Markets
Investing Megatrend: How Rapid Urbanization is Shaping the Future
How Rapid Urbanization is Shaping the Future
The world is constantly changing, and many of these shifts have the potential to alter the investment landscape.
While some of these changes can be temporary and fleeting, others can be powerful, transformative “megatrends” that shape how society is organized at a fundamental level.
One such megatrend that has been in place for decades is the rapid rate of population growth in urban areas — and while it’s been highly influential thus far, we’ve likely only seen the beginning of its formative impact on the global economy.
An Intro to Rapid Urbanization
Today’s infographic comes to us from iShares by BlackRock, and it highlights the case for rapid urbanization as being one of the most important overarching trends to watch in markets over the long term.
It’s a trend that originated in developed economies in the 21st century, as people transitioned from agricultural work to factory and service jobs.
| Region | Urban share of population (1900) | Urban share of population (2016) |
|---|---|---|
| United States | 40% | 82% |
| Japan | 12% | 91% |
| Western Europe | 41% | 80% |
In these developed economies today, cities are major sources of innovation and wealth creation, and the World Bank estimates that over 80% of global GDP is now generated in cities.
A Global Shift
Over the coming decades, the large-scale role of cities will become even more amplified as rapid urbanization spills over to the rest of the world.
Billions of people — especially in Asia and Africa — will be seeking opportunities in cities over the coming decades. Between 2018 and 2050, the global urban population will increase from 55% to 68%, adding another 2.5 billion people to cities around the world.
| Rank | Country | Urban population growth (2018-2050) |
|---|---|---|
| #1 | India | 416 million people |
| #2 | China | 255 million people |
| #3 | Nigeria | 189 million people |
Nearly 90% of this growth will be in Africa and Asia, with India alone adding 416 million new people to its cities — more than any other country in the world over this timeframe.
The Dawn of the Megacity
People are not only flocking to cities, they are flocking to megacities — urban conglomerations with more than 10 million people.
In just 40 years, the total amount of megacities will quadruple, gaining nearly 600 million residents in the process:
| Year | # of Megacities | Population | % of Urban Population |
|---|---|---|---|
| 1990 | 10 | 153 million | 7% |
| 2010 | 23 | 370 million | 12% |
| 2030 | 41 | 730 million | 14% |
With billions of new people living in urban areas — and many of them living in megacities — we will have to rethink how our cities are designed and engineered.
And as this happens, the city as we know it will be revolutionized.
The Urban Opportunity
Rapid urbanization will create both opportunities and challenges for society, and a plethora of investment possibilities in the process.
As global cities become more integrated with technology, new business models will emerge as cities become smarter, denser, and more connected.
These potential opportunities include:
- Smarter cities
Cities will embrace technology to improve services and infrastructure, adding tech-driven features like smart lighting or real-time traffic updates. - New infrastructure
Cities and companies will invest heavily to build next generation infrastructure, such as data centers, green energy, and citywide WiFi. - A focus on personal security
With higher crime rates in cities than rural areas, governments will employ elevated levels of surveillance on citizens in cities. Increasing connectivity means that every activity is logged and monitored. - New services
As cities become more connected, non-traditional players — such as cybersecurity experts or cleantech engineers — will be needed as a part of city planning processes. - No car ownership
A lack of space and the rise of autonomous cars will mean fewer people will own a car, preferring to use ‘summon-able’ services instead. - New healthcare systems
As population density grows to unprecedented levels, existing healthcare systems will need to be radically overhauled to deal with this influx.
Rapid urbanization will have a wide-ranging impact on global economics, demographics, and society as a whole.
As rapid urbanization and other megatrends collide and feed off each other, there’s no doubt that even more thematic investment opportunities will be created.
Markets
Mapped: Distribution of Global GDP by Region
Where does the world’s economic activity take place? This cartogram shows the $94 trillion global economy divided into 1,000 hexagons.
Mapped: The Distribution of Global GDP by Region
Gross domestic product (GDP) measures the value of goods and services that an economy produces in a given year, but in a global context, it is typically shown using country-level data.
As a result, we don’t often get to see the nuances of the global economy, such as how much specific regions and metro areas contribute to global GDP.
In these cartograms, global GDP has been normalized to a base number of 1,000 in order to show a more regional breakdown of economic activity. Created by Reddit user /BerryBlue_Blueberry, the two maps show the distribution in different ways: by nominal GDP and by GDP adjusted for purchasing power parity (PPP).
Methodology
Before diving in, let us give you some context on how these maps were designed. Each hexagon on the two maps represents 0.1% of the world’s overall GDP.
The number below each region, country or metropolitan area represents the number of hexagons covered by that entity. So in the nominal GDP map, the state of New York represents 20 hexagons (i.e. 2.0% of global GDP), while Munich’s metro area is 3 hexagons (0.3%).
Countries are further broken down based on size. Countries that make up more than 0.95% of global GDP are broken down into subdivisions, while countries that are smaller than 0.1% of GDP are grouped together. Metro areas that account for over 0.25% of global GDP are featured.
Finally, it should be noted that to account for some outdated subdivision participation data, the map creator calculated 2021 estimates for this using the formula: national GDP (2021) x % of subdivision participation (2017-2020).
Nominal vs. PPP
The above map is using nominal data, while the below map accounts for differences in purchasing power (PPP).
Adjusting for PPP takes into account the relative value of currencies and purchasing power in countries around the world. For example, $100 (or its exchange equivalent in Indian rupees) is generally going to be able to buy more in India than it is in the United States.
This is because goods and services are cheaper in India, meaning you can actually purchase more there for the same amount of money.
Anomalies in Global GDP Distribution
Breaking down global GDP distribution into cartograms highlights some interesting anomalies worth considering:
- North America, Europe, and East Asia, with a combined GDP of nearly $75 trillion, make up 80% of the world’s GDP in nominal terms.
- The U.S. State of California accounts for 3.7% of the world’s GDP by itself, which ranks higher than the United Kingdom’s total contribution of 3.3%.
- Canada as a country accounts for 2% of the world’s GDP, which is comparable to the GDP contribution of the Greater Tokyo Area at 2.2%.
- With a GDP of $3 trillion, India’s contribution overshadows the GDP of the whole African continent ($2.6 trillion).
- This visualization highlights the economic might of cities better than a conventional map. One standout example of this is in Ontario, Canada. The Greater Toronto Area completely eclipses the economy of the rest of the province.
Inequality of GDP Distribution
The fact that certain countries generate most of the world’s economic output is reflected in the above cartograms, which resize countries or regions accordingly.
Compared to wealthier nations, emerging economies still account for just a tiny sliver of the pie.
India, for example, accounts for 3.2% of global GDP in nominal terms, even though it contains 17.8% of the world’s population.
That’s why on the nominal map, India is about the same size as France, the United Kingdom, or Japan’s two largest metro areas (Tokyo and Osaka-Kobe)—but of course, these wealthier places have a far higher GDP per capita.
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