Industrial Hubs, Urban Systems, and Economic Development (2024)

8.1 Introduction

Cities have been at the heart of economic development dynamics for millennia and remain so today. With most of the world’s population and economic activities concentrated in cities, their role in shaping development outcomes is ever more prominent. Historically, economic and urban growth has followed interconnected pathways with cities being both enablers and products of economic transformation. Industrialization and urbanization are especially mutually reinforcing transitions underpinning economic growth in most countries, with the onset of industrialization in the eighteenth century having taken root in cities.

Industrial activity is known to gravitate towards cities given the advantages, or scale economies, present in urban areas that increase efficiency and productivity. Scale economies are differentiated across cities in a national urban system and so is the type of industrial activity. A hierarchy of cities forms within an urban system where scale economies and industrial activities vary at each layer of the system. Cities and urban systems are therefore critical factors shaping the performance of industrial hubs as instruments fostering economic development. At the same time, industrial hubs development significantly influences the evolution of cities as well as the overall structure of the urban system.

This chapter reviews the relationship between cities and industrialization, with a specific focus on the role of national urban systems in industrial hubs development. While industrialization itself significantly shapes the growth and transformation of cities, and urban systems, this is addressed elsewhere in the Handbook, including through a focus on the social and human effects of industrial hubs development. This chapter starts by highlighting the historical association between urbanization and industrialization and outlines the present-day scale and magnitude of global urban dynamics. It then discusses how cities enable industrial productivity through scale economies. Subsequent sections present the differentiated ways in which cities within an urban system influence industrial activity. The policy measures taken to promote a productive urban industrial economy by some countries are highlighted. The concluding remarks recap the key reasons why cities and urban systems constitute critical determinants of industrial hubs development and outcomes.

8.2 Industrialization and Urbanization: A historical perspective

Cities have been central to the evolution of human society for millennia. Their ‘generative power’ has underpinned economic, social, and political advances from the first known cities to have emerged 10,000‒12,000 years ago (Soja 2010; Tilly 2010). Urbanization has been associated with major developmental milestones in history including the agricultural and industrial revolutions, as well as creative and technological advances. The notion of an ‘urban revolution’ has been used to portray the city as a symbol of the evolution of the economic structure and organization of human societies (Childe 1950). While less than an estimated 1 per cent of humans lived in cities for the first 6,000 years of their existence, rising through the next 5,000 years, the major urban shift that unfolded in the eighteenth century was driven by the advent of industrial cities (Soja 2010).

The Industrial Revolution of the eighteenth and nineteenth centuries, when production took a major leap towards mechanization and centralized manufacturing, happened simultaneously with an urban revolution that saw unprecedented growth in the size and economic structure of cities. Industrialization during this period was both a product and a driver of urbanization. Terms such as ‘industrial urbanism’ and the ‘urban-industrial economy’ have been used to describe the conjoined processes of industrialization and urbanization that drove rapid economic development for much of the nineteenth century (Goheen 1973; Blumin 2006).

The nineteenth century was the ‘take-off’ period for urbanization, driven by three main factors related to industrialization (Blumin 2006). First, with expanding industrial output, labour shifted out of agriculture to manufacturing, which was predominantly located in and around urban areas. This attracted large numbers of people into urban areas who sought proximity to the ever-growing factories and production sites. Second, industrial firms chose to locate closer to one another to maximize efficiencies through access to capital, labour, services, and other inputs. Third, the mechanization of agriculture drove large numbers of farmers out of rural areas into cities to join the industrial labour forces. These shifts remain similar to the processes through which countries worldwide continued to industrialize and urbanize after the nineteenth century, as highlighted later in this chapter.

In Britain, considered the birthplace of the Industrial Revolution, major changes to the economic and urban profile of the country unfolded from 1770 to 1840. Existing and new cities emerged as manufacturing hubs with a growing industrial workforce and total population continued to increase steadily while rapidly shifting out of rural areas (Morris 1971). Cities grew at unprecedented rates, such that by 1851 the majority of Britain’s population were urban dwellers (Stobart 2000). Differentiated growth across urban centres in the country resulted in an urban hierarchy of major manufacturing cities surrounded by emerging networks of smaller urban centres (Stobart 2000).

The American industrial revolution took off with the mechanization of cotton mills on the east coast from 1790 onwards, such that by the end of the nineteenth century manufacturing accounted for more than half of the value of goods in the economy and urban dwellers accounted for around 40 per cent of the population (Blumin 2006). High rates of urban growth accompanied the shift of the economy towards manufacturing, with a number of major and smaller urban cities emerging as hubs for industrial activity. While the initial wave of manufacturing was concentrated in larger cities of more than 100,000 people, which became centres of trade and commerce, it moved increasingly towards smaller cities with a population of 20,000 to 38,000 at the end of the nineteenth century, creating an urban system with differentiated city economies at each level (Weber 1904).

Canada and other countries and regions in Western Europe also underwent rapid industrialization and urbanization in the nineteenth century (Goheen 1973). However, most countries in other parts of the world, including Latin America, Africa, and Asia, remained largely rural during this period, though by 1960 many had undergone rapid urbanization and industrialization (e.g. Japan, Argentina, Chile) (Blumin 2006; Hoyt 1963). While urban growth gradually slowed in countries where manufacturing had first taken hold, more rapid urbanization was experienced in newer industrial economies and developing countries from 1890 to 1960 (Hoyt 1963). Urbanization and industrialization continued to advance in tandem in the twentieth century, although with some exceptions, most notably in Africa where rapid urban growth has been taking place amidst low or weak levels of manufacturing and economic growth (Bloom et al. 2008; Gollin et al. 2016). Nevertheless, urbanization is today a global phenomenon setting the conditions within which economic development takes place.

8.3 Global urban dynamics

The twenty-first century is undoubtedly an urban one. In 1950, only 29.6 per cent of the world’s population was urban. In 2008, the global urban transition passed a major milestone with more than half of the world’s population being urban. In 2018, 55.3 per cent of global population was urban and was estimated to reach 68 per cent by 2050. While the pace of urban growth will be slower in the decades up to 2050, the absolute number of people living in cities will continue to rise. An additional 2.3 billion persons will live in cities between 2020 and 2050, reaching 6.68 billion persons. During this period, the global rural population will decline (by 324,421,000 persons) to 3 billion by 2050 (UNDESA 2018). This is an enormous shift with far-reaching implications, especially for economic development.

The urbanization process has not been a uniform one globally. Trends by world region illustrate the differentiated levels of urbanization (see Figure 8.1). Africa is currently the least urbanized (40 per cent), followed by Asia (48 per cent), with other world regions having high levels of urbanization (Oceania 68.1 per cent, Europe 73.9 per cent, Latin America and Caribbean 79.9 per cent, North America 81.6 per cent). However, the least urbanized regions have the highest urban growth rates, namely Africa and Asia at 3.58 per cent and 2.16 per cent respectively in the period 2015 to 2020. Africa and Asia will also concentrate 90 per cent of the world’s future urban growth.

The global urban hierarchy is also shifting in several ways (UNDESA 2018). First, in terms of the distribution of urban population across cities of different sizes: a growing number of people are living in larger cities. In 1950, 24 per cent of the global urban population resided in cities of above 1 million inhabitants. This will rise to 48 per cent by 2035. In the category of cities below 1 million inhabitants, most of the population is in intermediate cities of less than 300,000 inhabitants. In 2018, such cities accounted for 41 per cent of the global urban population. Second, in terms of where cities of different size are located globally, the largest cities are located in developing countries. In 2018, 80 per cent of the megacities with more than 10 million inhabitants were in developing countries. Third, in terms of the pace of growth of cities within the global urban hierarchy, smaller ones will grow faster. In 2018, the highest rates of growth are observed in smaller size settlements of less than 300,000 inhabitants in Asia and Africa.

At the national scale, a high degree of concentration of urbanization in one or two primate cities is observed mostly, but not only, in developing countries. Latin American capitals such as Asuncion (Paraguay) and Montevideo (Uruguay) concentrate more than 50 per cent of the total urban population and African capital cities like Nouakchott (Mauritania), Brazzaville (Congo), and Libreville (Gabon) have 30‒50 per cent of urban population. However, Tokyo concentrates a third of the urban population (30.4 per cent), and European cities like Tiblisi (Georgia), Lisboa (Portugal), and Helsinki account for one-third to one-fourth of the total urban population (UNDESA 2018).

Essentially, the fastest and greatest magnitude of urban growth and change will take place in developing countries, and mainly in smaller settlements. Many national urban systems will likely also continue to be dominated in demographic and economic terms by one or two primate cities. These trends have particular implications for the promotion of industrialization as an economic development instrument in developing countries, given the strong interactions between cities and economic productivity.

8.4 Urban scale economies and productivity

Cities are significant in today’s world because they concentrate not only the global population, but also economic activities. Historically, a strong economic rationale underpinned the emergence of early cities given their core function of facilitating trade and exchange (Soja 2010). Today, just 600 cities generate 60 per cent of global GDP, with more Asian cities expected to drive this growth up to 2025 (Cadena et al. 2012). ‘The simple correlation coefficient across countries between the per cent urbanized in a country and, say, GDP per capita (in logs) is about 0.85’ (Henderson 2003a). A 10 per cent increase in levels of urbanization causes an estimated 61 per cent rise in per capita GDP (Glaeser 2011). The economic significance of cities derives from the close association between urbanization and economic productivity, which in turn explains the concentration of industrial activity in and around urban areas.

The tendency for industry to be concentrated in and around cities makes the study of space a critical dimension of the field of economics. Space has not been a core focus in economics, having received sporadic treatment with the field of spatial economics having a ‘thin history’ (Derycke and Huriot 1998; Krugman 1998). This has been changing rapidly with a robust and growing body of work examining the interrelations between the organization of space and economic growth (see Gill and Goh 2010). In the 1990s, specifically the New Economic Geography headed by Paul Krugman’s work sought to explain unevenness in distribution and growth of economic activities in space, intensifying the focus on geography and spatial dynamics in the field of economics. The urban economics field seeks to explain these dynamics by interrogating why cities exist and why dense areas are significantly more productive (Glaeser and Gottlieb 2008).

There is ample evidence linking cities and economic productivity (Duranton 2008). Urban scale economies, or the benefits that cities offer to firms by cutting costs and maximizing returns, are critical for industrial firms. Industrial firms co-locate and do so often in cities to take advantage of such scale economies. If location relative to cities did not matter for industrial firms, they would be arbitrarily located (Glaeser and Gottlieb 2008; Hoogstra and Van Dijk 2004).

Urban scale economies, also referred to as agglomeration economies, occur in two main ways. First, through the concentration of industries from within the same sector, also known as localization economies, and second as a result of the concentration of a diversity of firms across sectors, known as urbanization economies. The analysis of localization economies has its roots in the work of Alfred Marshall in 1920 that identified factors for successful industrial clusters (Krugman 1991). By concentrating in cities, firms and workers experience gains in productivity through efficient sharing of infrastructure, amenities, and inputs; pooling of skilled workers; better matching between firms and workers, buyers and suppliers, or business partners; and learning and knowledge spillovers including through uptake of new technologies and practices (Duranton 2008; Puga 2009).

Urbanization economies gained prominence through the work of Jane Jacobs (1969) which showed how cities nurture the flow of ideas and human capital development, facilitating innovation (see Glaeser and Gottlieb 2008). There is evidence of both effects in developing countries, although much of the studies and evidence so far have focused on developed countries (Duranton 2008 for references; Fan and Scott 2003). However, the degree of importance and influence of these advantages may vary, such that some effects are more important than others for certain industries (Ellison et al. 2010).

While there is broad consensus on the magnitude of urban agglomeration economies, this is less the case on the sources (Puga 2009). Questions have been raised as to what really drives agglomeration effects. For instance, is higher productivity in large cities a result of the survival of the fittest firms rather than agglomeration effects per se? Is it the greater presence of skills in more dense areas that is driving the positive effects of density rather than the other way around? (See reference in Puga 2009; Glaeser 2011). There has been debate as to whether agglomeration effects are a consequence of the advantages innate to certain locations, such as proximity to a natural harbour or resources (Glaeser and Gottlieb 2008). Nonetheless, what is clear is that industrial activity continues to be concentrated in urban areas. However, this is differentiated within the system of cities in a country, as the productive advantages offered by cities also vary. Urban systems theory has sought to interrogate and explain the reasons for such differentiation.

8.5 Urban systems: Theoretical Underpinnings

An urban system is a group of cities of different size and function distributed within a defined geographical space—in the case of this chapter, the national boundaries of a specific country. Several significant propositions from across a variety of disciplines, including economics, geography, and sociology, have influenced urban systems theory (Aiken et al. 1987). In the urban economics field, theories of urban systems seek to explain the distribution of economic production and consumption across cities of different size and function (Abdel-Rahman and Anas 2004). Before delving into the association between economic production, city size, and function, it is worth considering some of the theoretical roots of urban systems theories.

Early nineteenth-century thinking around the relationship between cities and economic production include the work of Johann Heinrich von Thünen, which interrogated the organization and location of agricultural production and land use in relation to cities (Grotewold 1959). He proposed the concept of the ‘isolated state’ where concentric rings of agricultural production surround and supply a central city, with distance from the city’s market, price of products, and land rent determining the type of products and costs. This provided an early foundation for examining the space‒economy interface across the fields of geography and economics (Block and DuPuis 2001).

Theoretical reflections by geographers made a significant contribution towards the understanding of how economic activities are concentrated in space, and in specific locations within an urban system. Particularly influential has been central place theory, championed by geographers Walter Christaller and August Losch, which contends that goods require different scale economies so their location across cities varies based on this need (Hsu 2012). In the 1950s and 1960s, spatial concentration of economic activity was explored by geographers such as Harris and Pred who demonstrated that manufacturing in the United States concentrated in areas with good access to markets, and in turn access to markets was better in locations where more firms chose to produce (Krugman 1998). Other works that have shaped urban systems theory include those related to the size distribution of cities explaining how cities of different size are located within a hierarchical urban system, and the association with levels of economic development (Berry 1962).

In the field of economics, the work of Henderson (1974) is considered to have had a particularly critical role in propelling forward the concept of systems of cities as an analytical lens through which the economy could be understood (Abdel-Rahman and Anas 2004). Henderson examined the conditions and factors that determine the size and types of cities in relation to the production and consumption of goods. He posits that cities exist and grow given economies of scale in production and consumption of goods. Given that different goods require different scale economies, the size of city is defined by the type of goods in which it specializes or produces (Henderson 1974). The size and function of cities is considered both a driver and an outcome of the type of goods produced and consumed within those cities.

8.6 Industrial location and the urban system

Industrial and manufacturing activities are unevenly distributed across space with a clear geographic concentration in some locations. Economies of scale drive the geographic concentration of economic activities in space (Krugman 1998). In particular, firms and workers cluster in close proximity to cities because of the scale economies arising in those cities and the associated benefits. Because different cities support different scale economies, industrial activities vary by city size and type (Henderson 1974, 1983). Depending on the type of scale economies needed for the products in which they specialize, industries are drawn to different types of cities.

A national urban system is composed of cities in different locations, varied in size as well as spatial and economic structure, and able to support different scale economies. In an urban system composed of different cities, an interdependent hierarchy emerges with a division of labour between cities of different size in terms of their economic structure and functions (Aiken et al. 1987). In a sense, cities within an urban system will have distinct economic functions. As the population size of an economy grows, the urban system self-organizes into a hierarchical system (Fujita et al. 1999). In this structure, the layers within the urban hierarchy have similar functions and host the same kinds of industries (Hsu 2012).

The size distribution of cities across a hierarchical urban system is associated with patterns of industrial production. Henderson (1983) makes clear linkages between national industrial production and city size. He observes a direct link between patterns of goods produced within a national economy and the size composition of cities in that economy. As such, he argues, the size of cities within an urban system is associated with the type of goods produced within those cities, although it may be weakened by technological change.

Depending on the type of industrial hubs development, and the types of goods produced, different cities offer varied advantages and conditions necessary for firm productivity. Goods requiring higher scale economies are located in larger cities, while those requiring lower scale economies locate in smaller cities. As such, larger cities provide more expensive and specialized goods, while smaller ones focus on goods that meet basic needs (Aiken et al. 1987). Larger cities are associated with financial and business services and light and high-tech manufacturing, while smaller ones may be linked to natural resource-dependent industries (Henderson 1983). Larger cities with a more diverse industrial structure, and therefore generating urbanization economies, may be more attractive for service sectors such as entertainment, financial services, and IT, while smaller more specialized cities concentrate industries such as textiles, steel, and food processing where localization economies are effective (Henderson 2003b; Fujita et al. 1999; Abdel-Rahman and Anas 2004). Diversified and specialized urban economies are of differentiated importance across the life cycle of a product. Diversified urban economies could serve as ‘nurseries’ for the early stages of a product life cycle and more specialized ones concentrate goods that are fully developed with standard production procedures (Duranton and Puga 2001).

City size influences productivity while the size of a city is itself shaped by the location decisions of workers and capital owners as they seek to maximize their respective advantages (Henderson 1974). There is strong evidence that the productivity of firms and workers is higher in larger and denser urban areas (Duranton 2008). The skills of the workforce are also more diversified in larger cities than in smaller ones. As cities grow, so does their productivity (Sveikauskas 1975). With a doubling of city size, productivity has been found to increase by 3 to 8 per cent (Rosenthal and Strange 2004). Although firm selection, where only the most productive firms survive in larger cities, is considered a factor for this, it is not always the case (Combes et al. 2012).

Learning may determine the location decisions of firms related to different-sized cities and urban system. New and inexperienced firms learn and grow better in large and diverse cities, but later relocate to smaller more specialized cities with lower costs (Henderson et al. 1995; Henderson 2003b). The accumulated knowledge and specialization of a city is also an important consideration. Cities with rich knowledge and a history of concentration on specific products may be more attractive to some firms than cities with no such experience (Henderson 2003b).

The pattern of concentration of urban population in cities of different sizes may also have implications for economic and industrial activity. Specifically, the extent to which urban population in a country is concentrated in one or two large primate cities impacts productivity growth, with over- or under-concentration having costly impacts (Henderson 2003a). Henderson argues that in earlier stages of economic development, higher urban and industrial concentration is an advantage and is later followed by eventual deconcentration as economic development hastens (Henderson 2003b). Deconcentration of manufacturing to urban areas beyond the primate city fosters specialization of those cities. This requires sufficient intercity transport and communications for efficient and timely connection to national and international markets, and a degree of local fiscal autonomy for cities to better support local industrial needs and compete with primate cities for industry and population (Henderson 2003b).

As industrial hubs gain prominence to accelerate structural change, it becomes critical to look at the ways in which the configuration of national urban systems could constrain or enable their success. The size of cities, and their structure of their economies, has direct implications that can either foster or hinder industrial competitiveness. As much as cities offer economic of scale, they can also undercut the productivity of industrial activity through diseconomies of scale.

8.7 Urban diseconomies and industrial activity

In as much as scale economies are desirable for industrial activity and lead to concentration in cities, diseconomies can arise representing centrifugal forces against concentration (Krugman 1998; Nathan and Overman 2013). As they become excessively large and dense, cities offer diminishing productivity benefits while diseconomies related to congestion, rent, wages, and the like increase, eventually leading firms to relocate (Wheeler 2003). The way in which a city is functioning, or the extent to which externalities are minimized, is just as critical as the city size (Gill and Goh 2010). So manufacturing firms and industries with high transport costs tend to avoid dense, urban areas (Glaeser and Gottlieb 2008). Yet even when diseconomies take effect, firms may remain in a city. For instance, despite rising wages and higher rent in more dense and large urban areas, firms stay if the productive advantages outweigh costs (Puga 2009).

Diseconomies manifest at different stages of urban development and industrialization. In developing-world regions, urban constraints undercut efficiencies, and constrain the performance of manufacturing firms even before agglomeration benefits come into play. For instance, premature diseconomies are observed in African cities where gaps in urban infrastructure, services, and financing occur (Kessides 2005; UNECA 2017), regardless of size and density and at early stages of industrialization. The case of Africa is of particular relevance as this is where 90 per cent of future urban growth will take place, together with Asia, and industrial hubs are priorities for economic development.

The size of cities in Africa has been considered a challenge. Freire et al. (2014) note that cities in sub-Saharan Africa are too small to generate economies of scale, thus show limited productivity gains and economic growth. They argue that there are not enough large cities to offer agglomeration benefits for the economy. Lall et al. (2017) underscore three main urban challenges that constrain economic gains in African cities. First, they are crowded rather than economically dense. They concentrate population without commensurate investments in infrastructure, services, and housing, such that the costs of such concentration outweigh the benefits. Second, cities are disconnected without sufficient transport connectivity which undercuts scale and agglomeration gains for firms. Third, labour costs are high due to costs of living, which in turn reduces returns on investment. Under such conditions, the potential of cities to support the development of industrial hubs is limited.

Africa’s experience with respect to industrialization and urbanization is of particular importance, given that it departs from the historical experience of cities and industries growing in mutually reinforcing ways. Africa has the world’s highest rates of urban growth in the period 2015 to 2020 (3.58 per cent) while the contribution of manufacturing to the economy is stagnant and weak (UNDESA 2018; UNECA 2017). African cities and national urban systems face numerous barriers that undercut their productivity and ability to support industrial activity, including the following: high costs of mobility, housing, energy, and other infrastructure; low spatial and economic density; and disconnected and imbalanced urban system (UNECA 2017). Industrial hubs development being a major instrument for economic transformation in developing countries, and especially in Africa, whether or not cities in those regions have the necessary conditions for industrial activity, becomes critical. Also necessary is a consideration of how cities function and interact within a global urban system where a hierarchy of cities shapes economic and industrial activity in differentiated ways. In such a context, cities in developing countries faced with the constraints highlighted above become even less competitive.

8.8 The global urban system and industrial hubs

Beyond the national urban system, the global urban system also shapes the structure of operations of industrial firms. In an urban era where cities concentrate populations and economic activity, a networked hierarchy beyond national borders is prominent, most notably advanced through the work of Saskia Sassen on the ‘global city’ (Sassen 2005). With the globalization of the global economy, cities serve as major locations for economic production and exchange, interacting and transacting with one another across national borders. The operations of industrial firms may be located in a network of global cities, especially across a multiplicity of sectors and types of products. In this sense, the global urban system offers different locational options for industrial firms, with cities in more than one country becoming important factors for their performance. In a sense, the scale economies that firms seek would be spread in cities beyond countries, and cities would compete in a global urban system based on the productive advantages they offer.

As global capital and industrial activity continues to become ‘footloose’, the competitiveness of cities within a global urban system is shifting. The location preferences of industrial firms within a global urban system would also differ by the type of products and the specific advantages offered by cities within the system. The growth of high-tech firms in cities within the global urban system is a case in point.

Florida (2002) examines the ‘economic geography of talent’, or the ways in which the spatial distribution of talent and industrial activity are interrelated. He theorizes that in a globalized economy where innovation is a key competitive advantage, the extent to which a city or region is endowed with a ‘creative class’ is a determinant of its ability to attract high-tech industries and result in higher incomes. The creative class is a different segment of the labour force from highly skilled labour, in that the creative class has a specific preference to locate in cities and regions with high levels of cultural assets as well as ethnic and lifestyle diversity (Lorenzen and Andersen 2009). In addition, high-quality housing, work enablement, and specialized consumption are important factors that draw the creative class to specific cities. Florida therefore concludes that cities with the ability to attract a creative class become competitive centres attracting high-tech firms. This is pertinent not only when considering the national urban system but also the global network of cities, whereby high-tech industrial firms take location decisions based on the creative class endowments of cities.

On the other hand, globalization and technological advances may make the scale economies arising from spatial proximity less critical for some industrial activity. Innovations in communications and IT in particular have diminished the need for physical co-location to facilitate knowledge and learning exchange between industrial firms, enable workers to operate away from firms, and enable virtual trading and exchange. However, for many types of products and firms, scale economies arising from locating in cities remain fundamental to their productivity and performance.

8.9 Enabling the urban-industrial economy

In order to harness the advantages of cities for industrial hubs development, deliberate policies are needed at different scales, but with a strong national vision and direction. Experiences from some countries demonstrate how national government deliberately targeted existing urban agglomerations, or promoted others, in order to enable a mutually reinforcing and highly productive ‘urban-industrial economy’.

One of the illustrative cases of deliberate policies to link urban and industrial growth in mutually beneficial ways is the case of China. China’s urban transformation has been heavily impacted by the country’s national industrial strategy and economic growth model (Chan 2010). In the post-reform period after 1978, industrialization was pursued in tandem with and through institutional restructuring of cities and a nationally defined spatial framework (Qin and Han 2012). Rapid urban growth was both a vehicle and outcome of the expansion of export-oriented manufacturing (Hu and Zhang 2018). Manufacturing in the Pearl River Delta led to a massive growth of major cities in the eastern region, but also those close by, given the spillover of industrial and urban growth effects (Chan 2010).

A mix of public policies and investments shaped urban and industrial growth in interrelated ways. The creation of special economic zones and channelling of FDI to coastal provinces in the east fostered rapid urban growth in those areas. Urban policy interventions, such as the devolution of administrative power and prioritization of city economic performance targets, created the conditions for manufacturing growth. Migration policies managed the inflow of workers in a way that met labour needs for growing industries, while controlling urban growth, with likely productivity losses (Au and Henderson 2006). Following a strong concentration of manufacturing in and around urban centres in coastal regions, rising agglomeration externalities and improvements in infrastructure and facilities enabled new entrants to consider inland locations to enter the market (Zhu and He 2014). China’s twin urban and industrial growth trajectory has not been without challenges, including environmental costs and imbalances in the national urban system leading to a call for a new model of urbanization (Hu and Zhang 2018).

Malaysia is another case where spatial considerations and the role of cities were of importance in the country’s industrialization. Since independence, Malaysia has registered impressive economic growth, a shift towards manufacturing, with per capita income rising several-fold, underpinned by a strong development planning culture since the 1950s (Lee and Chew-Ging 2017). While post-independence development plans prioritized investments in agriculture, the government progressively and explicitly adopted a coordinated regional development approach to plan economic and urban development. As manufacturing took prominence as a national development planning priority, the government sought to disperse industries towards smaller urban centres while at the same time enhancing infrastructure and other facilities in urban areas to better serve industry, and improving connectivity between urban centres (Hutchinson 2017). Progressively and more so in Malaysia’s latest national development plan, integrated spatial and economic planning has been key, with regional economic corridors and cities considered key engines of growth and innovation, and thereby seen as investment priorities. The current five-year development plan prioritizes investing in competitive cities as one of the ‘game changers’ to accelerate development through competitive city master plans for four cities (Kuala Lumpur, Johor Bahru, Kunching, and Kota Kinabalu) and corridor plans to boost regional development (Federal Department of Town and Country Planning & Ministry of Urban Wellbeing, Housing and Local Government of Malaysia 2016). A key focus of the city master plans is to facilitate agglomeration and economic density through promoting knowledge-based clusters and improved infrastructure for efficiency. The vision is to expand the approach to more cities over time. Malaysian cities are thus considered central to the country’s economic transformation agenda through strengthening the performance and competitiveness of industry.

South Korea’s export-oriented industrialization is also closely tied to its urbanization. Cities were at the heart of this transformation. Initial industrialization was directed in and around the cities of Seoul and Pusan with two-thirds of the non-agricultural and non-mining labour force working in those two regions (Ho 1979). Industrial concentration in and around Seoul and Pusan has been attributed to three main reasons. First, Seoul-Inchon and Pusan were central to the contacts between Korean producers and foreign buyers necessary to advance export-oriented industrialization. Second, businesses preferred to be located near Seoul, closer to the central government and its decision-making machinery. Third, infrastructure was concentrated in and near Seoul and Pusan so spatially dispersed industrialization across the country could not be supported (Ho 1979). Later, from 1970 onwards, the government decided to limit the growth of the country’s three largest cities (Seoul, Pusan, and Taegu) while dispersing industries to other locations. To do so, the government focused on developing infrastructure and industrial zones away from existing urban areas, offering financial and tax incentives in those locations. In due course, this led to the growth and emergence of other urban and industrial hubs. The South Korean experience reaffirms the importance of considering the location of industrial hubs relative to urban areas in order to maximize advantages arising from agglomeration, but also under resource constraints curtailing dispersed investments.

The highlighted experiences underscore the interlinked evolution of cities and industrial hubs, implying the need for a spatial perspective in planning industrial hubs. Nathan and Overman (2013) question whether industrial policy should be spatially targeted (clustering and concentration) or space neutral. They query whether it is necessary to infuse a spatial dimension in industrial policy and what the spatial scope of industrial policy would encompass. They underscore the importance of industrial policies that are ‘place sensitive in design and delivery’ and recommend horizontal policies that target place-specific determinants of productivity as more effective than sector-focused priorities.

8.10 Concluding remarks

Cities and urban systems are critical factors for industrial hubs development and performance. Historically, industrialization and urbanization have evolved along mutually reinforcing pathways. Industrial activities gravitate towards cities as they are drawn to the productive advantages present in urban areas, or scale economies. Within a national or global urban system, industrial firms make different location decisions as cities offer differentiated scale economies for different products. At the same time, cities can also constrain the performance of industrial hubs through agglomeration diseconomies.

Fostering a productive urban-industrial economy requires deliberate policy measures backed by a long-term vision for economic transformation. This calls for strong linkages and coherence between policies for urban, spatial, and economic development. Yet, all too often, the tendency has been for industrial policies and strategies to be formulated and implemented from a sectoral perspective, rarely considering cities and urbanization.

While industrial hubs are by definition a spatial construct in that they co-locate industries, it is their location and linkage to cities that can unlock productive advantages. At earlier stages of industrialization and development, amidst resource constraints, it becomes particularly critical to consider how to leverage urban advantages and concentration for industrial hubs. At the same time, the type of cities and urban system, and their functional constraints have a bearing on industrial hubs. The question is how to match cities and industrial hubs within a national urban system to optimize the mutually beneficial effects on urban and industrial development. This calls for a more explicit, deliberate policy articulation, and corresponding strategies as countries plan, design, and invest in industrial hubs.

References