Analyzing Third World Urbanization: A Model with Empirical Evidence* Jan K. Brueckner University of Illinois at Urbana-Champaign 1, Introduction Economic development in the third world is being accompanied by explosive urban growth. United Nations data summarized by Andrei Rogers show that while annual urban growth rates in developed coun- tries ranged between 1.5% and 2.4% from 1950 to 1990 (projected), third-world cities grew at rates between 3.9% and 4.7% over this pe- riod.' This growth has more than doubled the urban share of the third- world population, which rose from approximately 17% in 1950 to a projected 36% in 1990. The urban share in developed countries, by contrast, is projected to rise from 53% to 75% over this period. Rapid third-world urbanization has also created very large cities. The U.N. data show that while developed countries claimed 11 of the world’s 15 largest cities in 1950, the top 15 will include only three developed- country cities by the year 2000 (Tokyo, Los Angeles, and New York). Moreover, of the 414 cities expected to house a million or more people in the year 2000, a majority of 264 will be located in third-world coun- tries. Urban growth has two sources: rural-urban migration and natural increase of the urban population. Although high birth rates make the latter source an important factor in third-world city growth, rural- urban migration plays an even more important role in the third world than it does in developed countries. Such migration has been the sub- ject of intense study by economists, demographers, and other re- searchers. The main lesson of empirical work in this area has been that migration in third-world countries appears to be economically rational, with rural-urban migrants lured to cities by the prospect of better living standards (see G. Fields and T. P. Schultz for recent contributions).” An important theoretical insight underlying this research is that since the impetus to rural-urban migration is expected income gain (in a © 1990 by The University of Chicago. All rights reserved. 0013-0079/90/3803-0036801.00588 Economic Development and Cultural Change probabilistic sense), high urban unemployment need not deter such migration if wages in the modern urban sector are appreciably higher than agricultural wages. This insight, which explained a puzzling as- pect of the migration process, originated in the work of M. Todaro and of J. Harris and M. Todaro. Although interest in rural-urban migration has been long-standing, attempts by economists to construct comprehensive. migration-based models of third-world urbanization have been more recent. The water- shed work in this area is that of A. Kelley and J. Williamson, which culminated in the 1984 monograph entitled What Drives Third World City Growth? This book describes the structure of a rich and complex computable general equilibrium (CGE) model built around a Harris- Todaro migration mechanism.* Simulations of the model accurately reproduce the recent history of third-world city growth and yield pro- vocative predictions about future urbanization. Building on Kelley and Williamson's work, C. Becker, E. Mills, and J. Williamson constructed a similar CGE model of Indian urbanization.* While the performance of the CGE models is impressive, their complexity strains one’s economic intuition and rules out standard empirical testing (vz ion of the models relies instead on simulation exercises). The literature, however, does not offer a true alternative to the CGE approach. Little effort has been devoted to developing simple theoretical models of third-world urbanization that are amenable to empirical testing.° In effect, research in this area has neglected an entire generation of potential models in arriving at the current state of the art. The purpose of the present article is to help fill this gap by propos- ing and testing an elementary model of third-world urbanization. The theoretical framework imbeds the urban economist’s monocentric-city model in an economy experiencing rural-urban migration. When urban and rural real incomes are set equal in the model to guarantee migration equilibrium, an equilibrium city population is determined. This equilib- rium city size depends on three key variables: the rural-urban income ratio, the ratio of commuting costs to urban income, and the ratio of agricultural land rent to urban income. The analysis shows that city size varies inversely with the first two ratios and varies directly with the third. In the empirical work, these comparative-static predictions are tested by regressing various urbanization measures on the rural- urban income ratio and the other ratios for a small cross-section sample of third-world countries. It is important to emphasize at the outset that two of the explana- tory variables identified by the model (the rural-urban income ratio and agricultural rent-urban income ratio) are endogenous. As a result, an equation relating urbanization levels to these variables must be viewed as a structural equation in a larger simultaneous system. Since the analvsis is not concerned with the reduced form of this large svstem._ itJan K. Brueckner 589 cannot explain third-world urbanization in the sense of linking the urbanization process to the time paths of crucial exogenous variables (as is done in the CGE approach).” Instead, the analysis provides an answer to a more limited but, nevertheless, important question. The question is whether urbanization levels vary across third-world coun- tries in a way that is consistent with the hypothesis that real incomes are equalized between city and countryside. This hypothesis, which is the source of the basic city-size equation in the model, lies at the heart of most recent research on third-world urbanization. IL. The Theoretical Model The analysis imbeds the standard urban model developed by W. Alonso, E. Mills, R. Muth, and W. Wheaton in an economy experienc- ing rural-urban migration.® Individuals in the economy consume land (q) and a nonland composite good (c) (the model can be extended to include consumption of housing instead of land, as explained below). Preferences are identical and are represented by the well-behaved util- ity function v(c,g). Urban residents are employed in the modern sec- tor, where they earn an income of y per period (the possibility of unemployment is ignored for the moment). With all employment located at the city center, urban residents commute to work, incurring commuting costs of ¢ per round-trip mile. Letting x denote the radial distance from an individual’s residence to the urban center, disposable income net of commuting cost is y — tx. Letting ¢ be numeraire, the budget constraint is then c + rq = y — tx, where r is the rental price per unit of land. At any given location, consumers choose c and q optimally, given r. In equilibrium, the realized utility level must be the same in all locations, so that consumers are locationally indifferent. In other words, solving for c by the budget constraint, it must be the case that max {g}v(y-tx-rq.q) = u holds for all x, where u is some constant utility level. This condition can be shown to yield solutions for land rent and land consumption in terms of the underlying parameters: r = r(x,y,t,u) and q = q(x,y,t,u). Well-known results are r, < 0 and q, > 0; land rent falls with distance to compensate consumers for lengthier commutes, and consumption of land rises with x in response to its declining price (subscripts denote partial derivatives). The overall equilibrium of the city is determined by two condi- tions. First, urban land rent must equal the agricultural rent r, at the urban boundary, denoted ¥.” Second, the urban population P must fit inside the boundary. These conditions can be written r(X,y,t,u) = ru and dd)590 Economic Development and Cultural Change (Note in [1] that 1/q equals population density and, thus, that [2mx/q]dx is the population of a narrow ring of radius x.) The above equations determine utility w and ¥ as functions of underlying parameters: « = u(P.y.trq) and X= MPYytyra)- (2) Analysis by W. Wheaton established Xp > 0, X, > 0, ¥, < 0, and ¥, <0, indicating that the distance to the urban boundary is an increasing function of population P and income y and a decreasing function of commuting cost per mile ¢ and agricultural land rent r,. The key step in the analysis of third-world urbanization is to com- bine the boundary equation (2) with the condition for rural-urban mi- gration equilibrium. To develop the latter condition, assume first that rural residents earn an income denoted by y,, which is less than the urban income y. Although land is cheaper in the countryside (being available at price r,), suppose that the price of the nonland good c is the same in rural and urban areas (equal to unity). For migration equilib- rium to obtain, a rural resident earning y, and facing these prices must reach the same utility level as an urban resident. Since all city dwellers are equally well-off, this condition reduces to the requirement that a rural consumer achieve the same utility as an urban boundary resident However, since urban boundary residents pay the same price as rural residents (r,, for land, unity for c), utility equalization requires equal disposable incomes, or y,, = y — fx. Recalling (2), this condition can be rewritten as Ya = Y — PLY tra). (3) Equation (3) is the critical relationship in the model. The equation implicitly defines the urban population size P that equates rural and urban real incomes for given values of y, y,, rg, and 1, yielding P = PO,YasFat).! The partial derivatives of P are found by different of (3), which yields oPlay = (1 — ,)ltkp > 0, (4) OPlay, = —WtXp <0, (5) oPlar, = ~—%,[%p > 0. and (6) aPlat = —(X + 1X )/tp <0. (7) The inequalities in equations (4)-(7) state that the urban population is an increasing function of urban income y and agricultural rent r,, and a decreasing function of agricultural income y,, and commuting cost perJan K. Brueckner S91 mile rt. Before considering the intuition behind these results, note that (5) and (6) follow directly from the facts (noted above) that X is increas- ing in P and decreasing in r,. The inequalities in (4) and (7) follow because disposable income at the urban boundary is increasing in y and decreasing in t, or (1 — t%,) > O and (¥ + f%,) > 0. These last two facts can be established by noting that the urban utility level increases with y and decreases with ¢ (see Wheaton). Since the urban boundary resident faces fixed prices and experiences these utility changes, it follows that disposable income at the boundary must rise and fall with y and t, as claimed. The intuitive explanation for the results in (4)-(7) is straightfor- ward. First, an increase in the urban income level y raises the urban standard of living relative to that in rural areas.'! This creates an im- petus for migration, which increases the urban population. The popula- tion increase raises urban land prices, depressing real income in the city and dampening the incentive to migrate. Eventually, P rises far enough to reduce the urban living standard back to its original level, restoring equilibrium. When agricultural income y, rises, the reverse process unfolds. A higher agricultural living standard lures urban resi- dents to the countryside, and the resulting decline in P lowers urban land prices and raises real income in the city. When P has fallen enough to equate urban and rural living standards, equilibrium is restored. Similarly, an increase in the commuting cost parameter f reduces the real income of city dwellers and leads to an equilibrating migration flow to the countryside.'? Finally, when the agricultural land rent r, rises, real incomes decline for both urban and rural residents. However, since nominal income stays constant in the countryside, while the dis- posable income of the resident at the urban boundary rises, it follows that real income falls less in the city than in the countryside.'* The result is migration toward the city, which proceeds until living stan- dards are equalized. While some readers might question the quantitative significance of rq’s impact on the equilibrium, evidence from J. Brueckner and D. Fansler’s study of the determinants of urban spatial sizes shows that agricultural land values do exert a significant negative impact on the spatial areas of small to medium-size U.S. cities, as equation (2) above would predict (this result controls for income and population size).'* This effect, which has an associated elasticity of —.23, suggests that the impact of r, in the present framework can be quantitatively impor- tant. Although the above discussion treats y, y,. and r, as parametric, these variables will in fact be influenced by the allocation of population between the city and the countryside. A simple marginal productivity argument, in fact, predicts that y declines and that y, and r, rise and fall, respectively, as labor shifts from agricultural to urban employ-592 Economic Development and Cultural Change ment. This possibility affects the preceding analysis only in that it changes the interpretation of the equilibrium relationship (3). This rela- tionship must now be viewed as one equation in a larger simultaneous system that jointly determines equilibrium values of P, y, y,, and r,,. AS noted in the introduction, the model’s focus on a single structural equation from this system means that it is not able to identify the ultimate sources of urbanization, as would be possible in a general equilibrium framework. Whatever the sources of urban growth, how- ever, the migration equilibrium condition (3) is still relevant, and its implications (as reflected in eqq. [4]-[7]) can be tested as long as the explanatory variables are properly viewed as endogenous. Another observation is that since the model determines a unique P, it appears to be inconsistent with the existence of a range of city sizes. To make the model realistic in this regard, all that is needed is to introduce a range of y values reflecting differences in the composition of employment across cities (which in turn might reflect varying loca- tional advantages). Variation in y then leads to a range of equilibrium city sizes under the model. with residents of each city enjoying the same standard of living. To ease empirical implementation of the model, another assump- tion is imposed that leads to a convenient simplification of equation (3). This assumption is that the utility function v(c.g) is of the Cobb- Douglas variety. The Appendix proves that under this assumption, the function (eq. [2]) relating the urban boundary ¥ to parameters is homo- geneous of degree zero in its last three arguments. This means that the identity X(P.y,t.r4) = X(P,1,t/y,r/y) holds. Substitution in (3) then yields yy - 1X(P.1.t/y.ra/y), and dividing through by y gives Y = 1 — TRP,.1,T.R), (8) where Y = ydly, (9) T = tly, and (10) R= rly. ah Equation (8) shows that in the Cobb-Douglas case the equilibrium pop- ulation P depends only on the ratios Y, T, and R and not on the levels of the underlying variables. Differentiation of (8) yields aPlay = —UTEp <0, (12) aPlaT = ~(% + TX)VTXp <0, and (13) aPIAR = —%,/Xp > 0. (14)Jan K. Brueckner 593 These results show that an increase in either y,/y or tly lowers P and that an increase in r,/y raises P. The effects of Y and T are intuitively clear, given the positive effect of y and the negative effects of y, and t on P. The positive impact of R, however, is less transparent, given that increases in r, and y both raise P. Note that the ratio form of the model is advantageous from an empirical point of view because, instead of being denominated in the currency units of a given country, the explan- atory variables are now unit-free, having been normalized by the urban income level. From an empirical perspective, it could be argued that it is unreal- istic to expect third-world economies to conform to the strict predic- tions of an equilibrium model. A preferable approach might be to view such an economy as slowly adjusting to the equilibrium implied by the above model. As in a standard stock-adjustment model, the speed of adjustment could be assumed to depend on the difference between the equilibrium urban population P(Y,7,R) from (8) and the current popu- lation Po. Letting P denote the time derivative of P, this assumption yields P = fIPUTR) ~ Pols (15) where fis a function satisfying f’ > 0 and f(0) = 0. Using (12)-(14), it follows from (15) that Py < 0, Py < 0, and Pe > 0. In other words, the rate of urban growth in this formulation is a decreasing function of Y and T and an increasing function of R. Also, (15) shows that an increase in current population Pp lowers P. Although the above analysis reflects the assumption that land is the only input into housing production, the results are essentially un- changed when a more realistic housing production process that uses both land and capital as inputs is introduced. This claim relies on Brueckner’s demonstration that Wheaton’s results signing the partial derivatives of X and u also apply to an urban economy where capital is used in housing production (Wheaton considered the land-only case).!* This equivalence means that the results in (4)-(7) giving the signs of P’s partial derivatives are valid in the more realistic model. However, in order to carry out the normalization in (8) in the new model, the hous- ing production function as well as the consumer utility function must be Cobb-Douglas (the proof of this is available on request). As long as these assumptions (which are used frequently in urban economics and elsewhere) hold, the ratio form of the model applies in a realistic pro- duction setting. At this point, it is useful to consider relaxation of several of the stylized assumptions made in the analysis. First, as noted earlier, the model assumes that there is no unemployment in the economy. One way of incorporating unemployment would be to replace y and y, in the594 Economic Development and Cultural Change model by expected incomes gy and g4y4, Where g and g, are one minus the unemployment rates in urban and rural areas (this assumption fol- lows Harris and Todaro). While this is an attractive modification on theoretical grounds, it cannot be implemented empirically since data on sectoral unemployment rates are not available in third-world coun- tries. A related problem is that the model does not include the value of social services such as health care and education that are more readily available to urban than to rural residents. Once again, the presence of these amenities, which raises living standards in cities, cannot be mea- sured empirically in a satisfactory way. The realism of the assumption that urban employment is central- ized can also be questioned. If third-world cities have significant sec- ondary employment centers, then the monocentric model used in the analysis will be inaccurate (this caveat is also relevant when the model is applied to developed countries). It is likely, however, that the qual- itative properties of the monocentric boundary equation (2) would still hold even for a multicentric urban area, so that the key results of the analysis would be unchanged. The analysis is, in fact, completely ro- bust in the case where noncentral employment is of the “local” vari- ety, being widely dispersed, without concentrations in large secondary centers. Since the spatial structure of such a city is indistinguishable from that of a monocentric city, the results of the analysis apply di- rectly." Before proceeding to empirical implementation of the model, it is useful to contrast the current framework with the structure of the CGE models. First, the present model’s equilibration mechanism, where urban population adjusts to equate urban and rural standards of living, is also present in the CGE models. By capturing general equilibrium feedbacks, however, these models solve for the urban and rural income levels and agricultural rent, which are not determined within the pres- ent framework. Although the CGE models are rich in detail, the pres- ent model is, in fact, more detailed in one respect, since the urban area has an explicit spatial structure. This permits the spatial size of the city to be determined endogenously through equalization of urban and rural land rents. The CGE models, by contrast, assume a fixed urban land area, which means that spatial growth of the city plays no role in the equilibration process. Il. Data The main constraint in assembling a data set for the empirical work is the paucity of urban and rural income data for third-world countries. Use of three different sources, however, yielded income data for 24 countries, which are shown in table | along with their largest cities. The main data sources are a compilation by S. Jain and another by the United Nations International Labour Organisation (ILO); an extraJan K. Brueckner 595 TABLE I Countries IN SAMPLE AND SELECTED Data Country Largest City LGCPOP70 UPR70 UPOPGRO Y T R Algeria* Alger 119 39.5 13 ST Bangladesh+ Dacca 1.54 16 25 67 Brazilt Sao Paulo 55.8 1s 236 Colombiat Bogota 57.2 12 4B Costa Ricat San Jose 39.7 13 54 Ecuador Quito 39.5 18 69 Egypt* Cairo 43.6 7 61 Ghana* Accra 29.0 13 83 Honduras} Tegucigalpa 28.9 2.0 219 Indiat Calcutta 19.8 1.0 4 Koreat Seoul 40.7 24 53 Malawi* Lilongwe 6.0 29 30 Malaysiat Kuala Lumpur 27.0 13 46 Mexico* Mexico City 59.0 14 Al Nepali: Kathmandu 39 2 68 Pakistant Karachi 24.9 12 a Peru* Lima 57.4 14 64 Philippinest_ Manila 33.0 id 48 Sierra Leone* Freetown 18.1 15 61 Sri Lankat Colombo 19 8 60 Sudan* Khartoum 16.4 2.2 36 Syria* Damascus 43.4 15 63 Tanzania* Dar Es Salaam 6.9 35 16 Thailand* Bangkok 13.3 14 41 Note.—See table 2 for definitions of variables. * Income data from International Labour Organisation + Income data from Shail Jain, Size Distribution of Income (Washington, D.C.: World Bank, 1975). + Income data from van Ginnekin and Park. country (Nepal) was added, using income data from W. van Ginnekin and J. Park (the data source for each country is shown in the table). It should be noted that data for four of the ILO countries (Algeria, Egypt, Peru, and Syria) consist of urban and rural consumption expenditure (as opposed to income) figures. While such consumption data are likely to provide a reasonable approximation of the desired income levels, the countries in question are deleted from the sample in some versions of the estimating equations presented below.'* The income figures for the sample are converted into 1970 currency units using consumer price indexes compiled by the ILO.'° The urbanization data come from an excellent, recently published United Nations source.”” Two urbanization measures are used as de- pendent variables in the regressions. The first is population of the country’s largest city in 1970, denoted LGCPOP70, and the second is the size of the country’s urbanized population in 1970, denoted UPOP70. Since the analysis of section 2 deals with the determination of individual city sizes, the latter urbanization measure is, strictly596 Economic Development and Cultural Change speaking, an improper choice for a dependent variable. In other words, since a country with a large urbanized population is not necessarily a country with large cities, the model predictions may not be relevant to a regression with UPOP70 as dependent variable. Use of this variable, however, is motivated by a desire to provide a liberal test of the model. Two growth measures are also used as dependent variables in regres- sion equations corresponding to (15). These are the proportional growth of the urbanized population between 1960 and 1980, denoted UPOPGRO, and the (proportional) growth of the urbanized portion of the population between 1960 and 1980, denoted UPRGRO. Since cross-section data on agricultural land values are unavail- able, an indirect approach was used to construct a measure of r,. First. assume that agricultural output at the farm level in third-world coun- tries is determined according to the Cobb-Douglas production function Z = 0S"L*, where Z is output and S and L are inputs of land and labor, respectively. Then, letting p be the price of the country’s agricultural output, the first-order condition for choice of S is 7pZ/S = r,. This condition says that agricultural rent is proportional to the value of output per acre. Exploiting this relationship, gross domestic product in agriculture, from World Bank data, is divided by hectares of arable land in each country (the latter figure, which excludes pasture and forest, is from the United Nations Food and Agriculture Organisa- tion).?! The resulting quantity is proportional to r, under the above assumptions. Note that while this procedure realistically allows output prices to vary from country to country, it does assume that a single agricultural production function applies to all countries and crops. Without this assumption, + will be country-specific. and the r,. esti- mates will not be comparable in cross section. In constructing a measure of the ¢ variable, it must be recognized that commuting cost has both a direct monetary component and a time cost component.” While the monetary cost can be measured by using public transit fare data, as explained below, time cost is more difficult to capture. Fortunately, however, time cost can be ignored, given a few plausible assumptions. First, suppose that commuting time is valued at some fraction o of the urban wage rate, with o the same in all countries. Furthermore, suppose that the speed of travel is the same in all cities, with a equal to the time required to commute | mile.?* The time cost component of f, denoted ¢,, is then equal to acy, and the variable T = t/y can be written (r,, + t)/v = t»/y + ao, where f,, is Ps monetary component. Since cross-sectional variation in 7 under this formulation is solely a result of variation in ¢,,/y, monetary costs alone need be measured. Note that while constancy of o across countries seems plausible, the assumption of a uniform speed of travel may be criticized on the grounds that congestion levels will be higher (and commuting slower) in large cities. As a first approximation, however. the assumption seems defensibleJan K. Brueckner 597 Public transit fare data compiled by the International Union of Public Transport are used to construct the ¢,, variable.” The average of the minimum and maximum bus fares (corresponding to shortest and longest trips) is computed for the largest city in each country. The resulting number, which is the fare for an average one-way commute trip, is multiplied by 2 and again by 365 to give the approximate yearly round-trip commuting cost (365 overstates the number of work days, but a lower number would have to be chosen arbitrarily). The resulting variable is deflated back to 1970, using the country’s consumer price index (the fare data are for the late 1970s). A problem with this procedure is that it yields average total com- muting cost rather than cost per mile, which is what the ¢,, variable is meant to represent. To get cost per mile, average commuting cost must be divided by the length of the average commute trip. This length can be crudely approximated by using results from Brueckner and Fansler, which show that the spatial areas of small and medium-size U.S. cities are essentially proportional to population. Given this result, it follows that ¥ (and hence x/2, which approximates the average trip length) is roughly proportional to the square root of city population.”> Dividing average yearly commuting cost by this square root then yields a vari- able that is proportional to commuting cost per mile. The difficulty with this approach is that it creates an automatic negative correlation between the measured f variable and city population, leading to spuri- ous negative coefficients for the /y variable in the regressions with LGCPOP70 and UPOP70 as dependent variable. For this reason, the average commuting cost variable described above (which is unadjusted for trip length) is used in the empirical work. The ratio variables Y, R, and T are constructed by dividing the yq, rq, and t measures by the urban income measure y. The values of these ratios for each country are shown in table 1 along with the values of LGCPOP, UPOPGRO, and UPR70 (the latter variable is the propor- tion of the population urbanized in 1970; variable definitions are shown in table 2). Inspection of the table shows that the rural-urban income ratio ranges from a low of .16 in Tanzania to a high of .83 in Ghana. While the latter figure seems high for a poor country, the Y values in the table for the most part seem plausible. Turning to the commuting cost-income ratio, T varies between .01 and .07, indicating commuting costs consume between 1% and 7% of urban income. These numbers again seem plausible.”° Unlike the other two ratios, the measure of the agricultural rent-urban income ratio shows wide variability in the sam- ple, ranging from a Jow of .05 in Sierra Leone to a high of 2.03 in Ghana (the next highest value is a much lower .68 in Korea).7” While some variability is to be expected in the true rent-income ratio, some of the sample range is undoubtedly due to measurement error resulting from the indirect procedure used to estimate r, (note, however that R is598 Economic Development and Cultural Change TABLE 2 Variapte DEFINITIONS ¥; The rural-urban income ratio. R: The ratio of agricultural rent to urban income. T: The ratio of average commuting cost to urban income. LGCPOP70: Population of largest city in 1970, in millions. UPOP70; Urbanized population in 1970, in millions: UPOP80 and UPOP60 are defined similarly. POP70: Country population in 1970. in millions; POP60 and POP80 are defined similarly UPR80, UPR60: Proportion of the population urbanized in 1980 and 1960 (fraction 100). UPOPGRO: Proportional growth of the urban population between 1960 and 1980 [(UPOP80 ~ UPOP60)/UPOP60] UPRGRO: Proportional growth of the proportion urbanized between 1960 and 1980 [(UPR80 - UPR60V/UPR60]. POPGRO: Proportional growth of the total population between 1960 and 1980 [(POP8O POP60)/POP60] appropriately low in the desert countries of Algeria, Sudan, and Syria). Finally, the table shows wide variation in both LGCPOP70 and UPR70 across the sample as well as wide variation in urban growth rates over the 1960-80 period. IV. Empirical Results The ensuing discussion reports empirical results based on the entire sample, denoted sample a, and two different subsamples. The first subsample does not include countries where the income measures are based on consumption data (Algeria, Egypt, Peru, and Syria). This subsample is denoted b in the tables below. A smaller subsample, denoted c. is derived by deleting Malawi, Nepal, and Tanzania from subsample b. Since these countries have small largest cities (popula- tions are .03, .15, and .38 million, respectively), and low proportions of their populations are urbanized (6%, 3.9%, and 6.9%. respectively). it is likely that their urbanization levels are far out of equilibrium. Conse- quently, deleting the countries from the sample may increase the likeli- hood of results favorable to the equilibrium version of the model. The discussion begins by considering the results of ordinary least squares (OLS) regressions, ignoring possible simultaneity bias due to the potential endogeneity of Y and R. The reason for focusing on the OLS regressions is that the results of two-stage least squares regres- sions (which are reported below) lack credibility. The problem is that the reduced-form equation for the Y variable has a poor fit. so that the predicted Y values used in the second-stage equation bear little relation to the actual data. Table 3 presents the results of OLS urbanization regressions, where LGCPOP70 and UPOP70 are the dependent variables. To save space, the intercept term for each regression is not reported. 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(8°6) (ev) (96°) (eet-) (260) Wee 06" uz ¥6S"1 ¥'091 c'87— (9) odoan (soo) (10) (oe) (og —) (260) €L°87 88° 802" 590 BFS 1gzI— (9) oxdodn (os 11) (90°) (9°) (r6"—) (260) t£°9E 88 100" lee" 96°19 owl (”) okdodNn (59'2) (se) (268) L9°E ve vio" fi oue's~ (©) 0d0d991 (0 (6L'—) (268) OLE of 10" B19 @) 04404991 (6L°0) (yy) (6b) 88° a £10" L611 () 04d0d991 (reo (30°) (so) (€0'1-) (Yor) B51 vt P10" Ib 860°C 6F9'S— ©) 04d0d9D01 ara (0"—) (gs'—) ag —) (2061) BL we £10" cor L1z— 979°t— (9) 04404991 19°2) (i) an (09 -) (68D LL & £10" 11g" LOn'e wee~ () 0Ld0d991 (8e"-) (e-) We) (%L6) LO’ te 029" - 90°01 — 796 (®) 0Ld0d99T (sasayjuareg ut 0cdOa y L A ajdweg pue [eae] aouapyuod) NSIS 7 SNOISSEHOTY NOLLVZINVAY] SAAVDG ISVI] AWVNIGA © aTdve aiqeue, wapuadeg600 Economic Development and Cultural Change line of the table shows the estimated coefficients from an equation with LGCPOP as dependent variable and Y, R, and T as the sole explana- tory variables. The equation is estimated on the entire sample (as indi- cated by the a designation at the left of the table). While this is the type of equation that the theory says should be estimated, the results are extremely poor. The R? is only .01 and the F statistic is significant at the 97% (as opposed to the desired 5%) confidence level. This outcome is, in fact, not surprising in view of the enormous range of city sizes in the sample, which in part reflects differences in country populations Although the theory says that country population should not matter in the determination of city sizes, the results look better when the 1970 country population (POP70) is included as an explanatory variable.** As shown in the second line of table 3, the R? in the modified equation rises to .27 and the F confidence level fails to a (still-high) 18%. Focus- ing on the parameter estimates, only the POP70 coefficient (which is appropriately positive) is significant. Given the small sample size, how- ever, it seems appropriate to evaluate the point estimates without plac- ing undue emphasis on significance levels. In this spirit, inspection of the Y, 7, and R coefficients shows results not especially favorable to the model. While the Y and R coefficients are respectively negative and positive, as expected, the T coefficient has the wrong sign (positive), indicating that cities are large (instead of small) in countries where commuting cost is high relative to urban income. Reestimating the equation on the 6 subsample yields broadly similar results, with an R* of .32, a lower but still too high F confidence level, a significantly positive POP70 coefficient, and insignificant Y, T, and R coefficients. Note, however, that the T and R coefficients reverse sign (becoming negative), while the Y coefficient remains negative. Reestimating the equation on the c subsample (where the low-urbanization, small-city countries are deleted) again yields similar results, except for the fact that the T and R coefficients reassume their original positive signs. Despite their mixed nature, the encouraging aspect of these results is the consistently negative effect of the crucial rural-urban income ratio, which indicates that (for a given overall population) cities are large in countries where the rural income level is low relative to the urban income level. As explained in Section II, such a relationship must hold when real incomes are equalized between city and country- side. Recall that to achieve such equalization, cities grow until urban land prices are high enough to reduce the urban living standard to the rural level. When urban incomes are high relative to rural incomes, this equalization can only be achieved if cities are very large. Given that the Y variable performs wel! relative to T and R. the LGCPOP70 equation is reestimated without the latter variables. The results are shown in lines 4 through 7 of table 1. While these equations have R’s similar to their predecessors, the F confidence levels are now tn the accentahle ranve (at or helow $%) The Y coefficients are acainJan K. Brueckner 601 consistently negative, and the f-ratio in the equation estimated on the c subsample is near the magnitude needed for significance. Note that the equation’s relatively good performance on the c subsample makes sense, given the exclusion of countries whose urbanization levels are likely to be far out of equilibrium. The second half of table 3 shows the results of replacing LGCPOP70 with the variable UPOP70, which measures the total ur- banized population in the country (rather than that in the largest city). Recall that this specification is not strictly correct under the model, which deals with the determination of individual city sizes. The overall performance of these equations as measured by the R? and F confidence level is much better than that of the LGCPOP70 equations (F confidence levels are now consistently below 1%). Otherwise, the results are similar. The POP70 coefficients are positive and significant (note the larger 1-ratios), and the performance of the T and R variables is again poor (the T coefficients are incorrectly positive and the f-ratios for the R coefficients are very low). Most important, the Y coefficients are once again consistently negative and the 1-ratios again approach the size required for significance in the equations estimated on the c sub- sample.” A number of conclusions can be drawn from the results in table 3. First, the poor performance of the R variable suggests that agricultural land rents play little role in determining the spatial sizes of cities in third-world countries. The spatial equilibration process envisioned in the model, under which the location of the urban boundary is deter- mined by competition for land between farmers and the housing indus- try, may not be especially relevant for third-world economies. Second, the poor performance of the T variable suggests that commuting costs may not be a very important factor in determining the urban standard of living in third-world countries. If commuting costs were an impor- tant expenditure, cities would turn out to be smaller in countries where the purchasing power of urban incomes is relatively low due to the burden of high urban bus fares. Despite these unfavorable results, the good performance of the Y variable (whose coefficients are consis- tently negative in the regressions) offers a measure of support for the real-income-equalization hypothesis that lies at the heart of the model. It should be noted that lack of support for the spatial aspects of the theory does not affect the interpretation of results for the Y variable. The reason is that even when the model's spatial equilibration process is not relevant (if urban land areas are fixed, e.g.), the role of urban population growth in equating rural and urban standards of living is the same. In other words, it remains true that the urban standard of living falls as population growth raises urban land prices. A large urban popu- lation is then required to equate urban and rural standards of living when urban incomes are high, just as in the model of Section II. Table 4 presents regressions based on the disequilibrium versionS2}RLIRA Jo SuONTUYap 40g Z aIqUI aay “para|ap wIURZUE, pur “Fedor 23] parajap saiiunos miep-uondumnsuos (aim afduresqns °4 tajdlues ny *» *sasaynuared u ida, (z-) 2621) 0ST 9% () owoNdA (ge—) (240) 98°01 ss 12 (9) ONDA (eet) (260) FOE | ss 020" (7) OMONAN (ol) (so—) (69) (2688) #71 6c" O10" a a 600"— 667't () O’DaaN (86°7—) (ue) (96°) (ors as 610° : 880" Bh6'S (9 owOwAN (tve-) (er (mL) (260) 12" us 610" : : 080 eel'e (”) ONDA (60) (06 —) (oss) eh vt 940 soo" () O8Ddoan (ee) (69° -) CAD AST ce" : BES 800° — (9) ONDdOdN (or) a -) (oop) bee ee £2 800" — (”) owoaoan de) (so —) wor) (ar) (2618) br 4 : ler ~ 900" — +80" — stro— ©) OwDdodN ') (or) (60°) sD (£1) £0°7 wr’ : £67 soo" ~ 60 R9L'8T (9) ONDdOEN tbs") (es) (oc) (er) (2681) 88°! ve Lee 900° — ist Lier (”) OWDdOdN (sasoynuaieg Ut wv o9wdn O¥Nd0d o9dodnn uy L 4 ajdweg pur [Pao] aouapyuod) aiqrue, iwapuadag a NES SNOISSAYOTY HLAOW NVHIE] SHANDY LSVIT] AUVNIGAC), PaTavJan K. Brueckner 603 of the model contained in equation (15). In the first six equations, the dependent variable is UPOPGRO. which equals the proportional growth of the urbanized population between 1960 and 1980. As sug- gested by (15), the variables Y, R, and T appear in the first three equations along with the initial size of the urbanized population, UPOP60. Given that urban growth partly reflects the overall growth of a country’s population, the proportional growth of the total population (POPGRO) is also included as an explanatory variable. Consider the first line of the table, which shows the results of estimating the growth equation on the entire sample. The regression, which has an acceptable R® but a marginal F statistic, exhibits a significantly negative Y coefficient. This indicates that countries with fow rural-urban income ratios in 1970 experienced rapid urban growth over the 1960-80 period, as predicted by the model. To review this prediction, recall that since a country with a low rural-urban income ratio has a high equilibrium level of urbanization, the gap between its initial and equilibrium urbanization levels will be large. This large gap, in turn, leads to rapid urban growth. The existence of an inverse asso- ciation between growth and the rural-urban income ratio also conforms to common sense, which suggests that urban growth should be rapid where rural incomes are unattractive relative to urban incomes. Further inspection of the equation shows that the UPOP60 and POPGRO coefficients have the expected signs (negative and positive, respectively), although their r-ratios are low. The negative impact of UPOP60 on growth lends credence to the disequilibrium model, given that growth should be slow when the initial urbanization level is high and thus close to the equilibrium value. As in the table 3 regressions, the performance of the T and R variables is unsatisfactory. The T coefficient has the wrong sign (posi- tive), and the /-ratio for the R coefficient is low. Deleting the T and R variables leads to the regression shown in the fourth line of the table. Although the performance of Y, UPOP60, and POPGRO is largely unaffected, the F confidence level falls to an acceptable 4%. The remaining regressions in the top half of the table show the results of estimating the UPOPGRO equation on the b and c subsam- ples. The main change is a decline in the r-ratio of the Y variable, which is especially low in the equations estimated on the c subsample. This is not surprising, given that the countries deleted in arriving at the c subsample (Malawi, Nepal, Tanzania) have higher than average urban growth rates (see table 1). Except for the negative sign of the POPGRO coefficient in the third equation, the POPGRO and UPOP60 variables perform as in the full-sample equation. As in table 3, the T and R coeffi- cients are unstable in sign across subsamples. The last half of table 4 shows the results of regressions where the dependent variable is the proportional growth of the urbanized propor-604 Economic Development and Cultural Change tion of the population over the 1960-80 period. This variable, which is denoted UPRGRO, is equal to (UPR80—UPR60)/UPR60. The initial level of the urbanized proportion (UPR60) appears as an explanatory variable along with Y, 7, and R in the first set of regressions, and the results are similar to those in the top half of table 4. The Y coefficients are significantly negative in the full-sample and 6 subsample equations. the UPR60 coefficients are significant, with the correct sign (negative) in all the equations, and the 7 and R variables perform poorly in the equations that include them. Note once again that the performance of UPR60 is consistent with the disequilibrium model, which predicts that the urbanized proportion should grow slowly when it starts close to an equilibrium value. The results shown in table 4 give fairly strong support to the dis- equilibrium version of the model. Urban growth, whether measured absolutely or in terms of the urbanized proportion, is low in countries where the rural-urban income ratio is high. Moreover, growth is low when the starting level of the urbanization variable (population or the urbanized proportion) is high and thus close to an equilibrium value. It should be noted that the evidence of disequilibrium in these results reduces one’s expectations regarding the explanatory power of the urbanization equations in table 3. Although equilibrium patterns are apparently present in the urbanization data, table 4 suggests that the data also contain a large element of noise due to the incomplete adjust- ment to equilibrium urbanization levels. Finally, it is useful to discuss estimation of two-stage least squares (2SLS) versions of the equations in tables 3 and 4. The challenge in such a procedure is to find additional exogenous variables that can be used to explain variation in the right-hand endogenous variables (in this case,Y and R). Different reduced-form equations were estimated for each type of structural equation to reflect the different identities of the exogenous variables in the equation. The urbanization reduced form includes T and POP70 as exogenous variables, while T, UPOP60, and POPGRO appear in the UPOPGRO reduced form, and 7 and UPR60 appear in the UPRGRO reduced form. Additional exogenous variables appearing in each reduced-form equation are POPGRO, PCTGDPAG (the percentage of the country’s 1970 GDP originating in agriculture), PCAPGNP (per capita 1970 GNP in U.S. dollars), and AGDEN (ag- ricultural density. equal to rural population divided by hectares of arable land). The problem that casts doubt on the 2SLS results is the poor performance of the three versions of the reduced-form Y equation. No coefficient is significant in any of the equations, the R’s are below .30, and the F confidence levels are at least 36%. As a result. the predicted Y values from the reduced form bear little relation to the actual values. making the second-stage regression not terribly meaningful (the per-Jan K. Brueckner 605 formance of the R reduced-form equations is somewhat better).*° De- spite their unreliability, selected 2SLS results are presented in table 5 (these are full-sample regressions). Note first that the key Y variable now has a positive rather than a negative coefficient in three out of the four urbanization regressions (the t-ratio for the negative coefficient is. in addition, low). Although one could claim that this result reflects elimination of simultancity bias in the regression, an alternative inter- pretation is that the substantial noise component in the predicted Y values obscures the relatively weak negative effect of Y on urbaniza- tion levels. Results are somewhat better for the growth equations. Both the UPOPGRO and UPRGRO regressions show negative Y coefficients, although the #-ratios in the UPOPGRO equations are very low (the UPRGRO coefficients are, in addition, not significant). Other aspects of the equations are similar to the OLS results, with the UPOP60 and POPGRO coefficients, respectively, negative and positive, and the UPR60 coefficients negative and significant. The upshot is that the 2SLS equations are decidedly less favorable to the model than the OLS regressions. The negative Y effect disap- pears in the urbanization equations, and the Y coefficients in the growth equations, while negative, are no longer significant. Although these results are disappointing, it is unwise to place too much faith in them, given the unsatisfactory nature of the reduced-form equations on which they are based. V. Conclusion This article has developed and tested a simple model of third-world urbanization. The analysis embeds the urban economist’s monocen- tric-city model in an economy experiencing rural-urban migration. When real-income equalization between city and countryside is as- sumed, the model generates an equilibrium city size that depends on three key ratios, the most important of which is the rural-urban income ratio. By showing that urbanization levels in a sample of third-world countries are inversely related to the rural-urban income ratio, as pre- dicted by the theory, the empirical work offers support for the real- income-equalization hypothesis. Recognizing that an equilibrium model may offer an inaccurate representation of a developing economy, the empirical work also looks for confirmation of the basic hypothesis in a disequilibrium formula- tion. Urban growth regressions show that growth is most rapid in coun- tries where the rural-urban income ratio is low and where equilibrium city sizes are, therefore, large. These results suggest that while an equilibrium model can enjoy some success in explaining urbanization patterns, a strong element of disequilibrium is present in the data. Beyond these findings, which are valuable in themselves, the arti-“sagenta Jo suonuyap 40) Z 21gR) Aag “afduRs |Iny “y :sasaysuaiRd paniodar jou sidaoii0j—"410N ee) (orl) ozo" — 9911 () ONDA (seo) tor) (Ln) (6c) (aN) 85" 610 zal sire 991 — (”) O8DAAN (co) (re) (so) (o8h) 98 L8P'| Ho - giz ~ () owNdod (35°) ar-) (3s) (PO =) (26pL) bs £107 600" — zz" one's 298° — (7) OADOIN sSUOISSoIBOI YMOIT URQU asayuaded UL oud owodod 09404 uv L 4 Jaaary aauapyuo-) NSNEIS (ce0) (so) (240) FLPL coz eee 1 (>) oLdodn (psp) (ee -) (60") (so) (200) SLL I8 Ret! ra prb'st (7) obdodn (902) (82°) (ys) ere z10) 980°7 () 0Ld0d901 (oo'D ue) av-) (yb) (2418) OF" I 600 err 00°F 002" () Q4d0d901 Suorssaias vone7iueqio) (sasoynuored Ul OldOd y 1 A ajdumg pur [pa27] aouapyuo5) HSHEIS SNOISSRUDAY SIAWADG 1Sva] FOVIG-OML, s aTavi aiqene, wapuadaqyJan K. Brueckner 607 cle makes a methodological contribution by demonstrating that a sim- ple theoretical model generates fruitful hypotheses that can be tested using available cross-section data from third-world countries. This shows that research strategies that do not rely on the computable gen- eral equilibrium approach can be useful in the study of third-world urbanization. Appendix This appendix proves that when the utility function takes the Cobb-Douglas form c*q®, the ¥ expression in equation (2) is homogeneous in its last three arguments. First, with the given utility function, the demand functions for land and nonland consumption are gq = B(y—tx)(a+)r and c = a(y—tx)\Ma +8). Substituting these demands into the equation v(c,q) = u yields faty — 2x) +B) [PCy — x)(a+ BY) = 4, (Al) which can be solved for r to yield r= au Vy = tx PrP, (A2) where a is a constant. Substituting for r in the demand function for q, using (A2), gives q = buy — wy, (A3) where b again is a constant. Using (A2) and (A3), the urban equilibrium condi- tions become au "%y = OTP = ry (A4) I Qaibyxu-"y — pyPdx = P. (AS) lo Eliminating « in (AS), using (Ad), the equation reduces to [ores = 1x) 8 PBy — pdr = P, (A6) o where w is a constant. Finally, after rearrangement, (A6) can be written [oeorstt ~ (aly yx] BLL — (aly xd = P. (ay) o Equation (A7) determines the solution for ¥ in terms of the parameters P, y, t, and r,. Since the last three parameters enter the equation only in the ratio terms raly and tly, it follows that equation (2) in this case is homogeneous of degree zero in these parameters.608 Economic Development and Cultural Change Notes * | wish to thank Kangoh Lee for excellent research assistance. James Follain and a referee also provided useful comments and advice. Any errors, of course, are mine, 1. See Andrei Rogers, “Sources of Urban Population Growth and Urbani- zation, 1950-2000: A Demographic Accounting.’ Economic Development and Cultural Change 30 (April 1982): 483-506. 2. See Gary Fields, **Place-to-Place Migration in Colombia.’ Economic Development and Cultural Change 30 (April 1982): 539-58: and T. Paul Schultz, “*Lifetime Migration within Educational Strata in Venezuela: Esti- mates of a Logistic Model,’ Economic Development and Cultural Change 30 (April 1982): 559-93. 3. See Michael P. Todaro, *‘A Model of Labor Migration and Urban Un- employment in Less Developed Countries,” American Economic Review 59 (March 1969): 138-48; and John R. Harris and Michael P. Todaro, “Migration, Unemployment and Development: A Two-Sector Analysis,” American Eco- nomic Review 60 (March 1970): 126-42 4. See Allen C, Kelley and Jeffrey G. Williamson, What Drives Third World City Growth? (Princeton. N.J.: Princeton University Press, 1984). Kel- ley and Williamson's work is also described in a number of papers that have appeared in various books and journals (these are cited in the 1984 mono- graph). 5. See Charles M. Becker, Edwin S. Mills, and Jeffrey G. Williamson, “Modeling Indian Migration and City Growth, 1960-2000,"° Economic Devel- opment and Cultural Change 35 (October 1986): 1-33. J. Vernon Henderson, “The Impact of Government Policies on Urban Concentration,” Journal of Urban Economics 12 (November 1982): 280-303, presents an analysis of the effects of government policies on the equilibrium of a system of ci . deriving results of interest in the third-world context. Rural-urban migration does not play an important role in his model, however. J. Vernon Henderson, “Efficiency of Resource Usage and City Size," Journal of Urban Economies 19 (January 1986): 47-70, offers an empirical analysis of agglomeration econo- mies in Brazilian manufacturing. While the agglomeration issue is certainly relevant to the urbanization process in third-world countries, rural-urban mi- gration is again largely a separate concern. 6. Exceptions are Edwin S. Mills and Charles M. Becker, Studies in In- dian Urbanization (New York: Oxford University Press, 1986); and Charles M. Becker and Andrew M. Morrison he Determinants of Urban Population Growth in Sub-Saharan Africa,’ Economic Development and Cultural Change 36 (January 1988): 259-78. These studies present small-scale analytical models. and related empirical work. 7. Kelley and Williamson identified technical progress in the modern ur- ban sector as a major source of third-world city growth. 8. See William Alonso, Location and Land Use (Cambridge. Mass.: Har- vard University Press, 1964); Edwin S. Mills, “An Aggregative Model of Re- source Allocation in a Metropolitan Area,” American Economic Review ST (May 1967): 197-210; Richard F. Muth, Cities and Housing (Chicago: Univer- sity of Chicago Press, 1969); and William Wheaton, “A Comparative Static Analysis of Urban Spatial Structure,’ Journal of Economic Theory 9 (October 1974): 223-37, 9. Agricultural rent is assumed to be independent of location. This is not strictly accurate, given that land closer to the market (the city) will command a higher rent. 10. Note that this formulation is similar to the standard “‘open-city™Jan K. Brueckner 609 model, where the urban utility level in the economy is given and population P adjusts to ensure that the residents of the city achieve this utility. In the present context, the utility of rural residents is parametric, being determined by the values of y, and r,. As in the open-city model, urban population adjusts to equate urban utility to this parametric level. 11. Formally, this follows from the result that disposable income at the urban boundary is increasing in y. 12. The decline in the urban standard of living can be inferred from the fall in the boundary resident’s disposable income. 13. This occurs because the city shrinks in area in response to the higher 14. See Jan K. Brueckner and David A. Fansler, “The Economics of Urban Sprawl: Theory and Evidence on the Spatial Sizes of Cities,”” Review of Economics and Statistics 55 (August 1983): 479-82. 15. See Jan K. Brueckner, ‘*The Structure of Urban Equilibria: A Unified Treatment of the Muth-Mills Model,’* Handbook of Regional and Urban Eco- nomics, ed. Edwin S. Mills (Amsterdam: North-Holland, 1987), vol. 2. 16. See Muth (n. 8 above). A necessary condition for this equivalence is that all neighborhoods have at least some central commuters. Gregory K. Ingram and Alan Carroll, “‘The Spatial Structure of Latin American Cities, Journal of Urban Economics 9 (March 1981): 257-73, provide evidence show- ing that Latin American and U.S. cities have similar population density pat- terns. This suggests that noncentral employment is no more prevalent in these cities than in the United States. 17. See Shail Jain, Size Distribution of Income (Washington, D.C.: World Bank, 1975); United Nations International Labour Organisation, Household Income and Expenditure Statistics, 1968-1976 (Geneva: International Labour Office, 1979); and Wouter van Ginnekin and Jong-goo Park, eds., Generating Internationally Comparable Income Distribution Estimates (Geneva: Interna- tional Labour Office, 1984). 18. For Mexico, agricultural and nonagricultural income figures are used to represent rural and urban incomes (which are not reported). For Ecuador and Malawi, agricultural incomes are used to represent rural incomes. Also, the Syrian numbers are derived by taking a simple average of urban and rural incomes reported for two different districts in Syria (the ILO source made no attempt in this case to provide representative figures). Finally, a number of countries where the data appeared to be unreliable or inconsistent with other information are not included (these are Chile, Iraq, Madagascar, and Tunisia). 19. See United Nations International Labour Organisation, Handbook of Labor Statistics (Geneva: International Labour Office, 1970-80). 20. See United Nations, The Prospects of World Urbanization—Revised as of 1984-85 (New York: United Nations, 1987). 21. See World Bank, World Tables (Baltimore: Johns Hopkins University Press, 1983); and United Nations Food and Agriculture Organisation, FAO Production Yearbook (Rome: United Nations, 1970). 22. In order for the consumer's budget constraint to make sense when t incorporates time cost, income y must include the monetary value of commut- ing time and leisure time (see Muth). 23. To be precise, a equals the fraction of the total hours available in each period that would be expended in commute trips with a (one-way) distance of | mile. 24. See International Union of Public Transport, [International Statistical Handbook of Urban Public Transport (Brussels: International Union of Public Transport, 1979).610 Economic Development and Cultural Change 25. This follows because city area is nt, which equals a constant times population. 26. Recall that T overstates the appropriate ratio, since 365 commuting days per year are assumed. 27. Although Ghana is clearly an outlier given its atypical Y and R values, deletion of this country has little qualitative effect on the empirical results. Note that the low Y and R values suggest that urban incomes in Ghana are low. Whether this is actually the case, or whether the data are faulty, is hard to determine. 28. Equation (3), which determines the city size that equalizes urban and rural real incomes, involves only the variables y, y,. r,. and ¢. With these variables held constant, country population should have no effect on city size. While this is a literal implication of the model, the small populations of some of the countries in the sample effectively constrain the size of their largest city. As a result, inclusion of POP70 in the equation seems warranted. 29. It should be noted that no attempt was made to optimize the functional form of the regressions or to correct for potential heteroscedasticity. These undertakings were expected to be unproductive given the marginal nature of many of the regressions. 30. An interesting finding is that the agricultural rent-urban income ratio is significantly affected by AGDEN, with high population pressure in rural areas yielding a large value of R. American ; Edited by Peter J. Barry Journal of tHE He 7 University of illinois, Urbana, Illinois Agricultural ; ; 7 Published by the American Agricultural Economics Association Economics February 1990 Articles: James E. Long, "Farming the Tax Code: The Impact of High Marginal Tax Rates on Agricultural Tax Shelters"; William Jaeger and Peter Mation, “Utilization, Profitability, and the Adoption of Animal Draft Power in West Africa’; Merle D. Faminow and Bruce L. Benson, "integration of Spatial Markets"; Paul L. Fackler and Robert P. King, “Calibration of Option-Based Probability Assessments in Agricultural Commodity Markets"; Ann Hillberg Seitzinger and Philip L. Paarlberg, "A Simulation Model of the U.S. Export Enhancement Program for Wheat"; Cathy A. Hamlett and C. Phillip Baumel, “Rural Road Abandonment: Policy Criteria and’ Empirical Analysis"; Julian M. Alston and Brian H. Hurd, "Some Neglected Social Costs of Government Spending in Farm Programs’; Richard €. Just, David Zilberman, Eithan Hochman and Ziv Bar-Shira, “Ingut Allocation in Multicrop Systems", plus other articles, comments, and book reviews. Annual membership dues (including Journal) $45; Annual library subscription rate $65; Individual copies $14.50; Contact, AAEA Business Office, 80 Heady Hall, lowa State Univ, Ames, 1A 50011. Published in February, May, August, November, and December,