Impact of Urbanization on Pakistan's Economy

Urbanization is reshaping Pakistan’s economic and social landscape, with profound implications for rural areas. As of 2023, Pakistan’s urban population stands at 37.4%, growing at an annual rate of 2.7%, one of the highest in South Asia (World Bank, 2023). This rapid urban expansion has led to significant rural-urban migration, altering labor dynamics, land use patterns, and agricultural productivity. While urbanization drives economic growth, its spillover effects on rural regions remain a critical area of study, particularly in a country where 38.8% of the workforce depends on agriculture (Pakistan Economic Survey 2023-24).

Rural-urban migration, driven by better employment opportunities, has led to labor shortages in agriculture. A declining rural workforce affects food production, causing increased reliance on mechanization. However, smallholder farmers, who constitute 64% of Pakistan’s agricultural sector, struggle to afford modern technology (FAO, 2023). Additionally, remittances from urban migrants provide rural households with income but also contribute to land abandonment and reduced on-farm labor. In Punjab, rural households receiving urban remittances decreased their agricultural engagement by 18% between 2015 and 2023 (LUMS Economic Review, 2023).

Globally, urbanization has been a double-edged sword for rural development. In China, urbanization reduced rural poverty but also intensified land fragmentation (Li et al., 2018). In contrast, countries like South Korea and Japan successfully narrowed rural-urban disparities through policies such as the "New Village Movement" (Chun-Chien & Chih-Hai, 2008). Pakistan faces similar challenges—declining agricultural yields, rural unemployment, and infrastructure gaps—yet lacks a cohesive strategy to harness urbanization for rural revitalization.

Addressing these challenges requires integrated rural-urban policies. Investments in rural infrastructure, agricultural modernization, and value chain integration can reduce disparities. Strengthening rural-urban linkages through improved transport and digital connectivity can also create non-farm employment opportunities, mitigating migration pressures while fostering balanced economic development.

Urbanization Trends in Pakistan

Urbanization in Pakistan is accelerating, reshaping rural demographics, land use, and economic structures. The country’s urban population is projected to reach 50% by 2050, driven by migration from rural areas in search of better employment (62%), education (23%), and healthcare (15%) (UN-Habitat, 2023; PIDE, 2023). Punjab and Sindh experience the highest migration rates, with 1.5 million people moving annually, creating both opportunities and challenges for rural and urban economies (Labour Force Survey 2022).

One of the most significant consequences of urbanization is the conversion of agricultural land for urban expansion. Urban sprawl consumes 2.3% of arable land yearly, threatening food security and rural livelihoods (FAO, 2023). In Punjab, peri-urban farms are increasingly transformed into housing societies, reducing the availability of fertile land for crop production (LDA Report, 2023). Small farmers, who own less than five acres and make up 65% of rural households, are particularly vulnerable to displacement, forcing many to shift to non-farm livelihoods or migrate to urban centers (Pakistan Bureau of Statistics, 2023).

While urbanization offers economic opportunities, rural areas face stagnation due to limited diversification. Non-farm rural employment, such as agro-processing and rural tourism, accounts for only 18% of rural GDP, indicating a lack of alternative economic pathways (State Bank of Pakistan, 2023). Although remittances from urban migrants contribute $8 billion annually to rural incomes, they are insufficient to drive sustainable rural development (Ministry of Overseas Pakistanis, 2023). Moreover, 70% of rural youth remain underemployed, underscoring the need for targeted policies that enhance skill development and create local employment opportunities (ILO, 2023). Addressing these issues requires a balanced approach that strengthens rural economies while managing the pressures of rapid urban expansion.

Global Lessons for Pakistan

China’s urban-rural integration model provides valuable lessons for Pakistan, particularly in land reforms and rural industrialization. By implementing policies that allowed rural industries to flourish, China increased rural incomes by 12% annually, significantly reducing poverty (World Bank, 2022). The establishment of e-commerce hubs, such as Taobao Villages, enabled farmers to connect directly with urban markets, enhancing their economic participation and market access (Ali et al., 2020). Similarly, South Korea’s Saemaul Undong, or New Village Movement, transformed rural communities through large-scale infrastructure investments, reducing poverty from 23% to just 2% over two decades (KOICA, 2021). The adoption of cooperatives and agri-tech solutions led to a 40% increase in agricultural productivity, demonstrating the effectiveness of a coordinated rural development strategy (RDA, 2023).

India’s Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) further highlights the impact of targeted rural employment programs. By guaranteeing work opportunities, MGNREGA lifted 60 million people out of poverty while strengthening rural economies (NITI Aayog, 2023). Additionally, digital inclusion initiatives, such as the e-NAM (National Agricultural Market), linked farmers to wider markets, improving price transparency and reducing exploitation.

Pakistan can adopt similar strategies to address rural challenges. Implementing zoning laws to protect farmland, as seen in Vietnam’s 2013 Land Law, can prevent excessive urban encroachment. Urban farming incentives, such as Lahore’s Vertical Farming Project, can promote food security. Economic diversification through agro-industrial zones, modeled after Bangladesh’s "One Village, One Product" initiative, could generate alternative income sources. Infrastructure expansion, including CPEC Rural Development Corridors, can strengthen market linkages, while 5G-enabled precision farming, piloted in Okara’s Smart Villages, can boost productivity. Finally, social protection programs, such as land-for-jobs schemes and skill development hubs like TEVTA’s Agri-Tech Programs, can support displaced farmers in transitioning to new opportunities.

Conclusion

Urbanization is an irreversible force shaping Pakistan’s economic and social landscape, with profound effects on rural areas. While urban expansion generates economic opportunities and enhances national productivity, it also presents challenges such as rural labor shortages, agricultural land conversion, and socio-economic disparities. Rural-urban migration, driven by employment, education, and healthcare opportunities, has altered Pakistan’s demographic and economic structures. However, without strategic planning, it risks exacerbating rural stagnation, reducing agricultural output, and increasing reliance on external remittances rather than sustainable local growth.

Global experiences from China, South Korea, and India illustrate how integrated rural-urban policies can mitigate urbanization’s negative effects while fostering rural development. Key lessons include land reforms to protect agricultural resources, rural industrialization to generate non-farm employment, and digital connectivity to bridge economic gaps between urban and rural markets. By adopting similar strategies, Pakistan can ensure that urbanization does not come at the cost of rural economic decline.

A balanced approach, combining infrastructure investments, policy interventions, and social protection programs, is crucial for fostering inclusive growth. Strengthening rural economies through agro-industrial zones, digital marketplaces, and smart farming initiatives can provide sustainable income sources. If managed effectively, urbanization can become a catalyst for rural revitalization rather than a force of economic displacement.

References: World Bank, UN-Habitat, Pakistan Economic Survey, PIDE, FAO, ILO, Various Research Papers.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad, Pakistan.

Related Stories