How does urbanization affect the human development index? A cross-country analysis

Higher economic development without urbanization is almost impossible. However, the magnitude of development can vary with the accuracy of the management of an urban area. Though several studies have established a positive effect of urbanization on economic growth, its impacts on the human development index (HDI) are unknown. In this context, we assessed the impacts of urbanization on the value of country-level HDI with a random effect Tobit and dynamic panel data estimations for 187 countries from 1990 to 2017. We found that overall, total urban populations, percentage of the urban populations, urban population growth rates, and percentage of the population living in million-plus agglomerations have a positive effect on the HDI values. The percentage of the urban population residing in the largest city of a country negatively affects the value of HDI. The analysis was also done by dividing countries based on their level of income. The percentage of urbanization is the most important measurement of urbanization having a positive impact on the HDI across countries separated by different income groups. The total urban population also has a positive effect on HDI except for upper-middle-income countries. However, all other measurements of urbanization have an ambiguous effect on HDI, suggesting the impacts of urbanization on HDI depend on different stages of development in a country. Among the control variables, higher emissions of carbon dioxide, fertility rate, GDP growth rate, level of inequality, and inflation rate negatively affect HDI, whereas higher foreign direct investment has a positive effect. Finally, policy options are prescribed to make an urban area more productive in higher economic development.