Education Complements Urbanization

+ Paul Romer

In its analysis of urbanization, The New York Times endorses the view that China's "headlong rush to urbanize is driven by a vision of modernity that has failed" in such countries as Brazil and Mexico.

The article does not express an interest in the interesting question of why rapid urbanization was a huge success for a country like South Korea but fell well short of its potential in Brazil. (We can set aside Mexico because it didn't urbanize particularly rapidly.)

Compared to China, how fast was urbanization in S. Korea? This first graph shows the fraction of the population in South Korea that is urban and rural, with historical values to 2010 and projected values from 2020 on.


The second graph shows the same data for China.


(See the United Nations website for more graphs like these and the data that they display.)

In the 30 years from 1960 to 1990, South Korea's urban population share increased by 45 percentage points, going from 30% to 75%. In the 30 years from 1980 to 2010, China's urban share increased by 30 percentage points, going from 20% to 50%.

As the second graph shows, if China's urban population share increases by an additional 15 percentage points, from 50% in 2010 to the 65% rate that the UN predicts for 2025, it will merely continue the trend rate of increase that it has been following in recent decades. The underlying data show that in the 15 years from 1995 to 2010, the urban population in China increased by 280 million. This increase came with no slums, no chronic urban unemployment, and little attention from outsiders. For 2010 to 2025, the projected increase in the urban population is somewhat smaller, 250 million people. For some reason, this is now cause for panic.

We know that urbanizing slowly can deliver important benefits, as it did in Europe and North America. We know that urbanizing rapidly can deliver the same benefits, as it did in S. Korea.

So what happened in Brazil, which of course did have slums and urban unemployment? Should its experience worry China? Or the US?

A recent analysis of by Rick Hanushek and Ludger Woessman points to the obvious factor that we should consider in any analysis of modern economic growth: education. The disappointing rate of growth in Brazil (and most other countries in Latin America) used to be a puzzle. When we used measures like years of school attainment, there didn't seem to be any problem with the school systems in the region. But when Hanushek and Woessman looked at measures of what students actually learned instead of measures of seat-time like years of educational attainment, they found that schools in the region dramatically underperformed those in the rest of the world. The skills gap was so large that it could easily account for the region's chronically poor growth performance.  

The connection between education and urban opportunity is dramatically reinforced by the basic result that emerges from The Chosen Few, a wonderful recent history by Maristella Botticini and Zvi Eckstein. They show that urbanization and literacy reinforce each other. Literacy and numeracy became much more valuable when independent political and military developments lead to rapid urbanization. In the other direction, the demand for literacy and numeracy goes back down when a region de-urbanizes, again because of independent political and military developments.

In the jargon of economics, urbanization and education are complements. This suggests that countries will do fine if they follow S. Korea by investing both in skills and the urban infrastructure that lets those skills be used to their full potential. Countries could face trouble if, like Brazil, they fall short on providing for effective universal education and fail to adequately plan for the provision of the basic services — water, transport, security — required for successful urban development.

People who buy newspapers in the US no doubt feel better when they read that the Chinese are following a failed vision of urban modernity. Yet perhaps it would be better for them to hear something that disrupts their complacency. The Chinese are following a strategy that is tried and true; one that we pioneered in the United States; one that we no longer seem to have the capacity to sustain.

The only place that out-performed S. Korea on the PISA tests of student achievement was Shanghai. The US lags far behind.

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