1.

Why might the problem of rapid urbanization be a more significant population policy

issue than curtailing population growth rates over the next two decades for most

developing countries? Explain your answer.

- The rapid urbanization might be a more significant problem in the population

policy issue compared to the population growth rates because rapid urbanization can

mean mass immigration to urban cities, causing pollution, crimes and in the informal

sector that doesn’t help the economy to stimulate. Rapid urbanization can also increase

slums with very poor hygiene, causing diseases to spread more easily. Lastly, rapid

urbanization does not necessarily promise a job to incoming immigrants thus can

increase the chance of unemployment that might do more damage than help in the

economy. Overall, if the population of the massively urbanized areas aren’t controlled

and if we focus more on the total population of a country or a region, it might affect the

economy badly as urban cities are the economic center of most countries.

2. Describe briefly the essential assumptions and major features of the Todaro model of

rural-urban migration. One of the most significant implications of this model is the

paradoxical conclusion that government policies designed to create more urban

employment may in fact lead to more urban unemployment. Explain the reasons for

such a paradoxical result.

- The Todaro model of rural-urban migration is a theory that tries to explain the

relationship between rural-urban migration and the increase in urban unemployment.

This theory’s assumptions are many, including the assumption that migration is an

economic phenomenon, that it is a rational decision to decide to look for a job in urban

areas for the prospect of eventual higher income, that the potential or actual people that
is part of the labor force compares the earnings from rural areas to the expected

earnings in urban areas in a time period and that this theory only applies on highly

developed nations due to the nature of this theory that cannot apply to most developing

nations. The paradoxical conclusion is based on the idea that when there is more job

that is being created for the urban area, more people will be enticed to migrate without a

promise of job security. For example, if the Philippine government supported a new

factory for textile in Quezon City with tax breaks for the creation of jobs, people in

nearby provinces such as Antipolo and Batangas or even from far provinces in Visayas

and Mindanao will think of the job opportunity they can land and it may increase the

influx of unemployed migrants in the Metro Manila area.

3. “The key to solving the serious problem of excessive rural-urban migration and rising

urban unemployment and underemployment in developing countries is to restore a

proper balance between urban and rural economic and social opportunities.” Discuss

the reasoning behind this statement and give a few specific examples of government

policies that would promote a better balance between urban and rural economic and

social opportunities.

- The statement speaks about the ongoing problem of migration and the

difference between rural and urban areas, wherein it shows how the rural laborers’

movement from rural to urban for jobs ends up unemployed due to the fact that most

jobs in rural areas are already occupied and most of the time, skilled urban workers is

employed with greater wages compared to the compensation earned by a migrant

former rural laborer. The problem in migration to urban areas can be alleviated by

government policies such as increased support in the local agricultural industry by

investment in rural areas, nonfarm alternatives such as labor-intensive production and

improvement to the current infrastructure of the rural towns for increased access to

needed services such as healthcare and education to entice rural laborers to stay and

become more productive in the rural area.

4. For many years, the conventional wisdom of development economics assumed an

inherent conflict between the objectives of maximizing output growth and promoting

rapid industrial employment growth. Might these two objectives be mutually supportive

rather than conflicting? Explain your answer.

- It is hard nowadays to maximize output growth with rapid industrial employment

as the technology of the modern age certainly is more efficient in producing output

rather than employing manpower however, it is still possible as certain countries (i.e.

China and Bangladesh) are still combining the maximization of output while providing

jobs for their people. The two objectives are more conflicting with technology but with

the right business model, assembly line and production process, the objectives can still

be supportive in a larger scale.

5. What is meant by the expression “getting prices right”? Under what conditions will

eliminating factor price distortions generate substantial new employment opportunities?

(Be sure to define factor price distortions.)

manipulated to be more expensive or cheap as to what is more beneficial to a producer

or employer. “Getting prices right” is about taking an educated guess as to what a suited

price on is a good or service. With factor price distortion, getting prices right is a must. If

a government sets its policies right and create a list of suggested retail prices (SRPs) of

goods with accuracy to its true market value, this can prevent factor price distortion that

can result into more money for a firm that can also be the reason to employ more.

6. The informal sector has become a very large part of the urban economy. Distinguish

between the urban formal and informal sectors and discuss both the positive and the

negative aspects of the informal urban labor market.

- The urban formal sector or the urban formal labor market is the sector that is

regulated by the government, and includes documented laborers that can be traced and

used in statistical analysis while the informal sector is the sector where jobs are mostly

legal that bypass the normal process of different businesses like in the formal sector.

The informal sector are businesses or money-making labor sector that are not regulated

but, in a sense, somewhat legal (but there are some informal ways to earn money that

aren’t legal like drug dealing, etc.). The positive thing about the informal market is that it

create jobs for people that are desperately in need for money for basic needs, but it also

creates a reason for other employed rural worker to transfer to the urban area even

though they have their jobs because of their own reasons such as the dream to work in

an urban environment, etc. The informal sector can also be an avenue for crime as they

are unregulated and unregistered within the system. In a nutshell, the informal sector is
helpful as an alternative way for people to earn money, but it has the capacity to do

more harm than good because of various reasons.

7. Why are primary cities—generally the capital— often disproportionately large in many

developing countries? Which factors can be addressed with better policies?

-This is because of a form of urban bias called first-city bias as public

investments and incentives in making business and creating infrastructure flows to the

favor of the first city and it creates a disproportionate share of economic activity

compared to the second or other cities nationwide. Factors like public investment and

population density can be managed by creating more jobs outside the first city and

disseminating public investment in other cities to entice citizens to migrate in an area

with a possible economic advantage over the first city. The government can also create

business districts with tax breaks to also provide incentives to investors and other

businesses for them to be able to stimulate economic activities in other areas, other

than the first city.

8. What is an industrial district? How might governments of developing countries help

them succeed?

- An industrial district is a specific location or area with high population in which

specialized economic activities happen. For example, USA’s Silicon Valley is an area

where tech companies and social media companies flourish. Governments of

developing countries can help them succeed by creating policies that will incentivize
their specialized work and technological innovations that will make the economy

flourish. For example, a government can create tax breaks or provide infrastructures

such as better roads for transport for an industrial district that produces metal products if

they will reach a certain threshold in the amount of imported goods sold for them to be

encouraged to increase their production.

9. Suppose that potential migrants make decisions only based on comparisons of their

expected incomes. Now suppose the rural wage is $1 per day. Urban modern sector

employment can be obtained with 0.25 probability and pays $3 per day. The urban

traditional sector pays $0.40 per day. Using this information, and making assumptions

as needed, can you make a prediction about whether there will be any rural-to-urban or

urban to-rural migration? Explain your reasoning, stating explicitly any simplifying

assumptions, and show all work. Consider an approach that calculates an expected

income in the urban sector of 0.25(3) + (0.75)(0.40) = 1.05; and note that this exceeds

the rural wage of 1—would you predict that there will be rural-to-urban migration? What

simplifying assumptions are needed to make this a valid conclusion? Now, what would

the urban traditional sector daily income have to be to induce no net rural-urban

migration? If wages in all sectors are inflexible, what else adjusts in this model to lead to

equilibrium (how much does it adjust and what is the intuition)?

- Rural Wage = 1, Urban Modern Wage = 3, Urban Traditional Sector =

0.40.

= 3(.25) + 0.40(.75)
 =1.05

Rural Wage = 1 Expected Urban Wage = 1.05

I would predict that there will be a rural-to-urban migration as long as there is a

chance for people to earn more than what they could earn even though it is not

guaranteed if we include the allure of living inside an urban area. I would suggest that

the urban traditional sector should be lower than .25/day so that there will be less

chances for people to think that there is an attractive offer in urban cities. If the wages

are inflexible, I suggest that there should be an incentive to stay in rural areas (i.e.

unconditional cash transfer for working in the agricultural sector or rural areas, etc.) If

we can add even 0.25 per day as an incentive, it should deter people from migrating to

cities according to this model.

10. Explain the concept of urban bias. What policies are associated with it, and what

are their likely effects on urban and rural areas?

- Urban bias is a term that describes the preference of countries to the urban

areas versus the rural areas. This bias of governments increases the gap between the

economies of the two with the urban areas claiming the top spot (Urban Giantism).

Policies which incentivize investments in urban areas, especially the first cities of

developing countries, tend to create an overwhelming congestion with the population

and number of vehicles that are passing through the limited roads that were created and

designed for that cities. The effects of urban bias to urban areas will be great at the
beginning of its development but gradually will be worse over time due to the

overcapacity of the city to hold the population in it. It can lead to several problems such

as problem in waste management, traffic congestion in business districts, pollution and

even mental health for the people that are living inside a densely populated area. Urban

bias will continuously weaken the economic capabilities of rural area, and the workforce

of the small rural area will also lessen due to the “opportunities” inside urban areas,

creating more shortage in labor thus creating more problems in producing the

necessary and needed supply of basic goods such as food and raw materials for

production that are being produced in rural areas.

11. Now explain the economic benefits of concentration of economic activity in cities.

How are various costs of doing business likely to be affected? Why are some of the

potential benefits of urbanization lost when congestion becomes substantial? What

policies are likely to strengthen or weaken the opportunities to take advantage of the

economic benefits of cities?

- The economic benefits of a concentrated economic activity in cities are cheaper

transportation costs, firms with specialized skillset can interact and benefit and work

with each other with ease of access, high population that can be part of the workforce,

etc. It is easier to make business in a city but the cost of doing business and the cost of

living will be higher compared to a rural town. The potential benefit of urbanization will

be lost with the presence of congestion as congestion of the labor force (traffic jams,

lack of transportation option, etc.) will yield less time to work on important projects,

congestion of the flow of the food chain can disrupt the lives of millions of people that

are living in cities, etc. Policies that can lessen congestion such as support for road
widening, publicly-owned transportation and new roads can help take advantage of

economic benefits of cities while without the presence of the policies mentioned above

while creating more jobs inside the city could congest the city more that can result into

an economic loss in the long run.