Re-examining the Relationship between Urbanization and Economic Growth: An Analysis

The article re-examines the general argument hailing urbanization leading to economic growth, and further suggests that the level of urbanization is positively associated with the level of Gross Domestic Product (GDP) at world level through the results obtained through regression analysis. At the same time, the article serves as a good reminder how correlation is not to be confused with causation. Granger causality test provides statistical results rejecting the hypothesis that urbanization causes economic growth. On the other side, it accepts the hypothesis that urbanization causes increase in primary school enrollment rate and life expectancy at birth. The article concludes on the note that while urbanization does not directly cause economic growth, it directly causes improved level of human capital, including education and health, which ultimately leads to economic growth as per the literature on growth theory. The article suggests how urbanization indirectly influences economic growth.