Urban Economy & Finance

UN-HABITAT

What is Urban Economy / Finance?

Let us explain these terms and why they are important

Urban Economy

Urban economy is the economic study of urban areas; as such, it involves using the economic tools to analyze urban issues such as crime, education, public transit, housing, and local government finance. It is focused on promoting urban strategies and policies that strengthen the capacity of cities to realize their full potential as drivers of economic development, and of wealth and employment creation. Special attention is paid to the formulation and implementation of urban strategies and policies that promote and boost the participation of both men and women, enhance municipal finance and contribute to the creation of decent urban jobs and livelihoods that increase economic empowerment, in particular for youth and women. 

Urban Finance

Urban finance concerns itself with the study of revenue and expenditure decisions of municipal governments. It covers the sources of revenue that are used by municipal governments – taxes (property, income, sales, excise taxes), user fees, and intergovernmental transfers. It includes ways of financing infrastructure through the use of operating revenues and borrowing as well as charges on developers and public-private partnerships. Urban finance also addresses issues around expenditures at the local level and the accountability for expenditure and revenue decisions, including the municipal budgetary process and financial management. 

Why does Urban Economy and Finance matter?

By 2050, an estimated 70% of the world’s population will live in cities. As a result of this rapid urbanization, there is need for new infrastructure: new roads, new sewage systems, new power stations, water-supply networks, telecommunication networks, etc. Without this infrastructure it will not be possible to create sustainable cities – cities that are considerate of their social, economic, and environmental impacts, cities that offer an adequate habitat to their populations without undermining the ability of future generations to experience the same. Without this infrastructure, urban poverty, pollution and inequality will increase and the population living in slums will increase beyond the already staggering 1 billion.

   

To address these challenges, cities must optimally utilize their investments to improve public service delivery. Strategic thinking and urban planning are necessary to ensure that these investments optimally leverage the value creation and human resource potential of cities. The effectiveness and strategic nature of these investments is crucial as there is not enough funding available to fill the global infrastructure gap of nearly $1 trillion. Given the size of this investment gap it will however not suffice to increase the effectiveness of investments in cities. Work is necessary to attract more private sector funding, decrease the cost of finance for cities and strengthen cities’ own-source revenue generation. Urban Economics and Urban Finance are two complementary fields without which it will not be possible to meet the public service delivery challenges our cities are facing world-wide. 

Our Role

What is our mission at the Urban Economy and Finance Branch?

Normative

As a United Nations agency our role is to disseminate best practices, share knowledge, connect diverse actors and advocate for improved urban economic and financial practices

Operational

Normative work has to be based on the insights which emerge directly from the field. We therefore also support our partners in a variety of technical ways. Our normative and operational work is tightly connected and one reinforces the other

What operational/technical support do we provide to our partners?

  • Supporting sub-national governments optimize their own-source revenue

Sample Analysis (Illustrative)

Land-based finance instruments
e.g. Nearly unused 27%
User Fees
e.g. Room for Improvement 50%
Fines, & Other Revenue Streams
e.g. Nearly fully leveraged 82%
  • Increasing access to credit, grants and private sector investment

Funds

Supporting with the design and capitalization of local investment funds

Grants

Supporting access to various grants and donor funding

PPPs

Optimizing usage of public-private partnerships and bankability of projects

  • Supporting local economic growth, development and dynamism

With limited funding it is crucial for local governments to be strategic as to where they put their money. We support local governments in finding a strategy that optimally leverages local resources, assets and capabilities

To minimize financial constraints, private sector investment needs to be attracted for basic service provision and economic growth. We support local governments in improving business conditions and finding key investment opportunities

One of the key characteristics that local governments need to deal with to leverage the private sector and increase local revenue is informality. We help governments work with the informality of their economy

Blog

Browse through our and our partner's latest contributions to Urban Economy and Finance

Sustainable Municipal Finance for Development

Local Governments need to achieve sustainable sources of finance to be able to invest in urban infrastructure and offer basic services. However, local governments face several challenges such as insufficient…

Expanding Municipal Revenues

The costs that municipal governments face are likely to increase every year in line with the processes of urbanization taking place around the world. Thus, raising municipal revenues is among…

Principles of Municipal Finance

Municipal finance consists of the revenue and expenditure of local government in urban areas. Although the remit and capacities of local governments to engage in financial decisions vary enormously, across…
Le-Yin Zhang is a senior lecturer at the University College London. She is specialized in the management of city economies and works i.a. on low-carbon transitions, green finance
Le-Yin Zhang
Senior Lecturer University College London
Kwasi Kwarfo Adarkwa (PhD) is a Ghanaian academician and former Vice-Chancellor of Kwame Nkrumah University of Science and Technology
Kwasi Kwarfo Adarkwa
Former Vice-Chancellor Kwame Nkrumah University (KNUST)

Contributors

Find out who is featured on our blog

Nic Cheeseman is associate professor of African Politics at Oxford Universtiy, and founding editor of the Oxford Encyclopedia of African Politics
Nic Cheeseman
Associate Professor Oxford University
Devashree Saha is an associate fellow at the Brookings Institution Metropolitan Policy Program and has over 10 years of experience in policy research on economic issues
Devashree Saha
Fellow at Brookings Institution
Dominic Burbidge is departmental lecturer in the School of Interdisciplinary Area Studies at Oxford University and has widely published on local government and social trust
Dominic Burbidge
Lecturer Oxford University
Armando Morales is the International Monetary Fund Resident Representative in Kenya, where he has served as coordinator of the African Department Monetary Policy Network
Armando Morales
Resident Representative International Monetary Fund, Kenya

Urban EcoFin News

Find out more our about the latest developments and trends in Urban and Municipal Finance