David E. Bloom David Canning and Günther Fink find that Urbanization has no impact on growth

Science last February had a special issue on cities.  Among the articles was the Bloom, Canning and Fink piece, which ran cross-country regressions that showed (1) that urbanization levels in 1970 did not predict economic growth in the years since then and (2) that urbanization did not Granger cause growth.  They therefore recommend that policy makers avoid promoting or discouraging urbanization.  

From a policy perspective, I am happy that an article in Science, perhaps the most prestigious place one can publish in the US, recommends the end of anti-urban policies.  But I worry that the regressions suffer from mis-specification.  

Around a year ago, I wrote:

"Every affluent country in the world is urbanized. Among OECD countries, 77 percent of people live in urban areas, and among World Bank-designated high-income countries, 78 percent of people live in urban areas. The poorest two countries in the OECD, Turkey and Mexico, are 67 percent and 76 percent urbanized, respectively. The least urbanized affluent country, Portugal, is 55 or 59 percent urbanized, depending on source. At the same time, the world’s lowest income countries are generally not urbanized: in 2004, the urbanization rate among the World Bank’s designated low income countries was 31 percent. All of the countries with urbanization rates of less than 20 percent, Burkina Faso, Burundi, Cambodia, Ethiopia, Malawi, Nepal, Papua New Guinea, and Uganda, are low-income countries, all with Gross National Incomes Per Capita of less than $660, and most with GNIs that are substantially lower than that.[1] The correlation between urbanization and PPP Per Capita GDP in 2000 was .70. In short, urbanization accompanies affluence."

I continue:

"That urbanization accompanies affluence does not, however, mean that urbanization causes affluence. First, it is worth noting that Latin America and the Caribbean are 77 percent urbanized, and the countries in that region are certainly not among the World’s richest (nor are they in general, among the poorest). There are also very poor countries in Africa--Cameroon, Mauritania, and Senegal--that are at least 50 percent urbanized. All of these countries have per capita GNIs of less than $1010.[2] Hence affluence does not necessarily follow urbanization."

The thing that strikes me is that all rich countries are urbanized, but not all urbanized countries are rich. This suggests to me the following hypothesis: that urbanization is a necessary but not sufficient condition for economic growth. A linear regression does not allow one to test this particular hypothesis.