Bank</mark></u> <mark>- Economic Premise, The World Bank, issue 132). Getting the business regulatory environment right is only one part of a private sector policy agenda. In most countries, governments also intervene more directly to try and boost the growth prospects of the private sector through a variety of more activist policies. These policies may be motivated by potential externalities, coordination failures, market failures, or by political demands. Examples of these policies include attempts to link firms with suppliers or buyers in value chains (both domestically and internationally); industrial policies designed to boost particular sectors; extension services to teach new technologies and spur technological adoption; the development of new financial products such as micro-equity and broader insurance products designed to help SMEs overcome the risk inherent in innovative ventures; training programs to improve the skills of workers and managers; policies to promote firms exports as a way to foster job creation; and other efforts to spur entrepreneurship. Such policies are of increased focus as a result of the youth bulge in many developing countries, which has made employment creation the number one policy demand in</mark> many countries.

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