Urbanization, urban structure and economic growth: evidence from a dynamic global panel
Date
2026-01-06
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Abstract
This study investigates the impact of urbanization and urban structure on labor productivity using a panel dataset of 116 countries from 2000 to 2019. It uses the Arellano-Bond System GMM estimator to address endogeneity and persistence in economic growth. This study also includes the Herfindahl-Hirschman Index (HHI) to measure urban concentration as well as to determine whether the gains from urbanization depend on how the populations are distributed. The results of this study provide interesting results as it challenges traditional urban economic theory that urbanization is a uniform driver of economic growth. While physical capital remains a primary driver of growth, isolated urbanization rate is statistically insignificant and shows no direct effect on labor productivity. However, the interaction between urbanization and urban concentration is negative and significant (β ≈ − 0. 598) which show that the productivity gains from urbanization show diminishing returns as urban population becomes heavily concentrated. Specifically, marginal effect analysis reveals a tipping point where the positive impacts of urbanization reach zero when HHI exceeds levels of 0.58. This finding supports the congestion hypothesis, which suggests that in highly concentrated urban areas, diseconomies of scale outweigh the positive effects of agglomeration.
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Keywords
Congestion Hypothesis, Economic Growth, Urbanization, Herfindal-Hirschman Index (HHI), Agglomeration economies, Urban concentration