Urbanization and population contraction

Abstract Urbanization is treated in the literature as a process that occurs along with economic development. We consider an overlapping generations model two regions, designated ‘urban’ and ‘rural’. Concentration of population to urban areas involves inflows from rural areas, thereby exacerbating congestion. Inverse agglomeration economies exert negative effects on income, consequently increasing attractiveness areas. Because lower fertility rates, urbanization decreases. Therefore, dynamics might be explained simultaneous contraction. However, depopulation mitigates congestion, which increases rate worker’s lifetime utility level. Eventually, it can lead stationary size.