The Costs and Benefits of Urban Expansion

Urbanization is generally linked to economic growth, and agglomeration economies mean that people in larger cities are more productive. However, urban expansion is also associated with congestion, localized environmental damage, and in many countries, deficiencies in infrastructure and housing conditions. Urban policies worldwide are increasingly based on an apparent international consensus that urban compactness is a desirable policy goal, for reasons of environmental sustainability and economic productivity. However, there is almost no evidence that compact cities are more productive outside of high-income countries, with a productive service sector. Given that land-intensive manufacturing activities is the economic base of many cities in Latin America, policies promoting compactness may reduce economic productivity by constraining expansion. The tensions between environmental, social and economic goals in the urban policy of countries with rapidly expanding cities has not been sufficiently studied. Mexico is an ideal case study because of the rapid rate at which cities have been growing in recent decades. In this report, we examine impacts—both positive and negative—of the way in which cities have been growing in Mexico. First, we test the relationship between urban form and economic productivity, testing the hypothesis that growing in a compact manner promotes productivity. We find that in Mexico, urban sprawl is associated with higher levels of economic productivity. This finding is counterintuitive and raises questions about the conventional wisdom related to cities and economic growth. We then examine two of the important ‘costs’ of urban expansion: transportation and socio-economic segregation. Findings in these cases confirm expectations that more sprawling cities have higher transportation costs and more socio-economic segregation. We conclude by arguing that policy makers must at least acknowledge the tradeoffs between productivity, transportation costs, and socio-spatial structure.