How do we really know a city is doing well economically? Is it the number of new jobs announced every quarter? The rise of start-ups? Investor-friendly policies? Tourism growth? Industrial corridors? Or the latest wave of AI investment that promises to “transform” the region?

Most cities measure success through GDP growth, revenue reports, and visible construction. These indicators are convenient, measurable, and politically attractive. But they rarely answer the deeper and more uncomfortable question: is the city actually keeping the wealth it generates?

The real test of an urban economy is not how much money enters it, but how long that money stays.

The most powerful diagnostic question for any developing city is deceptively simple: where is the dollar earned in this city spent? If a significant share of locally earned income continues to circulate within the city, supporting local businesses, workers, suppliers, and services, the city demonstrates strong economic retention. If, however, most of that income quickly flows outward to external suppliers, distant corporate headquarters, imported goods, or outside investors, the city is experiencing economic leakage.

This distinction matters far more than headline growth rates.

Economic retention strengthens what economists call the local multiplier effect. When money circulates locally, businesses expand, employment deepens, local supply chains mature, and fiscal revenues become more stable. Over time, this creates stronger agglomeration mechanisms, improves service quality, and builds endogenous capacity for growth. The city becomes economically self-reinforcing rather than externally dependent.

In contrast, high leakage creates the illusion of prosperity. A city may attract investment, host large projects, and report impressive growth numbers, yet remain structurally fragile. When profits are extracted and spent elsewhere, when inputs are imported rather than locally sourced, and when decision-making authority sits outside the city, growth becomes shallow. The economy expands, but it does not thicken.

This way of thinking is not entirely new. Early urban economists, through Economic Base Theory, distinguished between export-oriented “basic” industries and locally serving “non-basic” industries, often using tools such as the location quotient to understand economic specialization. However, their focus was primarily on employment concentration rather than capital circulation. Today, the concept of the circular flow of income provides a more direct lens. The model illustrates how households supply labor and resources to firms, earn income, and then spend that income on goods and services, allowing money to continuously move through the economy. When applied at the city scale, it becomes a way to understand urban metabolism through financial flows rather than just physical infrastructure.

For developing cities, this perspective is especially urgent. Many urban development strategies prioritize attracting industries or boosting tourism without investigating how much value is actually retained locally. Tourism is often celebrated as a quick path to economic development, yet multiple studies show that without careful integration of local supply chains, a large share of tourism revenue leaks out through imported goods, external operators, and non-local ownership structures. In some cases, less than twenty percent of tourism income remains within the local economy. The result is activity without accumulation.

If city leaders want to understand their real economic position, they must trace money trails across sectors (a simple version is provided in the following table). This means examining profit flows, ownership structures, employment linkages, import dependence, export intensity, and local procurement patterns. A city that appears vibrant on the surface may, under closer inspection, function primarily as a pass-through node in a larger economic system.

Industry	Profit/loss %	Direct Employment	Indirect Employment	Import %	Export %

The question, then, is not simply how to grow, but how to retain.

For developing cities, what should matter is not just attracting capital, but embedding it. Not just increasing transactions, but strengthening circulation. Not just building infrastructure, but deepening economic ecosystems. Urban money trails reveal whether growth is extractive or regenerative, fragile or resilient.

In the end, a city’s economic strength is not measured by how loudly it announces investment, but by how quietly and consistently wealth circulates within its own boundaries.

Now your turn.

Think about your weekly spending in your city. Groceries, coffee, transport, rent, online shopping. How much of it goes to locally owned businesses, and how much flows to national chains, global platforms, or companies headquartered elsewhere?

Resources:

• Circular flow of income model
• Circular Flow of Income and Expenditure in Quezon City Government: A Framework for Public Sector Efficiency and Resource Allocation
• Urban metabolism: A review with reference to Cape Town
• Town of Millinocket: A Review of Capital Flow from an Urban Metabolism Perspective
• The tourism leakage paradox: innovative local sourcing models to maximize economic retention

Retaining wealth by plugging leaky economies