The trend toward ever greaterurbanization continues unabated across the globe. Accordingto the United Nations, by 2025 closes to 5 billion peoplewill live in urban areas. Many cities, especially in thedeveloping world, are set to explode in size. Over the nextdecade and a half, Lagos is expected to increase itspopulation 50 percent, to nearly 16 million. Naturally,there is an active debate on whether restricting the growthof megacities is desirable and whether doing so can makeresidents of those cities and their countries better off.When analyzing whether megacities have become too large,policy makers often analyze a single city in depth. But nocity is an island: improving urban infrastructure in onecity might attract migrants, and a negative shock in onelocation can be mitigated because people can move toanother. Considering the general equilibrium effects of anysuch urban policy is thus key. That is, when decidingwhether to make medium-size cities more attractive, policymakers need to understand how cities of all sizes will beaffected. The next section briefly summarizes thetheoretical framework and discusses which data are needed.The third section implements the methodology for thebenchmark case of the United States. The fourth section doesthe same for China and Mexico and compares the findings. Andthe last section concludes. A technical online appendixguides the reader through a practical, step-by-step,discussion of how to do the analysis.
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