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Where to create jobs to reduce poverty: cities or towns?

Abstract

Should job creation be targeted to big cities or to small towns, if the objective is to minimize national poverty? To answer this question, we develop an equilibrium model of migration from rural areas to two potential destinations, small town and big city. We develop sufficient statistics for policy decisions based on the parameters of the model. The empirical remit of the theoretical model is illustrated with long running panel data from Kagera, Tanzania. Further, we show that the structure of the sufficient statistics is maintained in the case where the model is generalized to introduce heterogeneous workers and jobs.

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Acknowledgements

The authors acknowledge support from the World Bank and Excellence of Science (EOS) Research Project 30784531 at the Research Foundation – Flanders (FWO). The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Correspondence to Joachim De Weerdt.

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Kanbur, R., Christiaensen, L. & De Weerdt, J. Where to create jobs to reduce poverty: cities or towns?. J Econ Inequal 17, 543–564 (2019). https://doi.org/10.1007/s10888-019-09419-5

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Keywords

  • Secondary Towns versus big cities
  • Poverty reduction
  • Poverty gradient
  • Todaro model
  • Migration equilibrium
  • Equilibrium income distribution

JEL classification

  • O18
  • O41
  • I3
  • J61