URBANIZATION, ECONOMIC GROWTH AND POVERTY NEXUS IN SELECTED COUNTRIES IN SUB-SAHARAN AFRICA

ABSTRACT

Urbanization is recognized as a key driver of rapid economic growth, structural transformation and poverty reduction. The enormous body of both theoretical and empirical knowledge widely supports the idea of a positive relationship between urbanization and economic growth. However, at the core of the existing debate is the causal direction. The first part of the study investigated the causal relationship between urbanization and economic growth in Sub-Saharan Africa (SSA) from the two dominant viewpoints in the literature namely, urbanization as an engine of economic growth and urbanization as a product of economic growth. The second part investigated the poverty reduction effect of urbanization using the Poverty Headcount ratio and Poverty Gap.

The data for the study was sourced from Penn World Tables Version 9.1; the United Nations’ “World Population Prospects: The 2018 Revision” and “World Urbanization Prospects 2019”; and the World Bank’s World Development Indicators database. The sample is an unbalanced panel data sub-divided into 5-year time intervals over the period 1970-2019 for up to 30 rapidly urbanizing countries selected from all the four sub-regions in SSA.

This dynamic study employed the one-step system generalized methods of moments (SYS-GMM1) to estimate the three elasticities namely urbanization elasticities of growth, growth elasticities of urbanization and urbanization elasticities of poverty reduction. The estimated urbanization elasticities of growth and growth elasticities of urbanization suggest a positive and non-linear relationship between urbanization and economic growth in both the short run and long run. The comparative analyses of the results at both growth rates and levels also showed a strong bi-directional causation between urbanization and economic growth. This two-way causal

relationship is also confirmed by the findings of the Dumitrescu & Hurlin (2012) test of Granger (1969) non-causality in heterogeneous panel data.

Furthermore, the estimated urbanization elasticities of poverty show that urbanization in SSA has a positive effect on poverty reduction in both the short run and the long run. Also, the comparative analyses showed that consistently the poverty reduction effect of urbanization is stronger for the Poverty Gap relative to the Poverty Headcount ratio in both the short run and the long run.

Notwithstanding, the growth promotion and poverty reduction effects of urbanization are not automatic. They require sound urban planning, policies and enormous investments to achieve. Particularly, for SSA, the expansion of cities has largely been horizontal, resulting in unprecedented and ever-increasing footprint of urbanization that requires enormous investment in urban infrastructure. More so, most infrastructure provisions in cities in SSA have mainly involved retrofitting and this has tremendously increased the associated costs of investment.

Furthermore, urbanization in SSA has largely been seen as an undesirable antecedent of a new urban poverty and governments are ambivalent towards it. This has to change for urbanization to be fully embraced with massive resource investment so as to reap its full benefits of productivity growth and job creation. Legal provision and enforcement of private property rights over land and structures are also required. Managing the urbanization process should be seen as an integral component of nurturing growth and development in SSA.