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Urban Economy

Icons-04Cities are the main creators of economic wealth, generating over 70 per cent of the world’s Gross Domestic Product (GDP). Most industries and businesses are located in or within immediate vicinity of urban areas, providing city residents with jobs. Because most employment opportunities are within urban areas, cities attract large parts of a country’s job seeking population. This is especially true in developing countries, where an increasing share of economic activities take place in cities, and the differential between urban and rural wages is growing.

This causes rapid rural-to-urban migration. Today, over 50 per cent of the world’s population is urban dwellers, with this figure expected to rise to over 65 per cent by 2030. If urban economic opportunities do not keep pace with the influx of job-seekers, urban poverty can have dire results for the health and well-being of large shares of the population. Governments are presented with a set of economic and financial challenges in dealing with growing urban populations:

  • They must harness urban population growth to generate economic prosperity.
  • They must pay for infrastructure and services to both accommodate new residents and support the existing population.
  • They must facilitate economic growth and job creation that is broad-based and inclusive.
  • They must leverage the youth dividend to create a new generation of economic vibrancy.


Agglomeration economies, key drivers of economic growth

Agglomeration economies are key drivers of economic growth, but need to be harnessed. Cities exist because there are economic benefits associated with urbanization. However, unplanned or poorly-planned urban expansion can create dynamics which stifle the drivers of the urban economy. Public sector actions such as plans, policies, and their implementation can guide urbanization toward an efficient and equitable urban future. Land use, infrastructure, and transportation can be coordinated in ways that support economic growth and innovation, advance social equity, and promote quality employment for their residents. Well planned, spatially efficient cities do the following:

  • They connect jobs and workers, allowing people to find employment that matches their skill sets; this improves both productivity and wages.
  • They connect businesses with each other, allowing clusters of firms to share pools of labor and inputs, specialize and collaborate, and glean knowledge and ideas from others in their industry.
  • They connect urban residents to more extensive opportunities and increase their access to a variety of choices.

As cities grow, it is crucial to channel new development in ways that prevent stifling forces such as congestion, pollution, segregation, and excessive rents. Instead, growth and investment should be strategically used to promote economic efficiency and broad-based growth.

What we offer and promote: UN-Habitat offers assistance to national and local governments as they plan the infrastructure and regulatory frameworks to support economically dynamic cities. Well-informed planning and policy-making can maximize the benefits of urbanization and prevent or mitigate negative impacts, helping to create and keep quality local jobs. UN-Habitat offers tools calibrated to the local context which support informed decision-making. These tools can aid in the evaluation of urban development scenarios, assisting policy makers in coordinating land use, transportation, and infrastructure to support job growth.

Results to expect:

  • Governments will have a better understanding of the way their cities function, including constraints to economic growth and existing assets. They will be able to plan for future growth in ways that support economic innovation and dynamism. This includes prioritization of development strategies on the basis of their potential to facilitate job creation.
  • Residents will benefit from enhanced connectivity between homes and centers of activity, providing broader access to employment and other opportunities.
  • Lower income groups, women, and youth will be included in economic growth instead of being marginalized.
  • Businesses will gain from increased accessibility to inputs, knowledge, labor, and resulting productivity.

Urban financing strategies

Urban financing strategies are key to the provision of services and the implementation of urban development plans. If cities are to pay for the type of infrastructure and public services that can unleash economic growth and support quality of life, they need access to adequate funding and the ability to finance capital projects. However, local governments’ financing options and revenues are frequently limited due to a lack of capacity, including the ability to collect taxes. As cities improve their financial management practices and gain capacity to utilize appropriate financing mechanisms, the result can be a virtuous cycle of investment and economic growth.

What we offer and promote: UN-Habitat helps local and national governments develop revenue enhancement plans which can leverage innovative tools and simple, transparent revenue collection mechanisms. These mechanisms can harness and support growth while garnering community buy-in for public sector revenue collection efforts. This typically involves the adoption of appropriate technologies for managing revenue and expenditures for economic development. UN-Habitat also assists public agencies in designing financial models (also known as business plans) to support the implementation of urban plans and public projects. These models specify detailed financing strategies, project development partners, phasing, and cash flow over time.

They serve as critical underpinning for public investments and the sustainable extension of urban infrastructure and services. There are an array of financing mechanisms available to help local governments meet obligations for providing basic services and pay for growth-generating capital projects. These include public-private partnerships, municipal bonds and access to capital markets, and methods to capture windfall land value increases created by public investments or demographic shifts. UN-Habitat offers comprehensive assistance in evaluating financing options and implementing appropriate mechanisms in order to leverage and sustain growth. Support for policy revision and capacity strengthening at both local and national levels is available.

Results to expect:

  • Tax structures will be equitable, promote economically beneficial land use patterns, curb speculation and sprawl, and perceived by the public as fair and transparent.
  • Municipal development projects will be able to access funding for capital expenditures and be able to sustain quality infrastructure and services through the appropriate level of funding for operations and maintenance.
  • Governments will develop the capacity to raise necessary revenues, manage expenditures, and utilize capital project financing.

Local economic development (LED) for inclusive economic growth

Local economic development (LED) approaches support inclusive economic growth. Despite cities being the biggest providers of both formal and informal jobs, urban unemployment and underemployment are still major issues around the world. The resulting poverty leads to problems such as malnutrition, social exclusion, crime, and slum formation. Youth unemployment is particularly high, with youth being three times as likely as adults to be unemployed. The informal economy tends to develop in parallel to fast demographic growth and supplants other more stable forms of revenue generation, as formal job supply cannot meet rising demand.

In Sub-Saharan Africa and South Asia, more than 70 per cent of the labour force is vulnerable, confronted by insecure working conditions, lack of labour rights, underemployment, and an uncertain regulatory environment. Cities have a critical role to play in linking people with jobs. Governments can help to make cities competitive and can ensure that the benefits of economic growth reach the poor. Youth, women, and vulnerable social groups require special consideration in efforts to create jobs. A participatory approach toward the creation of an LED strategy can help to identify critical needs and barriers and build on endogenous assets at the local level. Additionally, governments can take proactive steps to address economic leakages and supply chain development while creating a business-enabling environment with regulations that are fair, transparent, and stable.

What we offer and promote: UN-Habitat assists local governments in generating and implementing local economic development (LED) strategies which are strategically aimed to capitalize on existing areas of comparative advantage, leverage local assets, and generate equitable outcomes. LED strategies can be developed as a stand-alone exercise or in conjunction with broader efforts such as national policy reform, city master planning, or other planning or policy effort. Results to expect:

  • Local governments will understand their economies, markets, and the challenges and opportunities facing job creation in coming years.
  • LED strategies will be developed through a participatory approach which garners stakeholder buy-in and supports coordinated implementation.
  • Private and public investments will be supported to generate social benefits which reinforce economic growth.
  • Job creation will include currently marginalized populations with special emphasis on youth and women.
  • Income-generating activities will be supported at all levels, including the informal sector.

Youth, an economic strength

The youth demographic can be an economic strength if youth are empowered to participate in urban life. Globally, there are more people under the age of 25 today than ever before, and it is estimated that as many as 60 percent of all urban dwellers will be under the age of 18 by 2030. Cities of the developing world account for over 90 percent of the world’s urban growth, and consequently youth constitute a large percentage of those inhabitants. In light of these developments, UN-Habitat focuses on the interventions that can maximize the opportunities that are inherent in the youth demographic bulge, and how it is a positive source of development.

What we offer and promote: We bring technical expertise and experience in participatory and inclusive practices to help engage youth as assets for sustainable urban development and drivers for positive change. We provide evidence-based policy advice and develop projects jointly with UN agencies, civil society, youth-led organizations, and governmental partners. Drawing on our successful flagship programmes as well as national and local Youth Fund initiatives. Results to expect:

  • Youth will be given a voice in the development of their communities and serve as drivers of positive change.
  • The burgeoning youth workforce will contribute to the productivity and prosperity of their cities and towns.
  • Local economies will benefit from the innovation and creativity unleashed by empowered young people.

  • Nigeria – One Stop Youth Resources Centre
  • India – Urban Youth Fund
  • Mozabique – Financing Options for Planned City Extensions
  • Somalia – Local Government Finance System and Property Taxation in Fragile Cities

The following organizations are partners in UN-Habitat’s work in the field of Urban Economy:

  • Women in Informal Employment: Globalizing and Organizing (WIEGO)
  • Development Bank of Latin America (CAF)
  • Global Fund for Cities’ Development (FMDV)
  • Andrew Young School of Public Policy
  • World Bank Institute
  • United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)
  • International Labour Organization (ILO)
  • Inter-American Development Bank (IADB)
  • East African Community (EAC)

› Read more about our work at UEFB.
› Read more about Urban Economy Branch.

Screen Shot 2014-05-26 at 18.17.06 Learn about the City Prosperity Initiative   Screen Shot 2014-05-26 at 18.17.30 Learn about National Urban Policies

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