This is a follow-up by Vladimir Popov, to the blog post Two Cities.

Another perspective on whether to build a new city or not: in some papers land scarcity is seen as a factor that stimulates urbanization and industrialization. For instance, it is argued that “during the Song Dynasty, despite the fact that China lost a significant amount of arable land to invading nomads as its population peaked, China witnessed a higher urbanization level, more prosperous commerce and international trade, and an explosion of technical inventions and institutional innovations. However, after China significantly improved its man-to-land ratio in the period after the Song only to find itself induced deeper into the agrarian trap, resulting in reduced urbanization, withering foreign trade, a declining division of labor, and stagnation in technology” (Wen, 2008). Strictly speaking, raw data  (without controlling for other factors) does not seem to provide very persuasive support (fig. 1), but could be interpreted as giving some ground to believers.

It is even more difficult to apply this theory to international comparisons: arable land per capita was not that scarce in Europe, not to mention Australia and North America (fig. 2), where levels of urbanization surpassed those of Japan, China, and India at least several hundred years ago.

Georgia may be a testing case. The share of employment in agriculture in Georgia during transition increased from 25% in 1990 to 31% in 1995, 54% in 2004 and 56% in 2006 (Сельское хозяйство Грузии, Wikipedia) due to the decline of industry and urban centers.

But in 2008 Georgia lost Abkhazia and South Ossetia - nearly 20% of its territory that had a lower density of population, was less urbanized, and more oriented toward agriculture. This external shock could contribute to the re-industrialization of Georgia, especially if supported by the industrial policy in the form of the state support to the construction of Lazika.

After all, not a single economic miracle was based on agriculture, but a number of successful development stories were based on the loss of agricultural land and increase in urbanization (sometimes due to immigration and influx of refugees) – Germany, Japan, and Finland after the Second World War, Hong Kong, and Taiwan after the Civil war in China.

Maddison, Agnus (1998). Chinese Economic Performance in the Long-Run. Published by the OECD Development Centre, Paris, 1998.

Wen, Guanzhong James (2008).  Why Was China Trapped in an Agrarian Society--An Economic Geographical Approach to the Needham Puzzle. Mimeo. Trinity College, Department of Economics.

Vladimir Popov is an economist at the United Nations. Before joining the UN he worked as a Professor at the New Economic School in Moscow and Carleton University in Ottawa. He also worked as a Senior Researcher at the World Institute for Development Economics Research (WIDER/UNU) in Helsinki. He is the author/editor of 11 books and numerous articles on the economics of transition and development. His recent area of research is the history of economic growth and trajectories of institutional development. He holds doctorate degrees (Candidate of Science, 1980, and Doctor of Science, 1990) from the Institute of the United States and Canada Studies of the Academy of Sciences of the Union of Soviet Socialist Republics.