Bummer in the city

Why are the main cities of Central Asia so large?

In most countries, large cities grow more rapidly than small ones, noted economists Kenneth Rosen and Mitchel Resnick. Producing is cheaper in the bigger city because it has more suppliers. Selling is cheaper in the metropolis, too; it has more consumers.

In a developing country, the largest city is often much larger than you’d expect. One of five Mexicans lives in Mexico City; one of three Argentines, in Buenos Aires, according to economists Alberto Ades and Edward Glaesar. Nearly a tenth of all Kazakhstanis live in Almaty. Astana, which replaced Almaty as the capital city in 1997, also is growing rapidly. It accounts for 40% of all construction in Kazakhstan, reported Delovoy Kazakhstan last week. In addition, major cities dominate in Kyrgyzstan (where 16% of the population lives in Bishkek), Uzbekistan (8% in Tashkent), Tajikistan (10% in Dushanbe) and Turkmenistan (13% in Ashgabat), according to data from the World Bank.

Why? Maybe workers find large cities much more attractive than small ones. After all, cities pay higher wages. Urban firms save money by transporting goods cheaply to nearby consumers, and they wind up paying these savings to workers, since they must vie for their services. Moreover, prices are low in the city, since most producers locate there and compete for customers. Due to these two trends, a worker can afford to buy more goods in the city than elsewhere. That’s why he lives there.

But this reasoning points to a puzzle, identified by economists Raul Livas Elizondo and Paul Krugman, who is also a Nobel laureate and New York Times columnist. Normally, a firm would locate in a large city, since that’s where consumers and suppliers are. But in an economy open to international trade, those advantages of the metropolis disappear. Regardless of where it is in the nation, the firm can now import inputs and export output cheaply. In fact, it may avoid the big city, where land is costly. “Closed markets promote huge central metropolises, open markets discourage them.” On the other hand, a large city might emerge because it is cheaper to trade through one large port than two small ones. Roads, sewers and electrical grids are too expensive to duplicate.

To test whether the metropolis emerges because the country represses world trade, Ades and Glaeser studied the main cities of 85 countries (Kazakhstan wasn’t one of them). They found that trade related negatively to city size. Where trade comprised a small share of the nation’s economy, the nation’s main city tended to be large. But it was not clear whether the lack of trade caused large cities – or whether large cities caused a lack of trade because firms there found it cheaper to buy from suppliers nearby than from those abroad.

El Maximo, city slicker

Ades and Glaeser were more confident that dictatorships led to large capital cities. Nations with dictators had main cities that were nearly half again as large as the main cities in more democratic countries. The reason may be that the dictator finds the national population easier to control when much of it lives in the capital city, under his thumb. To attract migrants, he extracts payments from the hinterland and redistributes them in the capital city. People come to the big city because it offers subsidies and because it’s safer than the restive hinterland.

For example, to avoid uprisings, the Roman aristocracy gave away grain, which had been extracted from Egypt and Syria, to citizens of Rome, noted Ades and Glaesar. This policy attracted Italian migrants to Rome until the city had a million residents by 50 B.C.E., a third of them receiving grain. Rome also sponsored as many as 50 circuses a year. When Julius Caesar came to power, he reduced the amount of grain given away. The growth of Rome then slowed.

Over the 20th century, Mexico City drew rural migrants. Typically, they squatted on the land and chose a leader to protest against the leading political party, the Party of Institutional Revolution (the Spanish acronym is PRI). To avoid rebellion, the government would give the migrants land and basic infrastructure such as water supply. The migrants then switched to the PRI.

The sizes of Almaty and Astana aren’t due to a lack of world trade. Kazakhstan is an open economy; exports and imports come to as much as 90% of the total economy (measured as the value of production here, or gross domestic product). What the two metropolises do share in common – along with Tashkent, Ashgabat, Bishkek and Dushanbe -- is service as the nation’s capital city. -- Leon Taylor, tayloralmaty@gmail.com

Good reading

Alberto F. Ades and Edward L. Glaeser. Trade and circuses: Explaining urban giants. Quarterly Journal of Economics 110: 1. February 1995. Pages 195-227.

Raul Livas Elizondo and Paul Krugman. Trade policy and the Third World metropolis. Boston, Mass.: National Bureau of Economic Research. Working Paper #4238. December 1992.

O’Sullivan, Arthur. Urban economics. Sixth edition. Boston: McGraw-Hill. 2007. Chapter 4 analyzes city size.

Kenneth T. Rosen and Mitchel Resnick. The size distribution of cities: An examination of the Pareto law and primacy. Journal of Urban Economics 8:2. September 1980. Pages 165-186.

References

Julia Dubovytskyx. Astana pryvlekaet capital. Delovoy Kazakhstan. March 6, 2011. Page 1.

World Bank. World Development Indicators. www.worldbank.org. The population estimates used here are for 2009.