The leading cities of the world are the very nodal hubs that knit the global economy together, without these global cities, there would be no global economy.

Indeed, as the center of global economic gravity shifts inexorably to the dynamic emerging markets in Asia, Latin America, Central and Eastern Europe, and Africa, cities there will correspondingly play a bigger role in driving global economic  rowth
and connectivity.

While the international flow of capital and the trade of goods and services have been meticulously measured and documented, the same cannot be said of the human dimension of globalization. International travel is a  powerful trend that shapes global commerce and underpins the growth of key industries such as transportation, retail, and hospitality, and professional services like marketing and advertising.

The economic and business impacts of international travel are especially pronounced in cities that are popular destinations of international travelers, and in these destination cities, spending by international visitors contributes significantly to local commerce and business activities, amplifying the dynamism of these urban economies.

While growth rates by visitor arrivals and expenditures are high overall, regardless of whether the destination cities are in the developed or emerging markets, many emerging market destination cities are showing both high visitor arrival and expenditure growth.

This kind of growth pattern strongly suggests that destination cities in emerging markets worldwide will continue to grow in importance in the new global economy.


Introduction

At some point in 2006-2007, for the first time in human history, the majority of the world's population lived in urban areas, up from just 15% in 1900. This is a historic milestone of a journey that started over 5,000 years ago, when dense human settlements appeared along fertile river valleys in different parts of the world that were recognizably the first cities in
history.

These were centers of administration and trade, evolved over time to manage and coordinate activities involving ever larger numbers of people. So from their very inception, cities came into being because of the need for exchanges: movement of goods, services, information, and people.

Today, cities continue to perform the same functions as their predecessors did some 5,000 years ago, except that they are now much bigger, more complex, and increasingly diverse, with vastly expanded geographical reach. Indeed, the leading cities of the world are the very nodal hubs that knit the global economy together. Without these global cities, there would be no global economy.

At the regional level, there are smaller cities that provide the structure and sinews that connect the regional economies, while serving as gateways linking their respective regions to the global economy.

The urban economies represented by cities are typically richer and more dynamic than the rural economies of the same country. This is due to the higher productivity made possible by both economies of scale and economies of scope, key characteristics of the urban economy and the very conditions that facilitate specialization.

The high population concentration in cities also means that mass consumer markets are found only in cities. In fact, many economists and urban geographers have long noticed that the urban economies of cities not only bring together but multiply human productive efforts.¹

In the aftermath of the 2008-2009 global financial crisis, many of the world's leading cities have demonstrated their resilience and ability to recover quickly.

Even in New York and London, the epicenters of the crisis, economic recovery has been much better than expected. The so-called cluster effect has a lot to do with it. The concentration of highly skilled knowledge workers in many cities attracts business investment even during a crisis, precisely because their services are needed for companies to cut costs, raise productivity, and compete more effectively during tough times.

Many skill-intensive services such as health and education also tend to be counter-cyclical, less affected in times of economic downturn. A high concentration of knowledge workers, in turn, attracts more knowledge workers and creates a more fertile environment for developing more skill-intensive services, creating a self-reinforcing virtuous cycle.

Indeed, in 2010, as bad as the unemployment situation was in the US, larger cities that are less dependent on  manufacturing and construction have seen faster job growth than the economy overall. In tech-business centers like San Jose and Orange County in California, and in cities where there are higher concentrations of skilled and knowledge workers like Austin, Dallas, Phoenix, and Boston, unemployment rates are as low as half that of the national average.² In cities in emerging markets in Asia and Latin America, there are simply no signs of a recession at all; they look like the boom towns that they are.

In the post-crisis global economy, cities and their urban economies will become even more important as engines of global economic growth. They will continue to connect global commerce and facilitate the exchange of ideas and flow of knowledge, thereby playing a critical role in incubating creative industries and generating new business activities. As the center of global economic gravity shifts inexorably to the dynamic emerging markets in Asia, Latin America, Central and Eastern Europe, and Africa, cities in those areas will correspondingly play a bigger role in driving global economic growth and connectivity.

An important dimension of how cities are connected across the globe is represented by cross-border travel and expenditures, the human dimension of globalization.

While the international flow of capital and the trade of goods and services have been meticulously measured and documented, the same cannot be said of this human dimension of globalization. International travel is a powerful trend that shapes global commerce and underpins the growth of key industries such as transportation, retail, and hospitality, and professional services like marketing and advertising.

The economic and business impacts of international travel are especially pronounced in cities that are popular destinations of international travelers, and in these destination cities, spending by international visitors contributes significantly to local commerce and business activities, amplifying the dynamism of these urban economies.

Counterintuitively, international travel and crossborder expenditures are powerfully transformative even from the perspective of local businesses. Take the retail industry, for instance, which is a highly localized business, historically and intimately affected by the fortunes of the local economies of the specific neighborhoods they serve.

With the rising tide of personal and business travel, however, the retail industries in destination cities around the world have become more connected to global demand represented by foreign visitors, whose consumption preferences and behavior may not be familiar to the local retailers.

Thus, the retail industry today faces both the welcome prospect of selling to foreign visitors coming from far-flung corners of the world, as well as unprecedented marketing challenges in having to compete in the global arena far beyond their traditional local markets.

The need to better understand these global destination cities and how they are connected by international travel is also illustrated by their performance in the aftermath of the worst global recession in the last 50 years, as summarized in Table 1.

In 2010, based on estimates of 132 cities in the world,³ their collective total outbound air passenger departures and outbound expenditures grew by 9.2% and 14.6% year-on-year, respectively. These robust growth rates compare favorably with the growth rates of world nominal GDP of 7.1% and world real GDP of 3.7%.

Growth of international travel and cross-border expenditures is clearly a resilient secular trend that will continue to shape the future of globalization as well as the urban economies of destination cities.

Full report:

www.insights.mastercard.com/wp-content/uploads/2011/06/Global_City_Travel_Connectivity_English.pdf

References:

1 Robert Lucas, Nobel Prize-winning economist, once quipped that the only reason why people are prepared to pay a small
fortune to live in a shoe box in Manhattan is because they can be close to other people who also paid a small fortune to
live in a shoe box there.
2 Bureau of Labor Statistics, US Government.
3 The selection of the 132 cities is based on previous research conducted by MasterCard Worldwide over the 2006-2007
period, known as the MasterCard Worldwide Centers of Commerce project (see MasterCard Worldwide Insights Report
Worldwide Centers of Commerce, 2008). In this research, 132 cities in the world were identified as candidates for
evaluation and as having the potential of playing the role of "centers of commerce" for both their respective regional
economies as well as in the global economy. These 132 cities and their regional distributions are listed in Appendix A.