URBANIZATION TRENDS

URBANIZATION REPORT EUROPEAN URBANIZATION TRENDS BBVA Research EUROPE URBANIZATION TRENDS

The urbanization process The European There’s still an important in Europe took place urbanization gap between Western and rapidly since 1950, but in phenomenon is associated the Emerging Europe. the 90s it moderated its with higher economic, Responsive and pace and it will likely be technological and digital accountable policies are slower during the next ten development needed to support years sustainable development

European cities have Differences between become in important hubs Western and Eastern for education, innovation Europe also hold at and knowledge-based regional levels. Smart economies. Digitalization cities oriented policies will has been fundamental to foster technological and increase competitiveness sustainable development

2 EUROPE URBANIZATION TRENDS

Almost three quarters of the European population lived in urban areas in 2015 And it could rise to just over 80 % by 2050

SHARE OF URBAN AND RURAL POPULATION BY (1950-2050) (% total population)

AFRICA EUROPE 100 100 100 80 80 80 60 60 60 40 40 40 20 20 20

0 0 0

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

LATIN AMERICA AND THE NORTHERN AMERICA

100 100 100 80 80 80 60 60 60 40 40 40 20 20 20

0 0 0

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Urban area Rural area Source: BBVA Research and UN 3 Note: See the annex for further information about the methodology EUROPE URBANIZATION TRENDS

The rapid pace of urbanization in until 1990 reduced the gap with Western countries

SHARE OF URBAN AND RURAL POPULATION IN EUROPE (1950-2050) (% total population)

EASTERN EUROPE

100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10

0 0

2030 1950 1950 1960 1970 1980 1990 2000 2010 2020 2040 2050 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Urban area Rural area Source: BBVA Research and UN 4 Note: See the annex for further information about the methodology EUROPE URBANIZATION TRENDS

Urbanization has shown a positive relation with income…

LEVEL OF URBANIZATION AND GDP PER CAPITA LEVEL OF URBANIZATION AND GDP PER CAPITA IN EUROPE IN 2000-2015 IN EUROPE IN 2015

45000 40000 Advanced 40000 Norway

Europe 35000 Switzerland

Netherlands 35000 Ireland Denmark 30000 United Kingdom United Austria Sweden 30000 Kingdom Italy Belgium 25000 Germany France Finland Poland Cyprus 25000 Spain 20000 Portugal Spain Greece Malta 20000 Slovenia Czech Republic Romania 15000 15000 Slovak RepublicHungary

Poland Estonia GDP per capita (USD (USD capita GDPper PPP) GDP per capita (USD (USD capita GDPper PPP) Croatia Estonia 10000 Lithuania Latvia 10000 Bosnia and Macedonia Serbia Russia Herzegovina Montenegro Emerging 5000 Bulgaria 5000 Europe Romania Belarus Albania Georgia Ukraine Moldova Armenia 0 0 40 50 60 70 80 90 30 40 50 60 70 80 90 100 Urban population (% of total) Urban population (% of total) 2000 2015

Source: BBVA Research, Bank and UN 5 EUROPE URBANIZATION TRENDS

… labor productivity…

LEVEL OF URBANIZATION AND LABOR LEVEL OF URBANIZATION AND LABOR PRODUCTIVITY IN EUROPE IN 2000-2015 PRODUCTIVITY IN EUROPE IN 2015

100000 140000

France Advanced

90000 Norway Europe 120000 80000 Ireland Spain United Denmark 70000 100000 Sweden Kingdom Switzerland Netherlands France 60000 Spain 80000 Austria Finland Poland Germany Italy 50000 Slovenia Greece United Kingdom 60000 Lithuania 40000 Bosnia and Estonia Romania Estonia Herzegovina Latvia 30000 Cyprus Russia

40000 Montenegro Labor productivity (USD PPP) productivity Labor Labor productivity (USD productivity PPP) Labor Azerbaijan Bulgaria 20000 Romania Emerging Serbia Georgia 20000 Albania 10000 Europe Ukraine Moldova Armenia 0 0 40 50 60 70 80 90 20 40 60 80 100 Urban population (% of total) Urban population (% of total) 2000 2015

Source: BBVA Research, World Bank and UN 6 EUROPE URBANIZATION TRENDS

… as well as with technological adoption and competitiveness levels

LEVEL OF URBANIZATION AND TECHNOLOGICAL LEVEL OF URBANIZATION AND GLOBAL ADOPTION INDEX IN EUROPE IN 2015 COMPETITIVENESS INDEX IN EUROPE IN 2015 (scale ranges from 1 to 7, best) (scale ranges from 1 to 7, best)

6.5 6

Switzerland Finland Ireland Netherlands United Kingdom 6 Switzerland Luxembourg Germany 5.5 Sweden Sweden Portugal Germany Norway Norway Denmark France United Kingdom 5.5 Lithuania Finland Belgium Austria Austria Iceland Belgium Estonia Denmark 5 Ireland France Luxembourg Turkey Estonia Slovak Republic Spain 5 Cyprus Latvia Azerbaijan Portugal Spain Iceland Montenegro Czech Republic Slovenia Romania 4.5 Poland Malta Croatia Greece Romania Italy Bulgaria Technological adoption adoption Technological 4.5 Slovenia Poland Hungary Moldova Bulgaria Georgia Armenia Moldova Georgia Competitiveness Index Global Croatia Ukraine Italy Slovak Republic Greece Albania 4 4 Armenia Ukraine Serbia Serbia Albania

3.5 3.5 30 50 70 90 30 50 70 90 Urban population (% of total) Urban population (% of total)

Source: BBVA Research, Weforum 7 EUROPE URBANIZATION TRENDS

There’s a significant technological gap between the advanced and the developing Europe

AVAILABILITY OF LATEST TECHNOLOGIES BUSINESS SOPHISTICATION

7 ) 7 , ,

6 best 6

7 7 (

-

, , 1

) 5 5

technologies

best

( 4 latest

7 7 4

-

1

of of

3 sophistication 3

2 2 Availability 2007 2008 2009 2010 2011 2012 2013 2014 2015 Business 2007 2008 2009 2010 2011 2012 2013 2014 2015

FIRM-LEVEL TECHNOLOGY ABSORPTION ICT USE

, , 7 7

6

6 )

absorption

best

) 5

5 7 (

- best

4 7 7 (

- 4

1

use, use, 1 technology 3

3 ICT

level - 2 2 Firm 2007 2008 2009 2010 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Romania United Kingdom Emerging and Developing Europe Advanced Europe

Source: BBVA Research, Weforum 8 EUROPE URBANIZATION TRENDS

Higher levels of urbanization also correlates positively with ICT developments…

LEVEL OF URBANIZATION AND ICT DEVELOPMENTS IN EUROPE IN 2005-2016* INTERNET USE IN EUROPE IN 2015 140 Denmark Norway 100 Iceland 120 Netherlands Finland Luxembourg

Switzerland 100 90 United Kingdom Sweden Austria France Germany 80 Belgium 80 Latvia Czech Republic Spain 60

Internet (%) Internet Ireland Slovenia Lithuania Cyprus Hungary 40 70 Bosnia and Croatia Herzegovina Portugal Greece Serbia Poland 20 Montenegro Belarus 60 Armenia Italy 0 Romania Bulgaria 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Albania

Individuals using the the using Individuals 50 Moldova Ukraine Fixed-telephone subscriptions Fixed broadband subscriptions Georgia Mobile-cellular telephone Households with a computer 40 subscriptions Households with Internet 30 50 70 90 Active mobile-broadband access at home Urban population (% of total) subscriptions Individuals using the Internet

* Estimate Source: BBVA Research, ITU World Telecommunication /ICT Indicators database 9 EUROPE URBANIZATION TRENDS

… and with the quality of infrastructures and workforce

GLOBAL QUALITY OF EDUCATION AND TRAINING IN 2015 TRANSPORT INFRASTRUCTURE IN 2015 INFRASTRUCTURES IN 2015 (scale ranges from 1 to 7, best) (scale ranges from 1 to 7, best) (scale ranges from 1 to 7, best) 6.5 6.5 Netherlands 7 Finland Germany Spain 6 France Switzerland Netherlands 6.5 Netherlands Switzerland Finland 6 Switzerland United Austria Germany Belgium 5.5 Kingdom

Norway

France Iceland Finland Belgium

7 7 (best) 6 Denmark

- Austria Spain Luxembourg Ireland Germany Portugal Portugal Sweden Sweden 5.5 SwedenIceland 5 Turkey Denmark Austria Portugal Estonia United Iceland 5.5 Belgium France Italy Norway Norway United Kingdom Ireland Estonia Slovenia Lithuania Spain 4.5 Luxembour Cyprus Kingdom Latvia Czech Cyprus g Slovenia Ireland Hungary 5 Poland Czech 5 Slovak Republic Slovenia Croatia Malta Croatia Malta Ukraine Malta LithuaniaRepublic Lithuania Republic Greece 4 Greece Croatia Italy Luxembourg Latvia Georgia Estonia Italy Greece Romania Hungary

4.5 Transport infrastructure Georgia Armenia Montenegro 4.5 Albania Hungary 3.5 Slovak Slovak Poland Republic Ukraine Higher education and training Bulgaria Republic Bulgaria 4 Poland Serbia Armenia Armenia 3 Quality Quality of overall infrastructure, 1 Albania Bulgaria Moldova Romania Albania Moldova 4 3.5 Montenegro Georgia Moldova Serbia 2.5 Serbia

3 3.5 2 30 50 70 90 110 30 50 70 90 30 50 70 90 Urban population (% of total) Urban population (% of total) Urban population (% of total)

Source: BBVA Research, Weforum 10 EUROPE URBANIZATION TRENDS

There’s also room for improvement in policy making to reduce the gap between the advanced and the emerging Europe

INFRASTRUCTURE AND EDUCATION INDICES ACROSS EUROPEAN COUNTRIES, 2010-2015 (scale ranges from 1 to 7, best)

7

6

5

4

3

2

1

0 Advanced Emerging France United Kingdom Spain Estonia Poland Romania Europe Europe Quality of overall infrastructure Higher education and training Transport infrastructure

11 EUROPE URBANIZATION TRENDS

RegionalThe role of Analysiscities xxxx EUROPE URBANIZATION TRENDS

Evolution of the urban landscape: increasing role of cities

THE WORLD’S CITIES BY SIZE CLASS OF URBAN SETTLEMENT 1990 2030

City population: 10 mill or more 5 to 10 mill 1 to 5 mill 500000 to 1 mill Source: BBVA Research, UN 13 Note: See the annex for further information about the methodology EUROPE URBANIZATION TRENDS

Higher urban agglomerations are also positively associated with income growth and labor productivity

URBAN AGGLOMERATION AND GDP PER CAPITA URBAN AGGLOMERATION AND LABOR IN THE EUROPEAN CITIES IN 2015 PRODUCTIVITY IN THE EUROPEAN CITIES IN 2015

80000 180

Luxembourg Luxembourg Stuttgart 160

70000

Munich 140 Brussels Amsterdam London 60000 Brussels 120 Hamburg Dublin Paris Vienna Warsaw Prague Bratislava 100 Paris Dublin Riga Cologne London 50000 Milan Cologne Stuttgart Copenhagen Prague Oxford 80 Milan Copenhagen Stockholm Vienna Roma Madrid Helsinki Berlin 40000 Budapest 60 Barcelona Oxford Bucharest Lisboa Valletta Roma Rotterdam 40 Sofia GDP per capita (USD (USD capita GDPper PPP) Madrid Berlin

Bilbao (USD productivity PPP) Labor 30000 Barcelona Zagreb Riga Sofia Lisboa 20 Athens 20000 Valletta 0 0 2000 4000 6000 8000 10000 12000 0 2000 4000 6000 8000 10000 12000

Urban agglomeration (Inhabitants per km2) Urban agglomeration (Inhabitants per km2)

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Urban areas became major hubs for education, innovation and knowledge-based economies

INNOVATION AND R&D HIGH-TECHNOLOGY HIGH QUALITY OF SECTORS INFRASTRUCTURE

KNOWLEDGE DIGITAL INTENSIVE JOBS INFRASTRUCTURE

Cities HIGH SKILLED are at the forefront of HIGH USE WORKFORCE technological and OF INTERNET digital developments

15 EUROPE URBANIZATION TRENDS

There are still important heterogeneities in education attainments across European cities

100 12 90 10 80 70 8 60 50 6 40 4 30 20 2 10

0 0

Riga

Paris

Sofia

Berlin

Roma

Bilbao

Dublin Vinna

Vilnius

Lisboa Milano

Oxford

Madrid

Valleta

Athens

Zagreb

Prague Munich

London

Helsinki

Warsaw

Cologne

Stuttgart

Brussels

Hamburg

Budapest

Bratislava

Bucharest

Barcelona

Stockholm Rotterdam

Amsterdam

Luxembourg Copenhagen

Tertiary education Upper secondary and post-secondary non-tertiary education Less than primary, primary and lower secondary education Employment in technology and knowledge-intensive sectors (rhs)

16 EUROPE URBANIZATION TRENDS

… as well as in innovation and the quality of infrastructures

RESEARCH AND DEVELOPMENT INVESTMENT PUBLIC TRANSPORT SATISFACTION IN THE EUROPEAN CITIES IN 2015 IN THE EUROPEAN CITIES IN 2015

Total R&D expenditure (%GDP) Proportion of people who are satisfied with public transport Number of in their city High-tech patent applications

17 EUROPE URBANIZATION TRENDS

Differences in the digitalization variables are also significant at regional levels

DIGITALIZATION LEVELS IN DIGITALIZATION LEVELS BY THE EUROPEAN CITIES IN 2015 EUROPEAN IN 2015

Internet daily use 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Social networks use E-banking use 89% 65% E-Government use Nordics 87% 83% 79% 58% Advanced Europe 58% 60% 74% 56% 58% 55% 68% 49% PIIGS 40% 48% 63% 56% 28% 39%

Internet daily use Social Networks use E-banking use e-Government use

18 EUROPE URBANIZATION TRENDS

Successful sustainable urbanization requires responsive and accountable governments Fostering smart cities oriented policies will be key to attain urban sustainability

HUMAN FACTORS TECHNOLOGY FACTORS INSTITUTIONAL FACTORS Smart Smart Smart Smart Smart Smart people mobility living economy governance environment Social & Accessibility and Quality of life Competitiveness Participation & Infrastructure Human Capital transport Decision Making (ICT)

SMART CITIES

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ANNEX EUROPE URBANIZATION TRENDS

Urban population projections

The estimation and projection of the urban population by the United Nations is based on observed changes in the proportion of the population living in urban areas by country for the period 1950-2050 in single-year intervals. It relies on the data produced by national sources.

Calculation of the urban proportion during the estimation period involves interpolation between recorded figures and extrapolation back to 1 July 1950 when the earliest recorded figures referred to a later date. The used estimation method projects the most recently observed urban-rural growth difference by assuming that the proportion urban follows a logistic path that attains a maximum growth rate when the proportion urban reaches 50% and whose asymptotic value is 100%. Thus, the hypothetical urban-rural growth difference (ℎ푟푢푟), was obtained by regressing the urban-rural growth difference during any given time interval on the percentage urban at the mid-point of the corresponding time interval, for the 148 countries with 2 million or more inhabitants in 2013. The resulting regression equation estimated on 1068 observations is as follows:

0.030588 − 0.020508 ×PU 푛 푛ℎ푟푢푟푡 = (푡+ ) 2 푛 Where PU(푡+ ) is the proportion urban for the mid-point of the intercensal period between time t and t+n. 2 The obtained urban ratios were applied to the estimates and projections of the total national population of each country derived from Prospects: The 2012 Revision, so as to obtain the corresponding urban population for 1950 to 2050.

Estimates and projections of the population of cities with an estimated population of 300,000 inhabitants or more in 2014 were also calculated for the period 1950-2030. The procedure is similar to the one described above for the proportion urban. However, in this case, instead of using the urban-rural growth difference, the interpolation or extrapolation is based on the difference between the growth rate of a city and the growth rate of the population of the rest of the country. The method used for projecting city populations is also similar to that used for urban populations. The city growth rate over the most recent intercensal period is modified over the projection period so that it approaches linearly an expected value that is based on the city population and on the growth rate of the urban population as a whole. The difference between the rate of population growth for the city and that for the total urban population (푟푐푢) was estimated using the following regression equation, which was fitted to the data relative to 5305 cities located in the 232 countries or areas analysed (28931 observations):

푛푟푐푢푡 = 0.0547143 − 0.003383 × ln(퐶푡)− 0.3086313 × 푛푢푡− 0.001116 × (ln(퐶푡) × 푛푢푡)

Where 퐶푡 is the population of the city at time t, 푛푢푡 is the growth rate of total urban population, and (ln(퐶푡) × 푛푢푡) is the interaction term between these two variables.

21 EUROPE URBANIZATION TRENDS

BBVA Research Group Chief Economist Jorge Sicilia

Macroeconomic Analysis Financial Systems & Regulation Spain & Portugal Rafael Doménech Santiago Fernández de Lis Miguel Cardoso Juan Manuel Ruiz [email protected] [email protected] [email protected] [email protected] Global Macroeconomic Scenarios Countries Coordination of America Argentina Miguel Jiménez Olga Cerqueira Nathaniel Karp Gloria Sorensen [email protected] [email protected] [email protected] [email protected] Chile Global Financial Markets Digital Regulation Jorge Selaive Sonsoles Castillo Álvaro Martín Carlos Serrano [email protected] [email protected] [email protected] [email protected] Colombia Global Modelling & Regulation Turkey, China & Geopolitics Juana Téllez Long Term Analysis María Abascal Álvaro Ortiz [email protected] [email protected] Julián Cubero [email protected] Peru [email protected] Hugo Perea Financial Systems Turkey [email protected] Innovation & Processes Ana Rubio Álvaro Ortiz [email protected] Oscar de las Peñas [email protected] Venezuela [email protected] China Julio Pineda Financial Inclusion Le Xia [email protected] David Tuesta [email protected] [email protected]

Contact details: BBVA Research BBVA Research Asia Ciudad BBVA 43/F Two International Finance Centre 28046 Madrid (Spain) 8 Finance Street Central Tel. + 34 91 374 60 00 and + 34 91 537 70 00 Hong Kong Fax. +34 91 374 30 25 Tel: +852 2582 3111 [email protected] E-mail: [email protected] www.bbvaresearch.com

22 EUROPE URBANIZATION TRENDS

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This report has been produced by BBVA Research Team

Chief Economist, Asia, MENA & Geostrategy Álvaro Ortiz Vidal-Abarca [email protected] CONTACT DETAILS

Lead Economist, BBVA Research Macroeconomic Scenarios Ciudad BBVA 28046 Madrid (Spain) Miguel Jiménez Tel. + 34 91 374 60 00 and + 34 91 537 70 00 [email protected] Fax. +34 91 374 30 25 [email protected] Tomasa Rodrigo www.bbvaresearch.com [email protected]

Manuel Cabezas [email protected]

24 EUROPE URBANIZATION TRENDS

URBANIZATION REPORT EUROPEAN URBANIZATION TRENDS BBVA Research