Many theories link urbanization with industrialization; in particular, with the production of tradable (and typically manufactured) goods. We document that the expected relationship between urbanization and the level of industrialization is not present in a sample of developing economies. The breakdown occurs due to a large sub-sample of resource exporters that have urbanized without increasing output in either manufacturing or industrial services such as finance. To account for these stylized facts, we construct a model of structural change that accommodates two different paths to high urbanization rates. The first involves the typical movement of labor from agriculture into industry, as in many models of structural change; this stylized pattern leads to what we term "production cities" that produce tradable goods. The second path is driven by the income effect of natural resource endowments: resource rents are spent on urban goods and services, which gives rise to "consumption cities" that are made up primarily of workers in non-tradable services. We document empirically that there is such a distinction in the employment composition of cities between developing countries that rely on natural resource exports and those that do not. Our model and the supporting data suggest that urbanization is not a homogenous event, and this has possible implications for long-run growth.

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We exploit the construction and eventual demise of the colonial railroads in Africa to study the impact of transportation investments in poor countries. Using Ghana and Sub-Saharan Africa as a whole, we assembled new data on railroads and cities spanning over one century to show that: (i) Railroads had large effects on the spatial distribution and aggregate level of economic activity during the colonial period, as they constituted a transportation revolution in a context where no modern transportation technology previously existed. (ii) These effects have persisted to date, although railroads collapsed and road networks expanded considerably in the post-independence period. The analysis contributes to our understanding of the heterogeneous impact of transportation investments. It shows that initial investments may have a large effect in poor countries with basic infrastructure. As the countries develop, increasing returns may then solidify their spatial distribution, and subsequent investments may have a smaller effect on local economic development.

Ethnic favoritism refers to a situation where coethnics benefit from patronage and public policy decisions, and thus receive a disproportionate share of public resources, when members of their ethnic group control the government. It has been argued by historians, political scientists, and economists that this phenomenon has hampered the economic performance of many countries, particularly in Africa

Little is known about the extent and forces of path dependence in developing countries. Colonial era railway construction in Kenya provides a natural experiment to study the emergence and persistence of a spatial equilibrium. Data spanning over one century show that railways determined the location of European settlers, Asian traders and the main cities at independence. Europeans then left, Asians departed and railways declined in the immediate post‐independence period, constituting local shocks to physical and human capital. Yet the colonial cities persisted. We test four explanations for path dependence based on institutional persistence, technological change, sunk investments and spatial coordination failures.