Growing a Developing City: A Computable Spatial General Equilibrium Model Applied to Dhaka

March 1 2019

As one of world’s fastest growing cities, Dhaka faces acute challenges in housing its growing population and developing a more productive economy. Central to this is the scarcity of high-quality urban land. Yet a vast tract of land near the heart of the city, East Dhaka, currently remains predominantly agricultural and undeveloped as a consequence of flooding. This paper uses a computable spatial general equilibrium model that captures the economic geography of the city, to estimate the economic returns of coordinated action to develop this land. The model captures different productive sectors, household skill levels, and types of housing. Firms and residents choose their location within the city given the transport network and land availability, generating a pattern of commercial and residential land-use. The paper estimates the incremental impacts on income, employment and population of an embankment and other flood protection measures to protect this land, as well as from improvement in transport infrastructure and targeted support for economic development in East Dhaka.

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Tony Venables is Professor of Economics at the University of Oxford where he also directs the Centre for the Analysis of Resource Rich Economies. He has published extensively in the areas of international trade and spatial economics, including work on trade and imperfect competition, economic integration, multinational firms, and economic geography.

Julia Bird is a Postdoctoral Research Economist at Oxford University. Her research focuses on understanding the location choices of individuals and firms within and across urban areas, and in particular, how these spatial patterns are affected by transport infrastructure.