Cities and agglomeration externalities: Lessons for urban public policy in Asian countries

Abstract

Cities are home to agglomeration externalities, which, interacting with knowledge externalities, drive economic growth during structural transformation of nations. Yet policy-makers in several developing countries in the past seemed to have had an anti-urban bias. This is primarily due to the lack of appreciation of externalities of cities and their role in facilitating economic growth and generating resources for economic development, including urban and rural development. Recognizing the critical need of Asian countries to harness the power of agglomeration externalities in cities for growth, this article examines the nature and sources of agglomeration externalities and derives lessons for the formulation of urban public policy in the urbanizing countries of Asia, including India.