The Relationship Between Urbanization and Economic Growth: Panel Causality Analysis
Chapter from the book:
Ertürkmen,
G.
(ed.)
2024.
Current Applications of Macroeconomics .
Synopsis
Urbanization is a process that is characterized by the increase in the urban population, which has begun with the transition from agricultural societies to industrial societies. This process is determined by a combination of economic, social, cultural and environmental factors. The relationship between urbanization and economic growth is multidimensional and complex. Based on this argument, this study focuses on the relationship between urbanization and economic growth. For this purpose, Dumitrescu- Hurlin (2012) panel causality test is applied for 45 upper middle-income countries using annual data for the period 1990-2022. The findings show that there is a bidirectional causality relationship between economic growth and urbanization. In other words, economic growth affects urbanization as well as urbanization affects economic growth. These results support the view that countries should develop strategies by increasing government expenditures and investments to support economic growth. At the same time, it is of great importance to take necessary measures to ensure that urbanization processes develop in a balanced manner in all countries and regions. In this way, the mutually supporting dynamics of both economic growth and urbanization can function in a healthier way.