Changing Drivers of Spatial Activity: The Future Isn’t What It Used to Be

BOX 2.1 The Persistent Effects of Colonial Railroads on Regional Development in Kenya (continued)

Railways increased the population density of Europeans during the colonial era, and public infrastructure was created as a result. Sunk investments such as secondary schools, hospitals, police stations, post offices, paved roads, and industries are immobile and costly to rebuild. These investments kept the region attractive, producing path dependence. These regions also sustained industrial agglomeration effects from distribution of agricultural capital as well as high market potential at independence. These benefits persisted even though rail traffic declined after independence, and the first Kenyan governments invested in building roads, which were cheaper than maintaining rail.

A region needs coordinated investments for returns to scale and agglomeration. Regions in Kenya served by railroads have higher population densities; higher literacy levels; and more schools, hospitals, and paved roads, even today. Controlling for contemporary factors such as technological change, institutions, and population densities, Jedwab, Kerby, and Moradi (2017) record a high effect from persistent factors.

Source: Jedwab, Kerby, and Moradi 2017.

Patches of wild garlic and waterfall bypasses long ago became irrelevant, but the agglomerations they seeded persist due to some combination of second and third nature factors. Being “set” in space can mean achieving a good spatial equilibrium (San Francisco, Sydney, Cape Town) or being dealt a bad hand by history and geography. Mexico City’s weather was, from the beginning, bad for agriculture; the fetid Lake Tenochtitlán was a breeding ground for disease; and later, the gelatinous dried lakebed foundations amplified tremors, making recurrent earthquakes devastating (Maloney and Valencia Caicedo 2016). Similarly, the collapse of the Roman Empire allowed Britain to take advantage of declining maritime trade costs to pivot to a more efficient coastal spatial allocation of activity, while French towns remained unmoved, with all roads leading to a dying imperial center (Michaels and Rauch 2016). The bottom line is that policy makers need to be clear-eyed about this inertia as they move to reshape their national space.

Changing Drivers of Spatial Activity: The Future Isn’t What It Used to Be

While the inheritance of the past is strong, the forces shaping the economic landscape are different for developing countries than they were for countries that are now advanced. In the age when agricultural productivity drove development, the location of final consumers and trading centers close to producers was driven by transport costs: shipping grain using animal-drawn carts at distances around 260 kilometers

would double prices (Bairoch 1988)—yielding a relatively even distribution of towns and cities. The decline of transport costs frees people from the necessity to live where food is grown, and allows firms to locate where they can best access workers and global markets. This means that the sequencing of the decline in transport costs with respect to structural transformation matters for the spatial distribution of activity within countries. Transport costs had fallen significantly by 1950 in India, for instance, long before its structural transformation, with the building of colonial railways (Donaldson 2018). Hence growth was accompanied by concentration: urbanization rose rapidly, from 17 percent in 1950 to 30.9 percent in 2010. Transport costs fell similarly in Africa (Teravaninthorn and Raballand 2009). Interior areas such as the Congo Basin and the Ethiopian Highlands would have had higher concentrations of economic activity than they actually did if they had been “early developers,” simulations by Henderson et al. (2018) show. Cheaper, faster, and better transport—not only physical but digital, through information and communication technology—prior to structural transformation has facilitated the emergence of global value chains in megacities such as Shenzhen and other Chinese coastal cities, while the inland western provinces remain underdeveloped.

These same forces are changing the shape of cities as well, allowing firms to leave the expensive urban core while still benefiting from agglomeration effects. The high-tech hub around Route 128 in the US state of Massachusetts is in fact a constellation of firms populating a 25-mile radius outside Boston. China’s investment in rail and road networks has led to the suburbanization of industry out of large metropolitan cores. Better transportation and digital technologies could reduce information and other transaction costs, making development of cities less challenging. The COVID-19 (coronavirus) pandemic also suggests how these advances permit working at a distance, reducing the need for greater concentration in city centers.

In sum, the centripetal forces to agglomeration have strengthened as firms now orient toward the global rather than local market. As a result, the economic landscape is likely to become even more lumpy and unequal than before. On the one hand, this has allowed some firms to aspire to global scale and drive rapid industrialization, as is the case in China. On the other, those same forces have pushed cities in countries such as Côte d’Ivoire and Ghana to breed “consumption cities” where a larger fraction of workers are employed in nontradable services (such as personal services), rather than manufacturing or tradable services (such as finance) (Gollin, Jedwab, and Vollrath 2016). The growth literature (Lucas 2002; Duarte and Restuccia 2010; Rodrik 2013) suggests that convergence is faster in industrial sectors than in nontradable services, implying that “consumption cities,” while comparable in their level of urbanization to “production cities,” may have a different long-term growth trajectory. Shanghai and Lagos, for example, are cities in countries with similar urbanization rates, but it seems unlikely at this point that Lagos contains the same potential for growth as Shanghai.