metadata: authors: 0: author: Roberts,Mark
1: author: Blankespoor,Brian
2: author: Deuskar,Chandan
3: author: Stewart,Benjamin P.
count: Latin America
docna: 0: docna: Urbanization and development : is Latin
            America and the Caribbean different from the rest of the world?
docty: Policy Research Working Paper
subtopic: Economic Theory & Research,Industrial Economics,Labor Markets,Hydrology,Food Security,Economic Growth,Rural Labor Markets
teratopic: Industry,Macroeconomics and Economic Growth,Communities and Human Settlements,Urban Development
abstracts: cdata!: Two long-established stylized facts in
            the urban and development economics literatures are that:
            (a) a country's level of economic development is
            strongly positively correlated with its level of
            urbanization; and (b) a country's level of urbanization
            is strongly negatively correlated with the size of its
            agricultural sector. However, countries in the Latin America
            and Caribbean region appear to depart significantly from the
            rest of the world in these two basic relationships. Although
            Latin American countries appear to be significantly more
            urbanized than predicted based on these global
            relationships, Caribbean countries appear significantly less
            urbanized. However, analyses involving cross-country
            comparisons of urbanization levels are undermined by
            systematic measurement errors arising from differences in
            how countries define their urban areas. This paper
            reexamines whether Latin America and Caribbean countries
            differ from the rest of the world in the basic stylized
            facts of urbanization, development, and structural
            transformation. The analysis makes use of two alternative
            methodologies for the consistent definition of urban areas
            across countries: the Agglomeration Index methodology and a
            methodology based on the identification of dense spatially
            contiguous clusters of population. Both methodologies rely
            on globally gridded population data sets as input. There
            exist several such data sets, and so the paper also assesses
            the robustness of the findings to the choice of input
            population layer.
repnme: repnme: Urbanization and development : is Latin
            America and the Caribbean different from the rest of the world?
display_title: Urbanization and development : is
            Latin America and the Caribbean different from the rest of
            the world
listing_relative_url: /research/2017/03/27317152/urbanization-development-latin-america-caribbean-different-rest-world
topicv3: Agriculture and Food Security m1326205 435,Economic Growth m1326241 471,Labor Markets m1326488 855,Water m1326522 137,Population, Aging and Health m1327736 640
publishtoextweb_dt: 2017-03-30T00:00:00Z
historic_topic: Industry,Macroeconomics and Economic Growth,Communities and Human Settlements,Urban Development
no_of_pages: 37
author_keys: 0: author_key: 931768
1: author_key: 957135
2: author_key: 1184384
3: author_key: 1186245
model_extractions: WPS8019 Policy Research Working Paper 8019

# Urbanization and Development

Is Latin America and the Caribbean Different from the Rest of the World?

_Mark Roberts Brian Blankespoor Chandan Deuskar Benjamin Stewart_ Latin America and the Caribbean Region & Social, Urban, Rural and Resilience Global Practice Group March 2017
Policy Research Working Paper 8019

# **Abstract**

Two long-established stylized facts in the urban and development economics literatures are that: (a) a country’s level of economic development is strongly positively correlated with its level of urbanization; and (b) a country’s level of urbanization is strongly negatively correlated with the size of its agricultural sector. However, countries in the Latin America and Caribbean region appear to depart significantly from the rest of the world in these two basic relationships. Although Latin American countries appear to be significantly more urbanized than predicted based on these global relationships, Caribbean countries appear significantly less urbanized. However, analyses involving cross-country comparisons of urbanization levels are undermined by systematic measurement errors arising from differences in how countries define their urban areas. This paper reexamines whether Latin America and Caribbean countries differ from the rest of the world in the basic stylized facts of urbanization, development, and structural transformation. The analysis makes use of two alternative methodologies for the consistent definition of urban areas across countries: the Agglomeration Index methodology and a methodology based on the identification of dense spatially contiguous clusters of population. Both methodologies rely on globally gridded population data sets as input. There exist several such data sets, and so the paper also assesses the robustness of the findings to the choice of input population layer.

This paper is a product of the Office of the Chief Economist, Latin America and the Caribbean Region and the Social, Urban, Rural and Resilience Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at mroberts1@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Urbanization and Development: Is Latin America and the Caribbean Different from the Rest of the World?**<sup>**1**</sup>

**Mark Roberts, Brian Blankespoor, Chandan Deuskar and Benjamin Stewart**<sup>**2**</sup> The World Bank 1818 H Street, NW Washington, D.C. 20433, USA

**Keywords:** Latin America and Caribbean, urbanization, development, measurement error **JEL codes:** O18, O47, C21

1 This paper has been prepared as input into the LCR “Cities and Productivity” Flagship Report (P158837), which is a product of the World Bank’s LCR Chief Economist’s Office working in collaboration with its Social, Urban, Rural and Resilience (GSURR) Global Practice. The authors are extremely grateful to Daniel Lederman of the LCR Chief Economist’s Office for early discussions that were influential in the formulation of the original idea for this paper. They would also like to thank Katie McWilliams, Siobhan Murray and Jane Park for the excellent technical support that they provided in the preparation of the paper. The paper has also benefitted from feedback received from Lewis Dijsktra and from participants at an Authors’ workshop for the LCR “Cities and Productivity” Flagship Report that took place in July 2016. Further helpful feedback was received during presentations made as part of the “Unbaked and wired” seminar series at the World Bank and at the World Bank’s 2016 GSURR Forum. Finally, the work on the inputs to the updated Agglomeration Index that this paper report on were also supported by the World Bank’s Strategic Research Program on Transport Policies for Sustainable and Inclusive Growth (P151104).

2 Mark Roberts, Brian Blankespoor and Benjamin Stewart are all affiliated with the World Bank, while Chandan Deuskar is affiliated with the Department of City and Regional Planning, School of Design, University of Pennsylvania. Corresponding author: Mark Roberts (mroberts1@worldbank.org).
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capita than one would predict based on their urbanization levels at the same time as they appear to be “under-urbanized” relative to other countries given the (small) sizes of their agricultural sectors.<sup>5,6</sup> The fact that many Latin American countries appear to be “over-urbanized” is consistent with a policy narrative that is emerging regarding the productivity performance of the region’s cities. According to this narrative, these cities are failing to realize their full potential in terms of fueling national economic growth due to policy failures that have exacerbated congestion forces, thereby undermining their productivity performance (McKinsey Global Institute, 2011a, b).<sup>7</sup> Such apparent “over-urbanization” is also consistent with theories of urban bias, whereby policy distortions which skew the allocation of resources away from agriculture and towards manufacturing, spur higher urbanization than might have otherwise occurred (see, e.g., Davis and Henderson, 2003, and references therein). Particularly important in this context may be the trade policy distortions that were widespread across Latin America during the import substituting industrialization era of the 1960s and 1970s, which, in light of the strong persistence that tends to be inherent in urban systems, may continue to have residual impacts on levels of urbanization in the region today. Such policies have been linked in the literature to excessive urban primacy across Latin American countries with consequent adverse consequences for productivity and growth (Ads and Glaeser, 1995; Krugman and Elizondo, 1996).<sup>8</sup> An alternative hypothesis to urban bias that may explain Latin America’s “over-urbanization”, not to mention the “under-urbanization” of certain Caribbean countries, is simply that this is an illusion of the data which is attributable to systematic biases in the measurement of levels of urbanization. In particular, in common with the vast majority of published research on urbanization and development, the stylized facts depicted in Figure 1 are based on data which depend on national definitions of urban areas. However, as is well-known, these definitions vary widely from country to country. Furthermore, these variations have a strong regional component. Hence, while South Asian countries have generally tighter criteria for designating areas as urban, countries in LAC tend to have more relaxed criteria (World Bank, 2008; Ellis and Roberts, 2015). Such systematic biases in the data give rise to the possibility of “urban myths”, which are artefacts of the data rather than a reflection of on-the-ground reality (Satterthwaite, 2007).

Given the above, this paper re-examines the basic empirical relationships between urbanization, development and structural transformation depicted in Figure 1 with a view to addressing the question of whether LAC countries depart significantly from these relationships. Many methods to delineate spatial urban areas from data or models exist in the literature. Although most models

> 5 The existence of these significant differences between LAC and non-LAC countries is confirmed by the regression results presented in Section 4.2 (see columns [1] – [3] of Table 2).

> 6 Different to the majority of other Latin American countries, the same pattern of significantly higher levels of GDP per capita and “under-urbanization” also holds for Guyana and Belize, although to a lesser extent than for either Barbados or Trinidad and Tobago.

> 7 These congestion forces arise from a number of sources including congestion of not only local transport infrastructure, but also of other forms of urban infrastructure and of land and housing markets. Fay and Opal (2000) discuss urbanization without growth in the context of Africa, while Gollin, Jedwab and Vollrath (2016) examine more specifically urbanization without industrialization for a global sample of 116 developing countries.

> 8 Whether or not policy distortions that favor urban over rural populations stimulate a higher level of urbanization will depend on how they affect the margin of choice for the representative rural-urban migrant.  Hence, policies which, for example, re-distribute agricultural surpluses to urban elites are unlikely to affect a country’s overall level of urbanization (Henderson _et al_ ., 2013).

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typically include population size (Rozenfield _et al._ , 2011; Dijkstra and Poelman, 2014; Aubrecht _et al._ , 2016), other definitions may include other geospatial information such as land cover (Mertes _et al._ , 2015), night time lights (Balk _et al._ , 2006; Zhang and Seto, 2011; Brecht, Deichmann and Wang, 2013), travel time (Uchida and Nelson, 2010; Day _et al_ ., 2017) and/or commuting flows (Duranton, 2015; Nelson and Rae, 2016; OECD, 2012; Sanchez-Serra, 2016). Specifically, this paper reestimates the relationships depicted in Figure 1 using two alternative methods that have been proposed in the literature for the consistent definition of urban areas across countries which can be feasibly implemented at a global scale using readily available population and travel time data.<sup>9</sup> The first method – the Agglomeration Index (AI) – was originally proposed by Uchida and Nelson (2010) and delineates urban areas on the basis of population densities and travel times to large urban centers.<sup>10</sup> Meanwhile, the second method, which, for brevity, we shall refer to as the “cluster method”, has been developed by Dijkstra and Poelman (2014) and relies on the identification of dense spatially contiguous clusters of population.<sup>11</sup> Having re-estimated the relationships, the paper identifies whether LAC countries continue to exhibit significant differences of the sort portrayed in Figure 1. In doing so, we are able to assess the extent to which Latin America’s apparent “overurbanization” qualifies as one of Satterthwaite’s urban myths.

In addition to re-examining the key basic stylized facts of urbanization, development and structural transformation, this paper also makes two additional contributions to the literature. First, by implementing both the AI and cluster methods to defining urban areas, the paper provides the first systematic comparison of results between these two methods using a global data set. Secondly, because both of these methods rely on globally gridded population data sets for their implementation and there exist several alternative such data sets, the paper also provides the first systematic investigation as to how the choice of input data affects the results obtained from these methods. In particular, the paper analyzes how the use of three main gridded population data sets influence the results obtained from these methods. These data sets are the _LandScan 2012_ global gridded population data set that is produced by Oak Ridge National Laboratory, the _WorldPop_ family of gridded population data sets that are produced by the University of Southampton, UK, and the _GHSL Global Population Grid_ (GHS-Pop) that has recently been generated by the European Commission’s Joint Research Center (JRC).<sup>12</sup> 9 The requirement that the methods be implementable at a global scale automatically precludes methods that rely on commuting flow data. Applications of such methods have been restricted to either individual countries (e.g. Duranton, 2015; Nelson and Rae, 2016; Sanchez-Serra, 2016) or small samples of countries (OECD, 2012).

10 Uchida and Nelson built on earlier work by Chomitz, Buys and Thomas (2005) which identified population density and remoteness from large metropolitan areas as important dimensions along which to classify an area’s degree of rurality (and, therefore, implicitly, its degree of urbanization). Chomitz _et al._ found that many small settlements in LAC that are officially classified as urban are actually embedded in an agriculturally based countryside. See also the World Bank’s 2005 LAC Flagship report “Beyond the City: The Rural Contribution to Development” (de Ferranti _et al_ ., 2005), for which the paper by Chomitz _et al_ . was originally prepared as input. This report was one of the first, if not the first, official World Bank publication to raise the issue of the lack of comparability of official urban population shares across LAC countries.

> 11 Dijkstra and Poelman’s algorithm for identifying urban clusters is closely related to that which Rozenfield _et al._ (2011) apply to identify cities in the United States.

12 Other global gridded population data sets include CIESIN’s GRUMP (Global Rural-Urban Mapping Project) Population Count Grid <u>(http://sedac.ciesin.columbia.edu/data/set/grump-v1-population-count) and its Gridded</u> Population of the World version 4 (GPW v 4) (http://beta.sedac.ciesin.columbia.edu/data/collection/gpw-v4) data sets. Various institutions and authors have also created gridded population data sets for individual countries or regions. These include a European population grid for 2006 produced by the Austrian Institute of Technology (http://www.efgs.info/data/) which covers EU28 and EFTA countries; and population grids for Haiti, Pakistan and 4
The structure of the remainder of the paper is as follows. Section 2 discusses how official definitions of urban areas in LAC countries compare to those in non-LAC countries and introduces both the AI and cluster methods for the consistent measurement of urbanization. Section 3 describes the data used to implement both the AI and cluster methods, focusing, in particular, on the input gridded population data. Section 4 presents the results from re-assessing LAC’s position relative to the basic stylized facts of urbanization, development and structural transformation when urbanization is consistently measured. Finally, Section 5 concludes.

# **2. Measuring Urbanization**

# 2.1. _Official definitions of urban areas in LAC versus non-LAC countries_<sup>13</sup>

Most published research on urbanization and development relies on data which utilizes national definitions to measure cross-country differences in levels of urbanization, and it is this same data that underpins the stylized facts depicted in Figure 1. These data are usually taken from the United Nations’ World Urbanization Prospects (WUP) database or, equivalently, the World Bank’s World Development Indicators (WDI) database (see also footnote 2). As part of its database, the UN provides supporting documentation on how each of the 232 included countries defines its urban areas. Table 1 shows that 133 of these countries use one or more of four basic types of criteria to define their urban areas.<sup>14</sup> By far the most commonly used criterion is a minimum population size threshold (103 countries). The remaining three criteria are less frequently used. Hence, 30 countries include references to the availability of infrastructure and services (e.g. piped water or schools) or other “urban” characteristics in their definitions; 16 countries to the structure of the local economy, mostly referring to the presence or predominance of non-agricultural activity, and 11 countries to a minimum population density threshold. The remaining 99 countries do not make use of any explicitly stated criteria. Rather, they either simply list their urban areas by name, or state a designation of administrative units that constitutes cities.

Compared to the overall sample of WUP countries, a smaller share of the 40 LAC countries covered by the WUP database use a specific criterion or criteria to define urban areas (i.e. 42 percent of countries versus 57 percent). LAC countries are also less likely to employ a minimum population threshold in their definitions of urban than the sample overall (30 percent versus 44 percent). These differences between the LAC countries and the overall sample are mainly driven by the Caribbean countries. Conversely, LAC countries are more likely to include reference to the provision of infrastructure or services in their definition (i.e. 20 percent versus 13 percent). In this case, the difference between LAC and the global sample is driven by the Latin American countries.<sup>15</sup> Rwanda produced by the US Census Bureau as part of its international _Demobase_ project (http://www.census.gov/population/international/data/mapping/demobase.html). 13 This sub-section draws, in part, on a previous conference paper by two of the authors (Deuskar and Stewart, 2016). 14 For all countries (except Austria) urban criteria fall into at least one of these four broadly defined categories. However, every country’s definition is slightly different, and may include particularities not fully reflected among these four. For example, the definition for Honduras (see Annex 2), was counted in the ‘population size’ and ‘urban services or characteristics’ categories, but also has elements that do not fit neatly in either (e.g. “ _communication by land (road or train) or regular air or maritime service_ ”). Austria’s definition is unique in that, at least according to the definition listed in the WUP, it is based on commuting patterns into an urban core, and does not fall into any of these categories. 15 A complete list of official definitions of urban used by LAC countries is provided in Annex 2 (see Table A2).

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The use of more relaxed definitions of urban areas in LAC versus non-LAC countries is most evident from the minimum population threshold criterion, where this is used. Hence, among the countries that use this criterion, the mean threshold is 1,958 people for LAC as compared to 4,799 people globally. This mean difference is not, furthermore, driven by the small island nations of the Caribbean – the mean population threshold for the Caribbean countries is almost identical to that for the Latin American countries. The mean difference between LAC and the rest of the world is also statistically significant at the 10 percent level in a simple one-sided two-sample _t_ test where the alternative hypothesis is that the mean difference is negative (i.e. the mean for LAC is less than that for non-LAC countries). Likewise, a Mann-Whitney U test – which may be more appropriate given the large difference in size between the LAC and non-LAC samples and the absence of normality – rejects the null hypothesis that the LAC and non-LAC samples come from the same underlying population. Hence, on average, LAC countries include smaller settlements in their urban population figures than do non-LAC countries. This may at least partially explain the apparent “overurbanization” that we observe in Latin America.<sup>16</sup>

**Table 1: Types of criteria used by countries in their urban definitions, by region**

||**_Total no._**<br>**_countries_**|<br>**_sp_**<br>**_cri_**|**_No_**<br>**_ecific_**<br>**_teria_**<br>|**_Po_**|**_pulatio_**<br>|**_n Size_**<br>|<br>**_D_**|**_Pop_**<br>**_ensity_**<br>|**_U_**<br>**_serv_**<br>**_chara_**<br>|**_rban_**<br>**_ices or_**<br>**_cteristics_**<br>|**_Eco_**<br>**_ac_**|**_nomic_**<br>**_tivity_**<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|||**n**|**%**|**n**|**%**|**Mean**<br>**value**|**n**|**%**|**N**|**%**|**n**|**%**|
|World|**232**|**99**|**43%**|**103**|**44%**|**4,799**|**11**|**5%**|**30**|**13%**|**16**|**7%**|
|LAC|**40**|**23**|**58%**|**12**|**30%**|**1,958**|**0**|**0%**|**8**|**20%**|**0**|**0%**|
|**Non-island**|20|8|40%|9|45%|1,938|0|0%|7|35%|0|0%|
|**Caribbean**|||||||||||||
|**islands**|20|15|75%|4|20%|2,000|0|0%|1|5%|0|0%|
|Rest ofthe world|**169**|**59**|**35%**|**87**|**51%**|**5,226**|**7**|**4%**|**21**|**12%**|**15**|**9%**|
|**EAP**|36|17|47%|15|42%|5,607|3|8%|6|17%|1|3%|
|**SSA**|48|13|27%|31|65%|5,694|0|0%|7|15%|8|17%|
|**SAR**|7|4|57%|3|43%|5,125|1|14%|2|29%|0|0%|
|**ECA**|54|18|33%|22|41%|4,395|1|2%|3|6%|5|9%|
|**MNA**|21|6|29%|14|67%|5,607|0|0%|3|14%|1|5%|
|**N. America**|3|1|33%|2|67%|1,750|2|67%|0|0%|0|0%|

**Notes:** Criteria are not mutually exclusive, i.e. countries with multiple criteria are listed in more than one of the columns (Source: authors’ analysis of data from UN, 2014)

# _2.2. Approaches to the consistent measurement of urbanization_

A growing recognition of the problems posed for cross-country analyzes of urbanization and development by the use of national definitions of urban areas has led to several proposed

> 16 The fact that LAC countries tend to count smaller settlements as ‘urban’ may be related to the history of human settlement in the region. Unlike, for example, Asia and Europe, which experienced more organic urban growth, most of Latin America’s cities were purposefully and ‘abruptly’ founded by European colonizers (Morse, 1962; World Bank, 2009). Perhaps due to these origins, Latin American countries might consider these settlements to be ‘urban’ regardless of how small or sparsely populated they are, whereas an Asian village that has expanded and densified over time might still be considered ‘rural’. However, this is a speculative hypothesis which would need further investigation to substantiate.

6
methodologies for the consistent measurement of urbanization across countries.<sup>17</sup> In this paper, we focus on two of these methodologies – the Agglomeration Index (AI) that was originally developed by Uchida and Nelson (2010), and Dijkstra and Poelman’s (2014) cluster method. The AI methodology has already featured in several Flagship World Bank publications (World Bank, 2008; World Bank and IMF, 2013; and Ellis and Roberts, 2015). By contrast, the cluster method, which was originally developed for application to the European Union, is more recent and its use at the global level is just beginning to be explored. The two methodologies differ both in terms of their underlying conceptual approaches to defining urban areas and their data requirements. The decision to focus on these two methodologies is based on the fact that they can be feasibly implemented to produce estimates of urban population shares for a large global cross-section of countries. This is a basic requirement for the (re-)examination of the basic stylized facts of urbanization, development and structural transformation, and the comparison of LAC with non-LAC countries. Below we provide a more detailed overview of the two methodologies.

# 2.2.1. The Agglomeration Index

From a labor market perspective, individual urban areas should ideally be conceptualized and defined as functional urban areas (FUAs), where a functional urban area captures the spatial extent over which a city or town’s labor market may be considered integrated. Approaches to delineating FUAs typically begin with an urban core, defined by size and/or density criteria, and then identify a ‘commuting shed’, i.e. a surrounding area from which workers commute to the core.<sup>18</sup> A good example of an algorithm to identify FUAs is that used in the construction of the OECD’s Metropolitan Areas database.<sup>19</sup> Hence, this algorithm defines FUAs by first identifying densely inhabited urban cores using gridded population data, and then adding non-contiguous interconnected urban cores, as well as other surrounding municipalities, based on commuting patterns (OECD, 2012). More recently, Duranton (2015) has proposed an algorithm to identify FUAs which dispenses with the need to pre-define an urban core, and instead relies solely on a minimum commuting threshold. Duranton tests this algorithm on data for Colombia, obtaining good results.

Unfortunately, the commuting data necessary to implement either the OECD’s or Duranton’s algorithm for identifying FUAs are not available at a global scale. In this context, the AI can be seen as a methodology which adopts a similar labor market perspective to defining urban areas, but which instead relies on estimated travel times in combination with data on population density to allow for a consistent method of measuring urbanization levels that can be feasibly implemented for a broad cross-section of countries. More specifically, the AI identifies as “urban, agglomerated, or dense” those areas that meet a certain population density threshold and which are within a given travel time radius of a “sizeable” settlement, where “sizeable” settlements are identified on the basis

> 17 The proposal of new methodologies has also been aided by the increasing availability of high-resolution global gridded population data sets and data sets on built-up area derived from satellite imagery.

> 18 The use of commuting data to identify metropolitan areas in the United States dates back to the 1960s (Berry, Goheen and Goldstein, 1969). This approach is also similar to the delineation of Labour Market Areas in Europe, or Travel to Work Areas in the UK, with the main difference being that these other exercises aim to exhaustively divide up an entire country or region into distinct areas based on commuting patterns, rather than identifying urban areas specifically (UK Office for National Statistics, 2015; Coombes, Casado-Diaz, Martinez-Bernabeu and Carausu, 2012).

> 19 http://www.oecd.org/gov/regional-policy/regionalstatisticsandindicators.htm.

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of a population threshold. As with the OECD algorithm for identifying FUAs, the AI typically relies on gridded population data as input.<sup>20</sup> To see more formally how the AI measures a country’s level of urbanization, let � index a cell in a population grid for that country, and �� and �� the population and population density respectively associated with that cell. Furthermore, let ��1, ... , � index a settlement point within the country that has an associated population of ��, where �� ��<sup>�</sup> and �<sup>�</sup> denotes the threshold population level that defines a “sizeable” settlement. Given this, associated with each of these � settlement points there will be an agglomeration �� and grid cell � will be classified as belonging to agglomeration � _iff_ �� ��<sup>�</sup> and ��� ��<sup>�</sup> , where �<sup>�</sup> is a threshold population density level, ��,� is the estimated travel time from grid cell _i_ to the settlement point _j_ , and �<sup>�</sup> is a threshold travel time level.<sup>21</sup> Based on this, a country’s level of urbanization, as measured by the share of its population living in urban areas, is given by: From this, it is clear that there are three key thresholds to which values need to be assigned in the implementation of the AI methodology: namely, �<sup>�</sup> , �<sup>�</sup> , and �<sup>�</sup> . Following Uchida and Nelson (2010) and World Bank (2008), it has become standard to set �<sup>�</sup> �50,000, �<sup>�</sup> �150 people per km<sup>2</sup> , and �<sup>�</sup> �60 minutes.<sup>22</sup> In other words, an area is defined as urban if it has a population density of at least 150 people per km<sup>2</sup> and falls within a 60 minute travel time radius of a settlement which itself has a population of at least 50,000. A country’s level of urbanization is then given by the sum of the population living within all such areas.

# 2.2.2. The cluster method

In contrast to the AI, the cluster method adopts a more spatio-demographic approach to the consistent cross-country measurement of urbanization. In doing so, it follows a long tradition of using population size and density thresholds to define urban areas. As noted above, over a hundred countries use population size to define urban areas, while 11 use population density. The US Census Bureau began using population size, population density, and contiguity criteria to standardize the definition of metropolitan areas as far back as the early 20th century (Berry, Goheen and Goldstein, 1969).

More specifically, the cluster method classifies cells in a population grid according to density, and then groups them into “urban clusters.” Again using the notation �� to denote the population of a grid cell and �� its population density, a grid cell � is classified as belonging to an urban cluster �

> 20 Although, as demonstrated by Day _et al._ (2017) for Sri Lanka, the approach can also be feasibly implemented using polygon data which correspond to sub-national administrative units.

> 21 In principle, the areas of two or more different agglomerations can overlap so that, in effect, they merge into a single agglomeration that contains multiple settlement points.  In this case, the number of “merged” agglomerations will be less than _J_ .  To avoid double-counting pixels, population should then be summed over the number of merged agglomerations to arrive at an estimate of the national urban share of the population.

> 22 Uchida and Nelson (2010) also report results from other combinations of assumed values for the three thresholds.

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if �� ��<sup>�</sup> �� and �∑�∈� �����<sup>�</sup> ��, where �<sup>�</sup> �� denotes a population density threshold and �<sup>�</sup> �� a population threshold. In addition, the cell must be spatially contiguous with at least one other cell within the same cluster. In other words, a spatially contiguous group of grid cells will be classified as constituting an urban cluster if each of these cells satisfies a certain minimum population density threshold and the aggregate population of these cells also exceeds some specified threshold value. Given this, a country’s level of urbanization can then be defined as the share of the overall national population living in urban clusters. Dijkstra and Poelman (2014) set values of �<sup>�</sup> �� �300 people per km<sup>2</sup> and �<sup>�</sup> �� �5000. Within urban clusters, they also define a sub-set of “high density clusters”. These high density clusters are defined similarly to urban clusters, but instead use threshold values of 1,500 people per km<sup>2</sup> for population density and 50,000 people for overall population.<sup>23</sup>

# 2.2.3. Comparison between the two approaches

While it is not the intention of this paper to draw any conclusion as to which of the above two methods is to be preferred, some remarks on their similarities and differences are nevertheless in order. Hence, it will be noted that both crucially rely on a source of gridded population data for their implementation. Furthermore, while the AI may well be considered preferable to the cluster method to the extent that it more closely approximates an attempt to identify FUAs, it suffers the disadvantage of being more data-intensive. Thus, in addition to gridded population data, the AI also requires travel time data and a settlement point layer as inputs.

There is also a slight contradiction in how the AI approaches the definition of urban areas insofar as it implicitly relies on national definitions of urban in identifying the “sizeable” settlements around which it defines agglomerations. This is because the population data for the settlement points are invariably derived from national sources.

Finally, while, according to the cluster method, grid cells belonging to a given urban area must be spatially contiguous, the AI imposes no such restriction. As a corollary, development within a given agglomeration area in the AI approach can be discontinuous in the sense that urban cells can be interspersed with non-urban cells. Such a pattern of development may be consistent with the existence of topographical constraints (e.g. a river) that divide a city into different parts or with patterns of leapfrog development.<sup>24</sup>

# **3. Data**

As noted above, both the AI and cluster methods rely on gridded population data for their implementation. In addition, the AI also requires a settlement point layer and travel time data.

> 23 Deuskar and Stewart (2016) analyze the sensitivity of results from the cluster method using a variety of alternative threshold values.  Their analysis is, however, restricted to the use of _WorldPop_ and GHS-Pop gridded population data, and does not consider _Landscan 2012_ data.

> 24 It is easy to imagine a methodology which combines different aspects of the AI and cluster methods.  This methodology could, for example, follow the cluster approach of identifying high-density clusters and then define agglomerations around these clusters using criteria of travel time and population density _à la_ the AI. Adopting this combined methodology would overcome the AI’s weakness of needing an _a priori_ defined layer of settlement points and associated populations.

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# _3.1 Gridded population data_

In their original AI analysis, Uchida and Nelson (2010) constructed estimates of urban population shares for a global cross-section of countries for the year 2000 using two global gridded population data sources – CIESIN’s _GRUMP_ (Global Rural-Urban Mapping Project) v 1 and Oak Ridge National Laboratories’ _LandScan_ population grids.<sup>25</sup> Uchida and Nelson’s estimates were then subsequently updated to the year 2010 as part of the World Bank and IMF’s Global Monitoring Report 2013 on _Rural-Urban Dynamics and the Millennium Development Goals_ (World Bank and IMF, 2013). In this update, the same two global gridded population data sources were used except that the gridded population data instead now referred to the year 2010. In the case of GRUMP, the 2010 population data are based on the projection of data from earlier years.<sup>26, 27</sup> Meanwhile, for the application of the cluster method, Dijkstra and Poelman (2014) limited their attention to the EU-27 countries, and used a mixture of population grids for the year 2006 based on different methods.<sup>28</sup> Subsequent to this, Deuskar and Stewart (2016) have also applied the cluster method to a further 53 countries using _WorldPop_ gridded population data.<sup>29</sup> In this paper, we use updated estimates of the national share of population living in urban areas based on the application of both the AI and cluster methods. We generate these estimates using three different population grids – _LandScan 2012_ , _GHS-Pop_ and _WorldPop_ . All three of these grids have extensive cross-country coverage and are derived using “top-down” methods which involve the dasymetric distribution of population data for sub-national administrative units across grid cells. Where the three methods differ is in the exact weights they use to distribute the population within administrative areas. Although the exact methods are proprietary, _LandScan_ derives the weights using a modeling process that relies on “ _primary geospatial input or ancillary datasets, including land cover, roads, slope, urban areas, village locations, and high resolution imagery analysis; all of which are key indicators of population distribution_ .” _LandScan_ also applies _ex post_ adjustments to the weights where obvious errors are identified through a manual verification and modification process.<sup>30</sup> _WorldPop_ uses a similar range of input data to derive weights through a “random forest” modeling approach (Stevens, Gaughan, Linard and Tatem, 2015). Finally, _GHS-Pop_ assigns the population of a given administrative unit to the built-up area within that unit. The built-up area data are taken from JRC’s Global Human Settlement Layer (GHSL), which is itself derived from satellite imagery (Freire, MacManus, Pesaresi, Doxsey-Whitfield and Mills, 2016). For all three population

> 25 Uchida and Nelson’s (2010) original AI analysis was undertaken as an input into the World Bank’s 2009 World Development Report (World Bank, 2008).

> 26 In updating the AI, the World Bank and IMF used the same settlement point and travel time layers as in Uchida and Nelson’s (2010) original work, both of which referred to the year 2000.  In this sense, the update performed was only partial.

> 27 Ellis and Roberts (2015) also make use of the same 2010 AI estimates.

> 28 For Croatia, Denmark, Sweden, Finland, Austria, the Netherlands, Slovenia, Switzerland and Norway they used grids that were constructed based on “bottom-up” methods from geo-coded address locations and population register data. By contrast, for the remaining EU countries they used a population disaggregation grid created by the European Commission’s Joint Research Center (JRC) based on administrative area population and CORINE land cover data. Finally, they used LandScan data for French overseas regions, as well as Madeira and Açores in Portugal (see Dijkstra and Poelman, 2014, pp 7-8 for more details).

> 29 Although _WorldPop_ data sets are available for more countries, Deuskar and Stewart limit themselves to countries for which the data have been derived using “random forest” modeling methods.  These methods are thought to be superior to earlier methods that were used to generate the population grids for other countries.

> 30 See <u>http://web.ornl.gov/sci/landscan/landscan_documentation.shtml for more information.</u>

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grids, we use data at a spatial resolution of approximately 1 km.<sup>31</sup> While the _LandScan_ and _GHSPop_ data are available for the entire globe, the _WorldPop_ data are limited to 53 countries, including 27 LAC countries. One other key difference is that _LandScan_ provides estimates of ambient population (i.e. average population over 24 hours), while both _GHS-Pop_ and _WorldPop_ provide estimates of residential population.<sup>32</sup>

# _3.2  Travel time and settlement point data_

The travel time data used in the original AI analysis were based on “... _estimates of the time required to travel 1 km over different road and off-road surfaces...”_ derived from a cost surface that was constructed from a variety of GIS data layers (Uchida and Nelson, 2010). These layers included data on road and rail networks, navigable rivers and water bodies, travel delays for crossing international borders, roughness of terrain and foot based travel for off-road and paths.<sup>33</sup> The AI estimates generated for this paper are based on an updated version of this same cost surface layer that is taken from Berg, Blankespoor, Li and Selod (2017). This updated layer is derived from more recent (i.e. _circa_ 2010 versus _circa_ 2000) data on roads, railroads, and land cover.

In contrast to the population and travel time data, we use the same settlement point layer as Uchida and Nelson (2010) – i.e. GRUMP Settlement Points v 1.<sup>34</sup> Because these data relate to the year 2000, it means that the updated AI estimates of national urban population shares generated as part of this paper are likely to be biased downwards. This will be the case, in particular, to the extent that there are settlements that were below �<sup>�</sup> (i.e. the population threshold used to define a “sizeable” settlement) in 2000, but whose populations have since grown to exceed this threshold. The new agglomerations that will have been created as a result of this will be missed by our updated AI estimates.<sup>35</sup>

# **4. Results**

In implementing the AI and cluster methods, we use the same parameter values as Uchida and Nelson (2010) and Dijkstra and Poelman (2014) respectively. Hence, for the AI, we assume �<sup>�</sup> � 50,000, �<sup>�</sup> �150 people per km<sup>2</sup> , and �<sup>�</sup> �60 minutes, while, for the cluster method, we assume �<sup>�</sup> �� �300 people per km<sup>2</sup> and �<sup>�</sup> �� �5000. For these parameter values, we generate estimates of the share of each country’s population that lives in urban areas using each of the three gridded population data sets described above – i.e. _LandScan 2012_ , _GHS-Pop_ and _WorldPop_ . We also estimate national urban population shares using the cluster method based solely on the share of population living in high density clusters, for which �<sup>�</sup> = 1,500 people per km<sup>2</sup> and �<sup>�</sup> = 50,000 people. Hence, overall, we generate a total of nine different sets of “consistent” estimates of national

> 31 Both _WorldPop_ and _GHS-Pop_ data are available at a higher spatial resolution (100 m in the case of _WorldPop_ ).  For this paper, however, the data were aggregated up to a resolution of 1 km to allow for comparability with the _LandScan_ data.

> 32 _GHS-Pop_ data are available for download from <u>http://ghsl.jrc.ec.europa.eu/ghs_pop.php, while</u> _WorldPop_ can be downloaded from http://www.worldpop.org.uk/.

> 33 See Appendix Table A.1 in Uchida and Nelson (2010) for more details.

> 34 http://sedac.ciesin.columbia.edu/data/set/grump-v1-settlement-points.

> 35 Performing a complete update of the AI remains an obvious area for future research.

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urban population shares.<sup>36</sup> Below, we briefly assess how, compared to the WUP data, these estimates change our impression of LAC’s level of urbanization _vis-à-vis_ other regions of the world. Using the AI and cluster urban population share estimates, we then re-examine the basic empirical relationships between urbanization, development and structural transformation that were discussed in Section 1 with a view to addressing the question of whether LAC countries depart significantly from these relationships. Because the _WorldPop_ data are only available for a much more limited sample of countries, we focus on the results obtained using the _LandScan 2012_ and _GHS-Pop_ data. In doing so, we concentrate on a global sample of 146 countries – including 25 LAC countries – for which we have complete data.<sup>37</sup>

# _4.1. Re-assessing LAC’s level of urbanization relative to the rest of the world_

Figure 2 shows levels of urbanization for both the world and major regions, including LAC, as estimated using both the WUP data and the different permutations of methods (AI and cluster) and input population data sets ( _LandScan_ and _GHSPop_ ).<sup>38</sup> The WUP data show LAC to be far more urbanized than the world overall. Hence, while, based on national definitions of urban areas, the share of the population living in urban areas in LAC in 2014 is estimated to be 80 percent, for the world as a whole it is only estimated to be 53 percent. Furthermore, LAC also appears to be the most urbanized region in the world after North America. However, for the various consistent sets of estimates of urban population shares, the picture is very different. In particular, LAC’s level of urbanization appears much closer to that for the world overall. They also show LAC to be less urbanized than the Middle East and North Africa region in all six measures, less urbanized than South Asia in three measures, less urbanized than Europe and Central Asia in two measures, and East Asia and the Pacific in one measure. In four of the six measures, LAC appears as the fourth most urbanized among seven regions.

> 36 Annex 3 examines the extent to which the regional and global maps of urban areas generated as a side-product of the analysis correlate with each other.  It shows that there is a generally high level of agreement between the maps generated using the AI and cluster methods and different gridded population data sets.  Interestingly, the main differences are driven less by the method adopted (AI versus cluster) and more by the choice of population layer.

> 37 In addition to these 146 countries, estimates of urban population shares were generated for a further 65 countries using either the AI and/or cluster methods.  The urban population share estimates for these countries are reported in Table A4.2 in Annex 4.

> 38 Figure 2 has been constructed using the 146-country sample for which we have complete data.  However, it also looks very similar when instead constructed using the data for all countries for which we are able to generate estimates of urbanization levels using the AI and cluster methods.

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# **Figure 2: Estimated levels of urbanization using different methods and data sets**

<!-- Start of picture text --> 100%<br>90%<br>80%<br>70%<br>60%<br>50%<br>40%<br>30%<br>20%<br>10%<br>0%<br>UN AI - LandScan AI - GHSPop EC - LandScan EC - LandScan EC - GHSPop EC - GHSPop<br>(All urban (HD clusters (All urban (HD clusters<br>clusters) only) clusters) only)<br>World LAC SSA SAR ECA MENA EAP N. America<br>Note: EC refers to the cluster method for the consistent measurement of urbanization. “All urban clusters” refers to the<br>share of population living in all urban clusters, while “HD clusters” refers to the share of population living just in high-<br>density clusters.<br>Share of population in urban areas<br><!-- End of picture text --> The conclusion to be drawn from the above is that, when measured consistently, LAC appears far less urban relative to other regions than we are generally led to believe. This finding is consistent with the use of more relaxed standards for classifying areas as urban in LAC versus non-LAC countries (see Section 2). It also confirms findings reported by Uchida and Nelson (2010) and the World Bank (2008) using the original version of the AI.

# _4.2. Re-assessing LAC’s position in relation to the basic stylized facts_

Tables 2 and 3 show results from two basic sets of regressions. In Table 2, the (natural log) of a country’s GDP per capita level is regressed on its level of urbanization. Meanwhile, in Table 3, a country’s level of urbanization is regressed on the share of its national GDP that is generated by agriculture. In both tables, columns (1) – (3) report results obtained when using the WUP data, which are based on national definitions, to measure levels of urbanization, while columns (4) – (6) report the corresponding results when instead using the AI with _LandScan 2012_ population data as input.

As can be seen, the tables confirm the results for the WUP data that were depicted visually in Figure 1. Hence, a country’s level of development is significantly positively correlated with its level of urbanization, while there is a significant negative relationship between a country’s urbanization level and the relative importance of agriculture to its economy. Furthermore, Latin American (LA) and Caribbean (C) countries depart significantly from these relationships, but in opposite directions. This is evident in the opposite signs on the dummy variables for Latin American and Caribbean countries in column (2) in both tables. On average, Latin American countries have significantly lower levels of GDP per capita than one would predict based on their levels of urbanization. Consistent with this, they also appear “over-urbanized” given the contribution that agriculture makes 13
to GDP for countries in the region. By contrast, Caribbean countries appear “under-urbanized.” However, this result is driven by two extreme outliers – Barbados and Trinidad and Tobago.<sup>39</sup> When we turn to the results using the AI based on the _LandScan 2012_ population data, however, the estimated coefficients on the Latin American and Caribbean dummies are much smaller in magnitude and statistically insignificant (see, in particular, column (5) in Tables 2 and 3). As a consequence, Latin American countries, as a group, no longer appear “over-urbanized.” Likewise, the Caribbean countries no longer appear “under-urbanized.” This can also be seen in Figure 3, which shows the scatterplots that correspond to the regressions in column (4) of Tables 2 and 3. In particular, comparing Figure 3 with Figure 1, one can see that the Latin American countries are no longer systematically positioned below the fitted line, but, rather, are more evenly distributed around it. Meanwhile, for the Caribbean countries, Barbados and Trinidad and Tobago, no longer have the appearance of outliers.

**<u>Table 2: Regression results for relationship between ln(GDP per capita) and urbanization</u>**

|||**WUP data**||**AI**|**–****_LandScan 2_**|**_012_**|
|---|---|---|---|---|---|---|
||**[1]**|**[2]**|**[3]**|**[4]**|**[5]**|**[6]**|
|Urban pop. share|<br>4.215***|<br>4.338***|<br>4.254***|4.050***|4.102***|4.077***|
||[14.70]|[15.21]|[14.64]|[12.36]|[12.20]|[12.27]|
|LA_dummy|<br>|-0.386**<br>[-2.090]|||-0.049<br>[-0.237]||
|C_dummy|<br>|0.595*<br>[1.934]|||-0.267<br>[-0.753]||
|LAC_dummy<br>|<br>||-0.143<br>[-0.853]|||-0.099<br>[-0.537]|
|Constant|6.742***|6.697***|6.744***|6.685***|6.670***|6.685***|
||[38.22]|[38.67]|[38.20]|[31.48]|[31.01]|[31.40]|
|n|<br>146|146|146|146|146|146|
|R<sup>2</sup>|0.600|0.623|0.602|0.515|0.517|0.516|
|�<sup>**�**</sup><br>���|0.597|0.616|0.597|0.511|0.507|0.509|

**Dependent variable:** ln(GDP per capita); **Notes:** t-statistics in brackets.  *** Significant at 1 % level; ** at 5 % level; * at 10 % level

> 39 This is confirmed when the Caribbean dummy in the column [2] regressions in Tables 3 and 4 is replaced by two separate dummies – one for Barbados and Trinidad and Tobago, and the other for the remaining Caribbean countries. In particular, for these regressions, the Barbados and Trinidad and Tobago dummy is statistically significant with the expected sign, while the dummy for the other Caribbean countries is insignificant.

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|R2|
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data gives broadly similar results (see Annex 6, Table A6.1 – A6.4). The exception is when we restrict our attention to high-density clusters and use the _LandScan_ data, in which case the Latin American dummy remains significantly positive (indicating “over-urbanization”) in the regression of urbanization on the share of the agricultural sector in a country’s GDP. Finally, for the cluster method using the _WorldPop_ data, Caribbean countries continue to have significantly higher levels of GDP per capita than predicted given their levels of urbanization (see Annex 6, Table 6.5). However, again, the sample size for this regression is restricted to only 40 countries. As an additional observation, it will be noted that the basic stylized relationships between urbanization, development and structural transformation break down when the cluster method is used in conjunction with either the _GHS-Pop_ or _WorldPop_ data. Insofar as the basic stylized facts are more stable across different input population data sets, this suggests that the AI results are more robust than those for the cluster method. Given that the AI also relies on additional sources of data – in particular, travel time estimates – this should perhaps come as no surprise.

# **5. Conclusion**

When levels of urbanization are measured based on national definitions of urban areas, countries in the LAC region are seen to depart significantly from the basic stylized facts of urbanization, development and structural transformation. Most notably, Latin American countries appear to be “over-urbanized” relative to their levels of development and the importance of the agricultural sector to their economies. However, when levels of urbanization are instead measured using a consistent set of criteria across countries, this apparent “over-urbanization” is revealed to be an “urban myth.” This finding tends to hold irrespective of whether the Agglomeration Index or a cluster-based methodology is adopted as the approach for consistently defining urban areas across countries. It, furthermore, tends to hold irrespective of the choice of gridded population data used as input into these two methodologies.

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