Why are cities growing? We explored some of the answers to this question in last week’s post. The main suggestion was that the growth of cities has hitherto been driven largely by our desire to minimise transport costs and mitigate the effects of fixed costs.
And while the process of urbanisation has thrown up a range of problems, we have generally been able to solve, or at least mitigate, them through good ol’ fashioned human ingenuity. You only have to consider developments in sanitation, elevators, engine technology, and street lighting to see how humans have, over time, found ways to make urban life more bearable. In contrast, the challenges faced by rural areas are inherently more difficult to overcome, because they arise from immutable physical barriers rather than softer socio-economic issues.
This however is not the whole truth and nothing but the truth; there’s several interesting sub-plots to the growth of cities that deserve some more attention. In this post I want to look at one of these in particular: Economies of scale in New Zealand’s population growth. As you’re probably aware, all good economic bed-time stories start with a graph. So in the graph below I’ve plotted the predicted growth of New Zealand’s regions from 2012-31 (%, y-axis) versus their 2012 population (people, x-axis), both of which have been sourced from the Statistics NZ website.
Chocolate fish prize for anyone who spots the trend.
Yes, it seems that the regional population in 2012 is a relatively strong predictor of regional population growth over the next 25 years. Or put more simply, in terms of population the “big are getting bigger”. NB: For those with a statistical nose, when Auckland is removed from the data set the relationship is much weaker (R2 = 29% versus R2 of 70% above) but remains significantly positive nonetheless. So I’d suggest that Auckland is an “extreme value” (in the sense that it’s different from the rest but still useful) rather than an “outlier” (in the sense that it provides no meaningful data).
About now you might be thinking: Surely as a region grows it will become increasingly crowded to the point that further population growth is eventually constrained, e.g. from congestion? While there is no evidence of this at the regional level shown above (i.e. the trend line is linear and does not tail off), that may be because NZ’s regions are pretty large, i.e. the crowding effect occurs more locally.
To check whether population growth does indeed “max out” I replicated the analysis shown above but at the level of territorial authorities, as illustrated below. Here we again find some evidence of positive economies of scale, but these do seem to drop off at higher populations (NB: Again removing Auckland from the analysis makes little difference to the overall trend).
Here the positive relationship is still evident, although much more mixed and, as a result, more interesting. The life of an economist would indeed be very dull if everything followed the trend! The variation in the relationship between population size and (projected) population growth at the level of TAs raises some interesting question. For example, can we explain why some TAs sit far above the trend line and vice versa? How is it that some TAs have managed to escape the tyranny of their small size?
For some there are obvious answers; Queenstown for example, will have benefited from an expanding national tourism industry. Other places may have benefited from a pleasant climate. Or maybe these fast growing smaller TAs happen to be close to large cities, thereby benefiting from the aforementioned population spillover. Other TAs, however, are maybe doing well because their public policies attract people and businesses – and these are the places that we should be really interested in, and which I will look at in more detail in subsequent posts.
But for now the two key takeaway points are:
- There appears to be a general trend at the regional and local level to indicate that NZ experiences economies of scale in terms of its population growth; and
- There is enough variation around this relationship to suggest that many other things matter too, particularly at the local level.
The first point presents something of a conundrum: All it really tells us is that regions would grow faster if they had a larger population to begin with. But you obviously can’t influence your initial population so what do you do? The simple relevance of this observation is, I think, that New Zealand should aspire for population growth at the national and regional level because NZ is still sufficiently small to that we experience strong economies of scale.
And that makes intuitive sense to me: As a small remote country we’ve drawn the short (or should it be long?) straw when it comes to economic geography. Basically, New Zealand needs more people. Whether the existing population is prepared to let that happen or not is another question.