Urban Economic Spillover Networks: Micro-Level Evidence of Functional Urban–Rural Integration in Sri Lanka

Urban economic systems extend beyond city boundaries through complex transaction networks that include workers, raw materials, and food. However, consistent with urban–rural linkage theory, relationships are understood at macro levels, yet the household-level mechanisms through which these spillovers integrate rural settlements remain underexplored, particularly in developing-country contexts. Therefore, this study investigates the household transaction mechanisms linking rural economies to urban systems with the aim of understanding whether rural households connected to nearby towns operate as economically embedded extensions of urban systems rather than as isolated agrarian units. Two hypotheses were tested: urban economic spillovers are transmitted through interrelated employment, market exchange, and credit networks; and households with stronger urban-linked employment exhibit different financial conditions and labour allocation patterns compared to less connected households. Primary data were collected with structured questionnaires via a field survey. A sample of 100 was selected through stratified random sampling from 802 households in a rural settlement functionally connected to nearby urban centers. Descriptive statistics were employed to illustrate transaction patterns. A binary logistic regression model evaluated household financial status as the dependent variable, using employment characteristics as key explanatory variables. The Mann–Whitney U test assessed employment involvement both within and beyond the local rural economy. The findings indicated that agricultural output remains the primary means of livelihood (65%), with the majority targeted at urban markets. Employment trends demonstrated significant dependence on urban economic frameworks, with 31.2% of household heads working as plantation laborers, 25% as service providers, and 6% in manufacturing. Observations included formal and informal transaction categories, such as reciprocal labor exchange (50%), credit-driven purchases (24%), and formal borrowing from banks (10%). The research reveals micro-level pathways for spillovers, enhancing understanding of urban economic systems and guiding cohesive urban and regional planning to strengthen economic resilience and support sustainable urban–rural growth.