More urban, more unequal? Urban agglomeration and income inequality (1955-2015)

Abstract: There is an ongoing debate if urbanization and larger city sizes should be promoted for increasing economic growth at the expense of rising income inequality. The primary purpose of this study is to determine if the relationship between income inequality and average urban agglomeration size is the same for developed and developing countries. Data for this study were combined from different sources including but not limited to the Standardised World Income Inequality database, and the World Urbanization Prospect. The study then ran panel data regression with fixed effects for 96 developing countries and 35 developed countries from 1955 to 2015 to analyze the relationship between income inequality and average urban agglomeration size. The results show that there is a strong association between average urban agglomeration size and income inequality in developed countries, however, this relationship does not hold for developing countries. This indicates that the development trajectory is different for the two sets of countries and that for developing countries today rising average urban agglomeration size does not go hand-in-hand with rising income inequality. The results, give an important insight into how the relationship between income inequality and average urban agglomeration size could affect policy regarding both urbanization and income inequality in different countries in the future.