“The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population compared to the rural, and has thus rescued a considerable part of the population from the idiocy of rural life.” Karl Marx, The Communist Manifesto, 1848

All over the world, development and economic growth has gone hand in hand with increased urbanization. Not a single country in the world has managed to reach middle or high income levels without at least half of the population moving into cities, although quite a lot has managed to urbanize heavily without achieving economic growth – see Figure 1 below. It thus seems that urbanization is a necessary, but not sufficient, condition for development.

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There are many aid pessimists, like me, who would much rather be aid optimists. However, the empirical evidence on the effectiveness of foreign aid is depressing, especially in poor countries where aid constitutes a significant share of GDP, as in Bolivia and Nicaragua (1).

Any particular aid project is unlikely to actually hurt the poor – at worst it may be ineffective and a waste of time and money. However, a continuous series of thousands of aid projects have the capacity to change the behavior of both individuals and government, and often in unanticipated and undesirable ways.

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