There is a great economic divide between the first world and the third world countries. Third world countries are nowhere near to the developed countries in terms of income as depicted by Per Capita Income (GDP or GNI) or in terms of well being as represented by Human Development Index (HDI). A large number of people in developing countries live in poverty. Over three billion people, nearly half the world population live under $2.5 a day. The richest 20 percent holds nearly three-quarters of the world income and the world’s poorest 40 percent have 5 percent of the global income. This is the situation of inequality at the world level.
Now let us take a look at the situation of poverty and inequality within a developing/ underdeveloped country. Let’s take the case of Nepal, one of the underdeveloped and poorest countries of the world. Nepal is currently ranked 145th in the HDI as per the latest Human Development Report, 2014. The poorest 20 percent have 4.1 percent share of income while the richest 20 percent own 56.2 percent of the income. Regarding poverty, 25.16 percent of the people are poor; the urban poverty rate is 15.46 whereas the rural poverty rate is 27.43 percent.
So, what do the above suggest? They suggest that poverty is rampant in Nepal and there is a huge gap between the haves and have-nots sections of the country. This poverty and disparity has been largely reflected in the urbanization pattern of the country. This urbanization pattern is applicable to the other developing and under-developed countries as well. This pattern has come up as a major head ache for the urban planners; to manage the growing number of people in the cities who throng from villages and rural areas. This problem is known as Urban Giantism which gives rise to the First City Bias in most of the developing and underdeveloped countries.
Urban Giantism is the phenomenon of urban settlements growing disproportionately large in size due to rapid migration of people from other areas to these urban settlements. People migrate in large numbers to urban areas because of the perceived better income, infrastructure and the economies of agglomeration. According to Harris Todaro model of Rural-Urban Migration, the rural to urban migration occur not due to the actual wage differentials but the perceived wage differentials by the migrants between rural and urban areas and until people perceive the urban wage and job opportunities to be higher than rural wages and job opportunities, migration of people from rural to urban areas will continue as people find it beneficial to migrate. In case of Nepal, security of life has also been one of the important factors for migration. This was particularly evident from the large exodus of people from rural to urban (headquarters or cities) during the decade long civil unrest in the country. As per the census of Nepal 2011, the density of population in rural Nepal is 153 persons per square km. In sharp contrast, the population in urban areas is 1,381 persons per square km. This shows that the population distribution is highly skewed towards urban settlements.
Among the urban settlements too, Kathmandu, the capital and the largest city of Nepal has a population of 1,003,285 which is nearly 4 percent of the total population. Among the urban areas, Kathmandu has close to 22 percent of the urban population. The second largest city of Nepal, Pokhara has a population of 264,991. However, the first largest city, Kathmandu is nearly 4 times as large as the second largest city, Pokhara in terms of population. This high disparity in the population between the largest and the second largest city is what has been termed as first city bias.
First city bias is a situation in which the country’s largest city receives a disproportionately large share of the public investment and incentives for private investment in relation to the rest of the economy. The large city receives all the investments, public goods and services, employment opportunities and most of the economic activities are largely concentrated in this city only. People are attracted to this city and they migrate for better life and opportunities. This further expands the economic base of the city and the city further expands when the increased population demands more economic activities. This cycle continues and the bias further increases. The major problem with this first city bias is the complexity in managing the resources and creation of employment in the city and the rise of urban informal sectors. The piling population in the city puts pressure on the employment opportunities which reduces the wage rate in the city. This makes living in the city very difficult and costly. One of the offshoots of this problem is the creation of urban informal sectors and shanty settlements which often undermine the legal economic system and law and order situation of the city. In Nepal, Kathmandu has been facing similar problems. The first city is generally the capital city.
So, why does the urban giantism or the first city bias arise? To answer this question we need to look back into the political and economic structure of the country. Firstly, the hub-and-spoke transportation system with its centre in the capital (largest city) results into large companies to have its base in the capital city. Locating in the capital city can also help the firms and businesses in currying favor from the politicians and bureaucrats and lobbying for their business as they can have direct and easy access to the influential people in the political system. Secondly, it has been observed that under the totalitarian rule or infant democracy, the rulers in their bid to retain their power and prevent uprising and revolts tend to provide better facilities to the city’s residents. We have observed that during the monarchy in Nepal, the government provided special facilities to the capital denizens so that they would be affirmative about the government and not take part in activities to disrupt or overthrow the government. Even current governments have been doing that.
Thirdly, the government policy of high protectionism (import substitution industrialization) for the local products and high transportation cost can also promote urban giantism and first city bias. When there is high protectionism for domestic or local products and the cost of transportation is very high, the producers would be willing to have their manufacturing units in and around their largest markets. This would help them have comparative and cost advantages. Lastly, close to urban core, the surrounding areas might be a good option for the businesses for reducing the costs while also enjoying the benefits of urban agglomeration. This expands the urban area further until there is incentive of reduced costs to the producers. But locating in other cities, which do not have adequate infrastructure and do not provide the benefit of agglomeration do not tend to grow.
So, what can be done to balance the pattern of growth all over the country? The answer looks simple: provide incentives and infrastructure in the alternative (rural) areas so that economy could flourish in these areas too. However, the solution is not as simple as it looks. In developing countries like Nepal, the effects of agglomeration economies and urbanization is created by market forces and the government can do very little to implement the planned development as they usually do not have sufficient funds to build the infrastructures. The nascent governments tend to protect their own political interests than be concerned about the economic development of the country as a whole.
 Economies of agglomeration is used to describe the benefits that arise for the firms by locating near each other that provides cost advantages to producers and consumers.
 National Population and Housing Census 2011.
Todaro, M. P. and S. C. Smith,”Economic Development” (2012), 11th edition, Boston, Pearson Addison Wesley. National Population and Housing Census 2011 (National Report), Vol I, Central Bureau of Statistics, National Planning Commission, Kathmandu, Nepal.
The author is a Research Assistant at Institute for Integrated Development Studies (IIDS). He can be contacted at email@example.com.