East Asia's rapid urbanisation set to continue

East Asias rapid urbanisation set to continue

The link between urbanisation and rising income levels has been well established in numerous studies.

By Ahmad Al Nafisi/Macro Ideas

Published: Tue 11 Aug 2015, 12:00 AM

Last updated: Tue 11 Aug 2015, 1:53 PM

East asian countries experienced rapid urbanisation over the past two decades. According to a recent report by the World Bank, between the years 2000 and 2010, the urban population in East Asia grew at an average annual rate of three per cent, adding a total of 200 million people to cities in the region. Urban land grew at slower rate, growing at an average of 2.4 per cent per year during the same time period. A notable feature of East Asia's urbanisation is that cities have become much more densely populated. The urban population density rose from 5,400 people per square kilometer to 5,800 between 2000 and 2010, which is about 1.5 times the average urban population density of the world. Despite this massive population shift into urban areas, only 36 per cent of East Asia's population currently live in cities, and a mere one per cent of total land is urban, suggesting that rapid urbanisation could continue well into the next few decades.
Urbanisation has been both a result and a driver of economic growth in East Asia. The link between urbanisation and rising income levels has been well established in numerous studies. Most countries become at least 50 per cent urbanised when they reach middle-income status, while high-income countries tend to be more than 70 per cent urbanised. The causal direction between income and urbanisation can go both ways. Rising income levels tend to be associated with a shift in the sectoral composition of production away from agriculture, a rural sector, and into manufacturing and services, concentrated in urban areas. Conversely, urbanisation can also promote rising income levels through agglomeration economies, where the large concentration of resources and talent in cities makes them important drivers of economic growth and innovation.
Rates of urbanisation growth varied widely between countries across the region. Over the last decade, China and the three largest south East Asian countries by GDP (Indonesia, Malaysia and Thailand) experienced faster urbanisation growth rates than elsewhere in the region.
The proportion of China's urban population almost doubled, growing from 30 per cent to 55 per cent between 2004 and 2014, and for Indonesia it grew from 35 per cent to 54 per cent. For Malaysia, the urban population rose from 54 per cent to 74 per cent, and for Thailand it grew from 30 per cent to 47 per cent. These countries, with the exception of Malaysia, are still at an early stage in the urbanisation process compared to the more developed economies in the region, such as South Korea, Singapore and Hong Kong, despite the massive urban growth that they have experienced. Hence, over the next few decades, East Asia's urbanisation and urbanisation-driven economic growth will be driven largely by these countries.
The GCC countries will likely be negatively impacted from East Asia's urban growth over the coming decades. The compactness of urban areas means less travel distances, as well as an increased reliance on public transportation and bicycles, which lowers the demand for fuel. Additionally, urbanisation tends to be associated with a transition away from manufacturing and into services, which depend less on oil than manufacturing. If managed properly, East Asia's rapid urban growth could well reduce its reliance on oil products in the next few decades, hurting oil exporters like the GCC. This is all the more reason for the GCC to diversify away from their near-complete dependence on oil revenues.
The writer is an economist at Asiya Investments Company. Views expressed by the author are his own and do not reflect the newspaper's policy.

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