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Globally Competitive Cities

  • Writer: Carlos Felipe Holguin Isaza
    Carlos Felipe Holguin Isaza
  • May 21, 2024
  • 6 min read

by: Carlos Felipe Holguín Isaza


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The world is rapidly transitioning toward urbanization. Today, approximately 4.4 Billion people (56% of the total world population) live in densely packed cities, called by the promises of higher wages, better social networks, and better access to basic public goods. This phenomenon is particularly acute in developing countries where civil conflict has pushed millions to informal urban sprawls, in turn contributing to the creation of highly informal and marginal economies. Consequently, there appear to be two urbanization trends dominating the world today; a positive one mostly relegated to developed countries and a stagnant one dominating the developing world.  


What can literature tell us about these urbanization trends, especially those of the developing world?


A recent 2021 working paper from the World Bank[1]confirms that higher urban densities have high wage elasticities but finds little evidence for efficiency-related gains in developing cities. In other words, the higher wages observed in these cities are not necessarily the result of factors conducive to better human capital such as sharing, matching, and learning, but rather driven by the higher costs that individuals face when living in these cities. For instance, a poorly planned city, which has inorganically grown due to forced displacement or other external factors will usually have a deficient transportation network (which increases the price of transportation), a mismatch between consumers and providers (which increases the cost of daily products), a shortage of living arrangements (which increases the price of property and housing), between many other economic inefficiencies and externalities that build up in time. What this study finds is that, especially in the developing world, the illusion of high wages in cities comes from firms compensating for higher urban living costs rather than from enhanced human capital.


Some key takeaways from the literature on competitiveness in cities:


  • In the developing world, many cities lack the necessary capital investment to inspire better urban design. 

  • As commented in the World Bank study, the benefits of agglomerations may be balanced by urban costs. 

  • Cities don’t prioritize structural transformations that create the firm tissue that would benefit from sharing, matching, and learning.

  • Most developing cities are neither dense nor productive, they are just crowded.


How to overcome the challenges of agglomeration in developing countries? 


Many success stories are worth mentioning, cities such as Singapore, Hong Kong, Seoul, and Taipei that were true examples of economic miracles across the XX century; embracing the benefits of agglomeration and advancing toward service-oriented economies built upon an extraordinary human capital. Nevertheless, their success stories are difficult to translate to cities facing more traditional challenges, especially those within countries dealing with their own bundle of issues such as poverty, internal conflict, illegal economies, and poorly designed institutions. Another World Bank[2]document identifies four drivers for competitiveness in cities while highlighting the success stories of some of them. I will borrow some of those examples and organize the drivers in order of their institutional complexity and the capital expenditure required to achieve them. 


  • Institutions and Regulations: Institutions are a key driver of economic growth. That has been one of the key takeaways of historiographic economic research in the past decades and has constituted one of the key tenants of capital growth for a while now. People and institutions invest if they are protected from forces outside the market and if the costs of regulation and permitting don’t offset the expected benefits of their investment. Some of the initiatives highlighted in the study include expedite permitting, business-friendly zoning regulations, online e-government services, and special economic zones or industrial parks. Additionally, I may include a not minor initiative that falls under the same umbrella: a strong law and order that protects property rights. Kigali, Rwanda, became 34th worldwide in dealing with construction permits by creating a simple single-stop framework for investors to issue their permits.


  • Enterprise Support and Finance: One of the key responsibilities of modern city governments is to promote the services and capabilities of their citizens and firms. It’s also their responsibility to think strategically about the future, prioritizing industries, development plans, and the public spending necessary to make their resources attractive to even bigger markets. A way in which cities can accomplish this is by investment facilitation, promoting market intelligence and business information, prioritizing investments in strategic industries, and aligning the incentives of all key stakeholders in the production process.  Changsha, China: Doubled its automobile industrial output in four years (2008 – 2012) by designing a clear incentives policy that included the strategic collocation of input suppliers and component producers in industrial parks, created preferential tax policies, and strengthened the relationship between investors, producers, and government officials.  


  • Infrastructure and Land: Traditionally, city governments have been tasked with the responsibility of building and maintaining public infrastructure. Roads, ports, stadiums, markets, and parks are all essential works that make a city worth living in. Some of these projects play a dynamizing role in the economic fabric of communities, by reducing the costs of transportation and allowing information to spread more evenly across urban segments. Others play an essential job in nutrition and health, such as water sanitation and waste management, which have long-lasting benefits in the life cycle of citizens. Local public officials must strive to strengthen basic service delivery, offer subsidized land or office space for strategic industries, and promote participatory plans for citizens and businesses to outline their needs. Bucaramanga, Colombia: In the mid-2000s, the municipal government outlined and lobbied the national government for the construction of key infrastructure projects that were bottlenecking the local economy. Bucaramanga is in the mountainous northeastern region of the country, far away from what has been commonly referred to as the “triangle of progress”, a polygon formed by Colombia’s richest and most industrialized cities. In record time the city was able to attract investment for a great array of projects including the modernization of the airport, and the construction of a modern highway connecting the region to the rest of the country; later, the city prioritized the construction of the largest urban viaduct in the country, significantly reducing the travel time between the city center and one of its most peripheral areas. 

  • Skills and Innovation: As stated at the beginning of this article, successful agglomeration economies will develop human capital by promoting sharing, matching, and learning. The developing world mostly fails at creating the right conditions for increasing the productivity of urban workers which stagnates the development of cities through productivity gains. Today, with a world transitioning toward services-based economies, the development of human capital must be a priority for local governments. Some of the initiatives commented on in the World Bank report are improving the education system, attracting new talent and industries, creating worker training programs, and promoting synergies between industries, investors, educational institutions, and government. Coimbatore, India: Family-owned firms oriented the higher education system toward the specific economic needs of the region. The city has experienced significant private sector growth due to its thriving collection of vocational training institutions. Today, Coimbatore has 1 in 10 of India’s engineering colleges.  

Curitiba, an urban love story


A city that has been widely praised as an example of urban success in recent years is Curitiba. By the mid-1980s, this southern Brazilian city was facing three key issues of most developing cities: Poor public transportation, unsustainable growth, and a lack of civil identity. Jaime Lerner, three times mayor of Curitiba across the second half of the XX century, tackled this issue with a simple initial proposal, prioritizing people over cars. While the rest of the country was busy with the urbanization trends that prioritized highways over public transportation and pedestrian solutions, best exemplified by Oscar Niemeyer's plan for Brasilia, Lerner paved Curitiba's main road for pedestrian use. Later, the city saw the creation of an efficient articulated bus network that has become an example for many other South American cities, substantially lowering the need for cars. These policies were complemented with a green perimeter of urban parks, which have become a convenient solution for the city’s uncontrollable growth while providing essential environmental services that clean up airborne contaminants, provide sporting infrastructure, and strengthen citizens’ identity and sense of civil commitment.    


Urban design philosophies inspired by enhancing people's experiences and quality of life are essential for creating cities that are worth living. Some of the measures that have increased the quality of life for Curitibians are also some of the most cost-effective. For example, a well-managed system of articulated buses can cost a fraction of a subway system while providing a more versatile way of transportation. A system of perimetral parks has the added benefit of mitigating environmental phenomena such as floods. A well-managed city prioritizes experiences while also considering the efficiency gains of agglomerations. In the philosophy of Jaime Lerner, a good city is like a tortoise where the shell symbolizes the complexity of the urban grid. In a good city, everyone is contributing to the existence of that biological organism, if the city is segmented into areas that encompass specific purposes, the result will be the same as if we cut the tortoise in half, it will die. Seeing cities as a living organism is finding its way back from the modernization paradigm of the second half of the XX century, leaving an ample mess of segmented citizenships, unsustainable and unequal environments as well as the destruction of the urban heritage such as parks, historic buildings, and pedestrian spaces, in favor of mega highways, massive office parks and malls.  





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