Objective and outline of the thesis

The primary aim of this thesis is to improve our understanding of the relationship between urbanization and economic development, in order to advance policies that can help harness the potential of the urbanization process to achieve sustainable economic growth, poverty reduction, and balanced spatial development. To achieve this, it employs a novel, continuous measure of urbanization ― the sum of nighttime light ― to account simultaneously for the continuum between rural and urban areas as well as for the heterogeneity of urban areas. The central focus of the thesis is on the analysis of underlying mechanisms of the spatial economy to inform policies targeted to improve overall welfare while reducing unbalanced spatial development. To that end, the analytical chapters subsequently link one dimension of welfare indicators (e.g. food security, nutrition, labor market outcomes) carefully with the major sources of the underlying mechanisms.

The last chapter, as a case study, examines one of the understudied underlying factors of spatial development – public service delivery. Based on the synthesis of the findings from the different chapters, the thesis identifies a menu of potential policy interventions relevant to enhance overall welfare while mitigating the inequality across the rural-urban spectrum.

The thesis is organized in such a way as to capture the effect of urbanization on welfare across different generations. In successive chapters, it examines the effect of urbanization on broader indicators of household welfare (Chapter 2), the health and nutritional outcomes of children

15 Due to lack of data, spatial patterns in pollution and crime rate are not computed

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(Chapter 3), and its effect on reinforcing intergenerational mobility (Chapter 4). The main research questions explored in this thesis are the following:

1. Does the effect of urbanization on household welfare depend on the degree of urbanization? If so, what are the main underlying factors?

2. What are the heterogeneous effects of urban proximity on nutritional outcomes?

3. Does the degree of urbanization influence the extent of intergenerational mobility?

4. Which interventions are effective to improve the delivery of agricultural extension services in remote areas?

The analytical chapters in this thesis address these four interrelated research questions, and each shall be a stand-alone academic paper with substantive contributions to the literature.

Chapter 2 focuses on identifying whether and how the patterns of urbanization are associated with household welfare in Ethiopia as well as exploring the major underlying mechanisms. The data used for this analysis comes from three rounds of Ethiopian LSMS-ISA (2012, 2014, and 2016) geospatially linked to nighttime light data. Based on the New Economic Geography (NEG) framework and threshold data analysis, the findings of this chapter suggest that the effect of the pattern of urbanization is at least as important as the aggregate rate of urbanization. Specifically, the findings indicate that intermediate towns are more strongly associated with household welfare as compared to large towns, small towns, or the rural hinterland. The chapter emphasizes the roles of market access, employment opportunities, and differential access to public services as major underlying mechanisms.

Chapter 3 extends the analysis in Chapter 2 and investigates the effect of proximity to town and the heterogeneous effects of the size of towns on nutritional outcomes. For identification, the study combines an Instrumental Variables (IV) approach with Inverse Probability Weighting (IPW). Using nationally representative LSMS-ISA household and community survey data, the study finds that both the proximity to urban areas as well as the size of the proximate urban areas affect households’ nutritional status. More specifically, while proximity to towns has a strong positive effect on nutritional status, households surrounding large towns are better off compared to those around small towns. Reducing the cost of transportation to the nearest town by half leads to a 0.3 percentage point increase in diet diversity and a 0.8 percentage point reduction in child stunting.

The results corresponding to the size of towns suggest that while the diet diversity of households in large towns is likely to be higher by 1.2 percentage points, child undernutrition is likely to be lower by about 4 percentage points.

Chapter 4 examines the role of the degree of urbanization of place of residence on the extent to which inequalities in economic and social status are transmitted across generations. Based on the intensity of the nighttime light (NTL) at the place of residence as a marker of urbanization, the chapter presents strong evidence of the interaction between parental characteristics and urbanization. In general, children whose parents are employed in better-paying occupations are more likely to be employed in similarly better-paying occupations themselves, and this intergenerational correlation is more pronounced in large urban areas. Moreover, it shows that

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the inequality observed in occupational opportunities in large urban areas is explained mainly by differences in educational attainment. Once individual education level is accounted for, large urban areas offer better employment mobility than rural areas and small towns. This suggests that broadening access to and reducing the dropout rates at post-elementary schools and improving the quality of education are the most effective mechanisms to reduce spatial and intergenerational inequality in living standards in Ethiopia.

Chapter 5 assesses the responsiveness of agricultural extension agents (EAs) to potential policy interventions by employing a discrete choice experiment (DCE) design. Using a carefully designed DCE and a novel quantitative approach, the chapter offers several interesting insights. First, there is a general dissatisfaction among the EAs with their current work and living conditions. Second, contrary to popular perception, increasing salaries is not always the strongest incentive for EAs.

The findings suggest that offering educational opportunities is by far the most powerful instrument to attract and retain EAs in remote locations. Upward salary adjustment only comes in at a second position, followed by the provision of housing and transportation facilities. EAs are also likely to respond to such incentives as the availability of basic amenities (electricity, drinking water, mobile telephone network) in the villages to which they are posted, as well as the provision of adequate work materials.

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