Rural-Urban Interdependence: A Framework Integrating Regional, Urban, and Environmental Economic Insights

Economic development in rural areas affects the natural environment, which in turn affects economic growth—both rural and urban. These shared interests and feedback effects in the natural environment are increasingly recognized as important economic and political issues, and necessitate a new framework for better understanding them. This article asks why such a framework does not exist and why it should be developed. It then presents such a framework by integrating regional, urban, and environmental economic insights. The framework focuses on the interactive location decisions of firms and households and centripetal forces for concentration and centrifugal forces for decentralization. The article captures the economic and environmental consequences of rural-urban relocation and feedback effects through changes in agglomeration economies, congestion costs, natural and social amenities, and the location of economic opportunities. Results show that some feedback effects reinforce the initial forces, but others weaken them. We present two examples to demonstrate the application of the framework. The first focuses on how agglomeration economies affect the effectiveness of environmental regulation and illustrates the benefits of incorporating regional and urban economic insights into environmental policy analysis. The second example focuses on how conservation policy can create localized amenities that help resource-rich regions avoid the natural resource curse and illustrates how concepts and perspectives from resource and environmental economics can improve our understanding of regional and rural issues.