10.36172/EKONOMISTI.2023.XIX.02.LIA.TOTLADZE

Annotation. The modern world is facing huge challenges. Post-pandemic issues added global humanitarian, economic, logistical, and other problems caused by the Russia-Ukraine war. In this context, all countries need to support the appropriate rate of sustainable development. The phenomenon of urbanization maintains a special place in sustainable development goals.

The paper discusses the concept of urbanization as a social transformation and its connection to the country's development indicators.  The positive and negative effects of urbanization are analyzed. The article emphasizes empirical aspects of population concentration and considers Zipf's law for Georgian cities. An econometric model of the impact of urbanization on income distribution is constructed and evaluated.

Urbanization as a phenomenon occupies a special place in the clearly defined goals of sustainable development (SDG). The concept of sustainable development has become particularly relevant in recent decades. Among these goals are sustainable cities, which are essentially related to the actual issues of urbanization. What led to the activation of the urbanization factor in the goals of sustainable development?

In the modern era, urbanization represents one of the greatest social transformations and is directly related to the social, economic, and environmental processes taking place in the country (Liddle, B. 2017). It should be noted that the dependence and cause-effect relationships may be in different directions. On the one hand, the development of the country determines the urban processes, and on the other hand, urbanization affects the distribution of income, ecology, and the main economic indicators of the country. Urbanization refers to the concentration of human populations in certain places when the specific share of the city population increases in the total population of the country. This fact leads to the transformation of land for residential, commercial, industrial, and transportation purposes. In addition to the positive effects of urbanization, rapid urbanization, and industrialization have highlighted social problems such as inequality and imbalance that are becoming increasingly visible. This has threatened sustainable development, especially in developing countries, which is why this issue deserves attention.

There are negative effects associated with the process of urbanization. Based on the experience of developed countries, we can say that urbanization is associated with an increasing level of income and the improvement of social indicators (social indicators include life expectancy, education level, infrastructure, availability of social services, and others). Urban countries have higher income levels, strong institutions, and stable economies, and at the same time, stability means that they can withstand global economic fluctuations. There are quite a few studies that empirically confirm the relationship between the increase in the share of the urban population and the increase in per capita income. Consequently, a positive correlation between these two indicators is confirmed.

Urbanization promotes the physical, human, and economic development of cities. This includes the concentration of people and social activities on the settlement model characterized by the development of land with high population density. The result of urbanization is partly due to the natural increase in population, and migration, as well as economic, social, and technological changes that motivate people to migrate to urban areas, which have many jobs and opportunities. Market and government policies encourage urbanization and create changes in people’s life, land use, health, and natural resource management. Urbanization is closely connected to higher incomes. Countries with high urbanized rates have higher GDP per capita. This correlation has been successfully proven statistically by many scholars.

The effect of urbanization on income distribution depends on the specifics of the country. How urbanization will affect inequality in the future depends on the rate of urbanization in the country. There are factors driving inequality in the country including the degree of urbanization, urban–rural income gap, and urban and rural inequality. In addition, the urban-rural income gap is expected to have the largest marginal impact on inequality.

In 2018, in its publication ‘Revision of World Urbanization Prospects’ the United Nations clearly stated that sustainable urbanization was key to successful development and it underlined the necessary conditions of its existence.Urbanization is a multifaceted phenomenon and it is impossible to measure it according to one specific indicator

George Kingsley Zipf's law for cities is one of the interesting fact in economics. Ziff, an English linguist, based on empirical observations, identified a systematic approach to linguistics. Ziff's law was also used in economics quite successfully. The law has been confirmed in many empirical studies. Nowadays, Zipf's law is believed to be universal for cities, and researchers widely use this law as a guide to understanding urban systems. It was revealed that the distribution of the size of the cities corresponded to the Pareto distribution.

Figure #1. Ziff’s Law Graphical Presentation for Georgian Cities 

Figure #1 represents Ziff’s law for Georgian cities. The presented graph allows us to draw certain conclusions: first - it is clear that the case of Georgia is in accordance with Ziff’s law of the cities. the exception is Tbilisi, whose population exceeds the population of other cities. Second - in order of Georgia to be relevant to the Ziff curve about the size of cities, the population of Tbilisi should be 500,000-600,000

This study analyzed and evaluated the impact of urbanization on income distribution in Georgia. We used the following econometric techniques and methods: the estimation methods with static data regression used are OLS.  The data used in our quantitative analysis representing income inequality was calculated by authors based on the National Statistics Office data. Data for dependent,  independent variables used in quantitative models include urbanization, average monthly income of the region (including income from land and real estate sale),  gross domestic product (GDP) per capita of the region, human development index of the region as a measure human capital,  were collected from the annual statistical yearbook of the National Statistics Office of Georgia. We were not able to use panel data due to limited regional statistical data. 

Based on the theory related to urbanization and income distribution, the impact of urbanization on income equality, and related studies, we constructed following model: 

        (1)

Urban has a positive regression coefficient with a statistical significance of 5% in the model (1), indicating the positive impact of urbanization on income in Georgian regions. This means that higher urbanization contributes to reducing income inequality, which is consistent with the impact of urbanization on income distribution in models. This result is consistent with Johansson and Wang (2014) and contrary to Beladi et al. (2017). Therefore, urbanization contributes to reducing income inequality in Georgia.

GDPi, which has a negative regression coefficient which is not statistically significant in model (2), shows no impact on income distribution in Georgia regions. These results also show that the inverted-U-shape hypothesis between economic growth and income inequality in Georgia is not confirmed.

HDIi, which represents human capital, has a negative regression coefficient, showing no impact of education on income distribution. Although the level of statistical significance is not consistent in all empirical models, the results show that education plays a role in decreasing income distribution in Georgia.  This result is similar to Johansson and Wang (2014), which found no impact of education on income inequality in 90 countries in 1981–2005. Our research results lead us to draw the following conclusions. Urbanization helps reduce income inequality in Georgia. 

In our latest research (Totladze L., Khuskivadze M., 2022) the regression results found that the government expenditure on education in Georgia has a significant effect on Real Gross Domestic Product (RGDP). In this case, public financing of education is a true parameter of measuring economic growth. This paper suggests that education is not the only, or the major contributing factor to per capita GDP, there are other contributing factors (Totladze L., Khuskivadze M., 2022)

Keywords: Urbanization; Econometric Modeling; Zipf's law; Income Distribution.