Trade Policy and the Third World Metropolis
Raul Livas Elizondo, Paul Krugman
Many of the world's largest cities are now in developing countries. We develop a simple theoretical model, inspired by the case of Mexico, that explains the existence of such giant cities as a consequence of the strong forward and backward linkages that arise when manufacturing tries to serve a small domestic market. The model implies that these linkages are much weaker when the economy is open to international trade -- in other words, the giant Third World metropolis is an unintended by-product of import-substitution policies, and will tend to shrink as developing countries liberalize.
Published: Journal of Development Economics, Vol. 49, no. 1 (April 1996): 137-150.