Traditionally, development policy and related research have adopted a simplified concept of rural and urban areas, with the words rural referring to more “remote farming areas” and urban to “crowded cities.” To a large extent, this view has facilitated the isolated treatment of issues affecting each space, and it has as a result failed to acknowledge the important poverty-reducing interlinkages that exist between the two spaces and the many variants of the spaces. In reality, farming areas (the very rural) and the megacity (the very urban) coexist along a continuum with multiple types of flows and interactions happening between those two spaces.
The efficiency and effectiveness of infrastructure and market and nonmarket institutions are important in facilitating such interlinkages. Key research questions, then, include these: What are the critical infrastructural and institutional barriers to optimal links between urban and rural areas? Further, what policy and program interventions are needed to create infrastructure and to facilitate or strengthen institutions to forge dynamic links between businesses, sectors, and geographic areas?New contextual and exogenous conditions are changing the opportunities for rural-urban linkages as well as the intensification of such linkages. Elements of the changing conditions include (a) increasing trade and capital flows, which prompt rapid changes in the agriculture and food system as urban consumers increasingly influence the nature and level of interactions among the various stakeholders in the agri-food chain; (b) the information revolution, as more and more rural communities benefit from enhanced access to communications technologies that carry relevant information and facilitate new market institutions and services; and (c) increasingly decentralized governance structures across the developing world, as national governments and policymakers, as well as private investors, are involved in regional development and interregional competitiveness.
Although urbanization is part of a healthy economic development process, its unguided shape and speed often bring about market and other institutional failures and result in adverse effects on people and the environment. The urban share of poverty is increasing: by 2002 the urban share of the poor had increased to almost 25 percent from around 19 percent in 1993 (Ravallion, Chen, and Sangraula 2007). Policy must address market failures in urbanization dynamics and in rural stagnation—that is, labor market, services market, and goods market failures attributable to ill-guided expectations, information gaps, and missing markets (e.g., finance); government failures due to biased taxation, pricing, and investment policies; and the negative environmental externalities sometimes engendered by urbanization or lack of rural change.