Revisiting the role of secondary towns: Effects of different types of urban growth on poverty in Indonesia

There is increasing interest in assessing whether growth of big cities has effects that differ from effects of growth of secondary towns, especially for impacts on poverty. It can be difficult to study these issues with typical sub-national economic data for administrative units because urban growth often occurs outside of the administrative boundaries of cities. An emerging literature therefore uses remote sensing to measure patterns of urban growth without being restricted by limitations of data for administrative areas. We add to this literature by combining remote sensing data on night-time lights for 41 big cities and 497 districts in Indonesia with annual poverty estimates from socio-economic surveys, using spatial econometric models to examine effects of urban growth on poverty during 2011-19. We measure growth on both the extensive (lit area) and intensive (brightness within lit area) margins, and distinguish between growth of big cities and of secondary towns. The extensive margin growth of secondary towns is associated with lower rates of poverty but there is no similar effect for growth of big cities. The productivity advantages of big cities and concerns about agricultural land loss to expanding towns and cities may imply that urban growth patterns favouring big cities are warranted, while on the other hand these new results suggest, from a poverty reduction point of view, that policies to favour secondary towns may be warranted. Policymakers in countries like Indonesia therefore face difficult trade-offs when developing their urbanization strategies.