Urbanization and population contraction

Abstract

AbstractUrbanization is treated in the literature as a process that occurs along with economic development. We consider an overlapping generations model with two regions, designated as ‘urban’ and ‘rural’. Concentration of population to urban areas involves population inflows from rural areas, thereby exacerbating urban congestion. Inverse agglomeration economies in rural areas exert negative effects on rural income, consequently increasing the attractiveness of urban areas. Because of lower urban fertility rates, urbanization involves population decreases. Therefore, population dynamics might be explained as simultaneous urbanization and population contraction. However, depopulation mitigates congestion, which increases the fertility rate and the worker’s lifetime utility level. Eventually, it can lead to a stationary population size.