My thesis is comprised of essays that study urban and environmental economic topics in developing countries. Three of the four essays study causal drivers behind the phenomenal urbanization and local economic growth in China. Its rapid growth in the recent decades provides an illustrative case for understanding how the spatial distribution of economic activities is affected by policies regulating factors of production. The fourth essay extends to another developing country, Tanzania, where the

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... hallenges posed by climate change faced by populations agglomerating in fast growing urban centers are substantial. This thesis strives to contribute to current research with my understanding of the contexts, utilization of new yet publicly available data, and novel methodology. The fist chapter, Political favoritism in China's capital markets and its effect on city sizes, examines political favoritism of cities and the effect of that favoritism on city sizes. To study favoritism we focus on capital markets, where defining favoritism is more clear-cut and not confounded with issues of city scale economies. Efficiency in capital markets requires equalized marginal returns to capital across cities, regardless of size. We estimate the city-by-city variation in the prices of capital across cities in China from 1998 to 2007. It shows how the prices facing the highest order political units and overall cross-city price dispersion change with changes in national policy and leadership. Next, the effect of capital market favoritism on city growth after the national relaxation of migration restrictions in the early 2000's is investigated. We develop a simple model to show that those cities facing a lower price of capital respond with larger population increases over the next decade, with the change labor mobility. The elasticity of the city growth rate with respect to the price of capital is estimated to be - 0.07 in the OLS approach and -0.12 in the IV approach. The second chapter, Early Chinese development zones: fist-mover a [...]