Banco Bilbao Vizcaya Argentaria : Growth of urbanization slows in Latin America

Urbanization in Latin America began to increase in the second half of the 20th Century, to reach nearly 80% of the population today. In spite of the great expansion in recent decades, BBVA Research predicts that there will be a certain moderation in this growth, until it reaches 86%.

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Having overcome a stage of accentuated growth in urbanization (a 93% increase since 1950), today high levels are being maintained, but with a certain equilibrium. The countries whose urbanization levels have grown most are Colombia and Brazil, with an average annual growth of nearly 1.3% between 1950 and 2015.

According to BBVA Research, urbanization in Latin America began earlier than in other regions and has managed to develop at a much faster pace. In addition, and keeping in mind the characteristics of Latin America, this increase in the levels of urbanization has greater merit, if one takes into account the low levels of income, capital, employment and productivity.

In spite of the positive data on its development and growth, urbanization continues to be concentrated in a very limited number of cities. Only Mexico and Brazil have more than a dozen cities with over a million inhabitants, while countries such as Uruguay and Paraguay don´t have more than two cities with a population of more than one million residents.

Urbanization grows faster than income

There is a certain relationship between urbanization and per capita income, along with the indicators of capital, employment and productivity. In spite of the high rates of urbanization, the countries of Latin America have relatively low levels of income, capital, employment and productivity. For that reason, the predictions of a much smaller expansion than was seen in recent decades, represent a challenge to growth in the region.

The region, apart from having a high level of urbanization compared to income, has a higher level in the countries where there is more infrastructure and capital.

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In spite of this, the data obtained from the study show that the quality of the infrastructure is not at a high level in the countries under study, with Chile, Mexico and Uruguay being the least affected in this regard.

Productivity rises inasmuch as urbanization grows. The report shows that in the countries with a higher degree of urbanization, such as Chile and Argentina (where it comes close to 90%) productivity is much higher than in nations in the developmental phase, such as Paraguay, where it barely reaches 60%.

Digitization, a fundamental factor of growth

Urbanization also tends to be related in a positive manner to digitization. Since both the demand and the supply of digital products and services tend to benefit urban areas, the Latin American countries should try to leverage this comparative advantage over other regions to drive the insertion of the population into the new digital economy.

The growth of urbanization in the region implies more opportunities for digitization. In addition, Latin America has a very favorable environment in this regard, due to its high concentration in urban areas.