Economic Growth

Economic growth and urbanization are integrally related. Cities are the primary engines of global economic activity, generating over 80 percent of the world’s GDP. Cities offer huge potential to create jobs, foster innovation and creativity, attract investment, and raise incomes—thereby including more citizens in increased growth and prosperity than ever before.

Unlocking the Economic Potential of Cities

The fundamental economic advantage urban areas offer is the potential for greater efficiency brought about by population density, talented human capital, and access to resources. These economies of scale increase labor productivity and enable private sector growth.Similarly, educational and medical institutions located in urban areas can operate on a larger scale to provide more specialized services.  

Economies of scale can also apply to the delivery of essential services, such as electricity, water, sewage, and waste management. As cities develop the infrastructure and systems to deliver essential services, it becomes increasingly economical to provide public goods.

Cities also play a key role in facilitating the trade that drives rapid economic growth in the developing world, while vibrant urban markets create a conducive environment for entrepreneurial innovation.

In short, cities tend to be economically productive, provided the right enabling conditions are in place. 

Challenges

 In many cities, rapid growth is outstripping the capacity of municipal governments to provide essential services, in turn preventing governments from capitalizing on economies of scale. In sub-Saharan Africa, this has been attributed to multiple factors including inadequate urban management practices, a lack of investment in human capital, insufficient integration with the global economy, and urbanization driven by exports of natural resources and consumption rather than agricultural productivity and industrialization.

USAID’s Approach

While no uniform set of interventions or policy prescriptions will be appropriate for every city, USAID works with city-level actors to identify and remove barriers and lay the groundwork for economic growth. This includes promoting accountable local governance, mobilizing private capital, and building local capacity. Through capacity-building efforts, for example, USAID helps municipalities deliver services more effectively, develop strategic growth plans, secure property rights, mobilize revenue, and streamline regulations.

Other areas of focus for USAID include:

• directly supporting private firms or other non-governmental actors;
• helping local firms and governments gain access to financing, such as loan guarantees;
• assisting in building urban infrastructure; and
• supporting city-to-city partnerships.