Jamal and Weeks (1998) attribute relatively higher urban wages in Africa to its colonial heritage. During the colonial era, higher urban wages represented a dichotomy between a rich (European) governing class and a poor (African) agricultural class. When colonialism ended and an "Africanization" of urban jobs occurred, this wage gap was maintained. These relatively higher wages were often maintained by powerful trade unions, which had been an important force in the achievement of independence and thus were well organized and politically powerful. Wage laborers were often rewarded through favorable labor laws guaranteeing minimum wages and working conditions for government workers, industrial employees, mineworkers, and other employees of the formal sector.

Developing country government investment may have been skewed towards urban-based industries during the 1960s and 1970s. The import-substitution strategies adopted by many developing countries involved large-scale public works such as dams and roads, often financed by agricultural taxes (Jamal and Weeks, 1998). Michael Lipton's 1977 account of the flow of surplus from rural to urban areas in developing countries made famous the notion of "urban bias." This concept emphasized the price distortions present in many developing countries that kept the price of rural agricultural products below world levels and the price of urban industrial products above world levels. Robert Bates in 1981 expanded the argument to attribute skewed investment in urban areas to the relative political power of urban dwellers, who could organize more easily and had greater access to government decision-makers. By influencing policy to increase investment in urban infrastructure and industry, the urban elite could increase its income at the expense of rural agriculture (Tacoli, 1998). More recent evidence, however, suggests that cities -particularly large cities-subsidize the rest of the economy, at least in terms of public expenditures and tax revenues (Prud'homme, 1998) Private investment may also be skewed toward cities, through the existence of "financial urban bias." Evidence from developing countries shows that urban areas tend to be net users of credit, whereas rural areas tend to be net depositors - money is saved by people in rural areas but then borrowed by firms or individuals in urban areas (Chandavarkar, 1985). This "financial urban bias" may exist because of a relatively higher degree of credit rationing in rural areas: transaction costs are high, monitoring is difficult, and average balances are small. The result may be a skewing of investment towards cities, if money is saved in rural banks but lent through urban banks to be invested in urban firms for rates of return that are no higher than those that could be obtained in rural areas.

One important goal of the structural adjustment policies undertaken by developing countries during the past two decades has been the reduction of these elements of "urban bias," by liberalizing agricultural commodity prices, realigning exchange rates, and reducing import barriers to force industrial products to compete internationally. Whether because of general economic decline triggering falls in formal employment, or simply structural adjustment reducing rents to an urban elite, Jamal and Weeks (1998) maintain that, in Africa, "the income gap between urban wage earners and the rural population has narrowed considerably" since the mid-1970s. In fact, their study of four African countries found that "the primary dynamic distributional relationship in Africa has been 8