Pakistan has the highest rate of urbanization in South Asia. According to the 2017 Population Census, 36.4 percent of the population lives in urban areas. In 1998, this figure stood at 32.5 percent. Other estimates, based on a modified definition of urban settlements, suggest that the ratio of urban to rural population could be 40.5 percent and even higher. The United Nations Population Division estimates that, by 2025, nearly half the country's population will be living in cities.

Urbanization is generally considered to be closely related to economic growth, particularly in developed countries where they have often occurred in tandem. Globally, it is estimated that cities generate more than 80 percent of the global Gross Domestic Product (GDP). The more urbanized areas indicate higher per capita income and more employment opportunities. Cities are also hubs of innovation and entrepreneurship. Urbanization has positive impacts on technological innovation and economic progress.

Cumulatively, cities in Pakistan generate 55 percent of the GDP. Moreover, Pakistan generates 95 percent of its federal tax revenue from 10 major cities. Karachi alone generates 12-15 percent of Pakistan's GDP and contributes 55 percent of the federal tax revenue of the country. 7 out of 10 major cities in Pakistan have larger per-capita incomes than the average. Poverty in cities is generally lower (i.e. urban multi-dimensional poverty is one-sixth of that of rural areas).

However, recent research suggests that the relationship between urbanization and growth is not automatic. Urbanization in many developing countries has occurred without growth, jobs and productivity. The benefits of urbanization can only be accrued by sound public policies. Unplanned and unmanaged urbanization has rather resulted into urban slums, environmental degradation, poverty and inequality. Pakistan too, is confronted with a host of urban challenges.