Urbanization in developing countries is often linked with
industrialization; in particular, with the production of tradable (and
typically manufactured) goods. We show that the expected relationship
between urbanization and the level of industrialization is not present
in a sample of developing economies. The breakdown occurs due to a
large sub-sample of resource exporters that have urbanized without ever
industrializing. The patterns that we observe can be accounted for within a
model of structural change that accommodates two different paths to high
urbanization rates. The first path involves the typical movement of labor
from agriculture into industry, as in many models of structural change;
this pattern leads to what we term “production cities” that make tradable
goods for domestic and international markets. The second path involves
an income effect arising from natural resource endowments; resource rents
are disproportionately spent on urban goods and services, which gives rise
to “consumption cities” that are populated primarily by workers in nontradable
services. We document empirically that these consumption cities
account for 30–50% of urbanization in the developing world. We argue that
urbanization is not a homogenous process across all cities and countries.
The different patterns may have implications for development trajectories