MCkinsey Urban World full world report 2007-2025

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  • 1.McKinsey Global InstituteMarch 2011Urban world:Mapping the economicpower of cities

2. The McKinsey Global InstituteThe McKinsey Global Institute (MGI), established in 1990, is McKinsey &Companys business and economics research arm.MGIs mission is to help leaders in the commercial, public, and social sectorsdevelop a deeper understanding of the evolution of the global economy and toprovide a fact base that contributes to decision making on critical managementand policy issues.MGI research combines two disciplines: economics and management.Economists often have limited access to the practical problems facingsenior managers, while senior managers often lack the time and incentiveto look beyond their own industry to the larger issues of the global economy.By integrating these perspectives, MGI is able to gain insights into themicroeconomic underpinnings of the long-term macroeconomic trends affectingbusiness strategy and policy making. For nearly two decades, MGI has utilizedthis micro-to-macro approach in research covering more than 20 countries and30 industry sectors.MGIs current research agenda focuses on three broad areas: productivity,competitiveness, and growth; the evolution of global financial markets; and theeconomic impact of technology. Recent research has examined a programof reform to bolster growth and renewal in Europe and the UnitedStatesthrough accelerated productivity growth; Africas economic potential; debt anddeleveraging and the end of cheap capital; the impact of multinational companieson the US economy; technology-enabled business trends; urbanization in Indiaand China; and the competitiveness of sectors and industrial policy.MGI is led by three McKinsey & Company directors: Richard Dobbs, JamesManyika, and Charles Roxburgh. Susan Lund serves as MGIs director ofresearch. MGI project teams are led by a group of senior fellows and includeconsultants from McKinseys offices around the world. These teams draw onMcKinseys global network of industry and management experts and partners. Inaddition, MGI works with leading economists, including Nobel laureates, who actas advisers to MGI projects.The partners of McKinsey & Company fund MGIs research, which is notcommissioned by any business, government, or other institution.Further information about MGI and copies of MGIs published reports can befound at McKinsey & Company 2011 3. McKinsey Global InstituteMarch 2011Urban world:Mapping the economicpower of citiesRichard DobbsSven SmitJaana RemesJames ManyikaCharles RoxburghAlejandra Restrepo 4. PrefaceThe world is in the throes of a sweeping population shift from the countryside tothe city. The global urban population is growing by 65million annually, equivalentto adding seven new Chicagos a year.1 And for the first time in history, more thanhalf of the worlds population is now living in towns and cities. Underpinning thistransformation are the economies of scale that make concentrated urban centersmore productive. This productivity improvement from urbanization has alreadydelivered substantial economic growth and helped radically reduce poverty incountries such as China. The expansion of cities has the potential for further growthand poverty reduction across many emerging markets. Urbanization will be one ofthis centurys biggest drivers of global economic growth.Urbanization and the role of cities in the global economy is therefore a core researcharea for MGI. Our recent analysis of cities includes research on Chinas urbanizationwhose early findings we published in 2008 and full findings in March 2009 in thereport Preparing for Chinas urbanbillion. We launched a second report, Indias urbanawakening: Building inclusive cities, sustaining economic growth, in April 2010. Wehave also been analyzing growth prospects and the role of cities in Latin Americaand will shortly publish a new report Building globally competitive cities: The key toLatin American growth. This latest report Urban world: Mapping the economic powerof cities builds on this body of work to provide a global view of the economic role ofcities. Our findings draw on the MGI Cityscope, a global database of more than 2,000cities that brings together our regional research on cities. The database today allowsus to offer insights into the evolution of the global economy and its demographics,household structure, and incomes. Projecting the economic and demographicevolution of cities over the next 15 years is inherently subject to multiple sources ofuncertainty. We present in this report one scenario of how the urban world is evolvingthat provides a sense of direction to companies and policy makers. Companies needto test the robustness of their business decisions against a broader set of plausiblescenarios. In the future, we will continue to broaden the scope of the MGI Cityscopeto cover areas such as infrastructure investment, consumer demand and savings,and industry evolution.McKinsey directors Richard Dobbs and Sven Smit and MGI senior fellowJaanaRemes led this project. Alejandra Restrepo managed the project team,which comprised Roberto Duran-Fernandez, Lucia Fiorito, Sidhanth Kamath, andJens Woloszczak. The team also benefited from the contributions of Lydia Guo,MGI knowledge operations manager; Janet Bush, MGI senior editor, who providededitorial support; Rebeca Robboy, MGI external communications manager;JuliePhilpot, MGI editorial production manager; Marisa Carder and Therese Khoury,visual graphics specialists; and Elliot Cravitz, Kelly McLaughlin, and Mary Reddy fortheir help on our interactive materials.1 United Nations, World Urbanization Prospects. 5. McKinsey Global InstituteUrban world: Mapping the economic power of citiesWe are grateful for the vital input and support of numerous MGI colleagues past andpresent and to McKinsey colleagues around the world, including DominicBarton,Shannon Bouton, Kelly Brennan, Andres Cadena, NicolaCalicchioNeto,AlbertoChaia, Georges Desvaux, Martin Elling, Heinz-Peter Elstrodt, JulianFerris,Alan FitzGerald, John Forsyth, Shishir Gupta, Stefan Heck, JimmyHexter,RogerioHirose, Trond Riiber Knudsen, Eric Labaye, Nicolas Leung, XiujunLillianLi,Michael Lierow, Anu Madgavkar, Max Magni, Vik Malhotra, Jan Mischke,LaxmanNarasimhan, Gordon Orr, Luiz Pires, Sunali Rohra, Shirish Sankhe,BrunoSilva, Vivien Singer, Samantha Test, Ireena Vittal, Arend Van Wamelen,Jonathan Woetzel, and Adil Zainulbhai.Distinguished experts outside McKinsey provided invaluable insights and advice.We would particularly like to thank our academic advisers Daron Acemoglu,Elizabeth and James Killian Professor of Economics at the Massachusetts Instituteof Technology; Professor Ricardo Hausmann, Director of the Center for InternationalDevelopment and Professor of the Practice of Economic Development at HarvardUniversity; and Michael Storper, Professor of Regional and International Developmentat the University of California in LosAngeles.This report contributes to MGIs mission to help global leaders understand the forcestransforming the global economy, identify strategic locations, and prepare for thenext wave of growth. As with all MGI research, we would like to emphasize that thiswork is independent and has not been commissioned or sponsored in any way by anybusiness, government, or other institution.Richard DobbsDirector, McKinsey Global InstituteSeoulJames ManyikaDirector, McKinsey Global InstituteSan FranciscoCharles RoxburghDirector, McKinsey Global InstituteLondonSusan LundDirector of Research, McKinsey Global InstituteWashington, DCMarch 2011 6. The City 600* today . . .1.5billion people live in these 600 cities 22percent of global population$30trillionof GDP in 2007more than half ofglobal GDP485millionhouseholds, with average per capita GDP of$20,000The top 100 cities generated$21trillionof GDP in 200738percentof the global total* The City 600 are the top 600 cities by contribution to global GDP growth from 2007 to 2025. 7. . . . and tomorrow 2.0billion people will live in these 600 cities in 2025 25percent of the global population$64trillion of GDP in 2025, nearly 60percent of global GDP735millionhouseholds will live in these cities, with$32,000average per capita GDP of . . . of which235millionhouseholds in developing world cities will have income above $20,000 per annum 8. McKinsey Global InstituteUrban world: Mapping the economic power of citiesContentsExecutive summary1Urban world: Mapping the economic power of cities7 The City600 will drive global growth to 202510 Middleweights will gain ground on megacities 10 Almost three-quarters of the City600 are in emergingeconomies17 The City600 population will expand 1.6 times as fast as the globalpopulation18 Declining household size expands demand for housing and other household durables 22 By 2025, emerging market cities will have more higher-end middle-income households than developed ones 25 Regions vary in the economic role of the largest cities28 Companies should look at clusters of cities for marketopportunities 32Appendix: Technical notes 37Bibliography47 9. McKinsey Global InstituteUrban world: Mapping the economic power of cities 1Executive summaryWe live in an urban world. Half of the worlds population already lives in cities,generating more than 80percent of global GDP today. But the urban economic storyis even more concentrated than this suggests. Only 600 urban centers, with a fifth ofthe worlds population, generate 60percent of global GDP. In 2025, we still expect600 cities to account for about 60percent of worldwide GDPbut the cities wont bethe same. The earths urban landscape appears to be stable, but its center of gravityis shifting decisively, and at speed. Companies trying to identify the most promisinggrowth opportunities need to be able to map this movement and spot the individualcities where their businesses are most likely to thrive.Today, major urban areas in developed regions are, without d