May 18, 2024

Economix: ‘Middleweight’ Cities as Growth Engines

By 2025, 13 current Daniel Berehulak/Getty Images By 2025, 13 current “middleweight” cities will become megacities of 10 million of more, a McKinsey report says. Seven, including Shenzhen, are in China.

A new study by the McKinsey Global Institute has put a spotlight on a trend shaping the world: urbanization, in particular the shift toward emerging nations in Asia and Latin America.

Reports have long projected a vast increase in urban populations and megacities, as rural dwellers flock to cities in search of work and higher living standards. Some 60 percent of global gross domestic product is generated in just 600 cities around the world, with the bulk of them in developed economies like the United States and Europe, according to the institute, the economics research arm of the consulting firm McKinsey Company.

But the latest report, published by the institute last week, gives some nuanced — and perhaps surprising — assessments that could affect the strategies of companies seeking to tap into the global urbanization trend. It also provides fresh insights into the immense changes in the emerging world and China, in particular.

The world’s largest 600 cities will continue to account for about 60 percent of global G.D.P. by 2025, McKinsey said, but the composition of that group of cities will have changed dramatically.

One-third of cities in the most developed markets will no longer make the top 600 by 2025, and 136 new cities are expected to enter the top 600, all of them from the developing world and overwhelmingly from China, which will account for 100 of them.

“Over the next 15 years, the center of gravity of the urban world will move south and, even more decisively, east,” the institute said in its report. (That finding echoes a recent paper by an economist at the London School of Economics.)

Equally striking is the finding that it is urban “middleweights” (cities with populations from 150,000 to 10 million), rather than “megacities” (with a population of 10 million or more) that are increasing their share of global output most rapidly.

“It is a common misperception that megacities have been driving global growth for the past 15 years,” the McKinsey Institute said. “In fact, most have not grown faster than their host economies.”

Today’s 23 megacities will contribute about 10 percent of global growth to 2025, below their current 14 percent share of global G.D.P.

In contrast, by 2025, 577 middleweights are expected to contribute more than half of global growth, gaining share from today’s megacities.

By 2025, 13 cities that are current middleweights will probably have become megacities, 12 of which are in emerging markets (the exception is Chicago), with seven in China alone.

Companies wanting to capitalize on the urbanization trend had better take note. Focusing on developed economies and on emerging market megacities may no longer be enough — it’s the middleweights that are likely to deliver the biggest growth potential over the next decades, the McKinsey Institute said.

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