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Spatial Team @ The World Bank
Reshaping Economic Geography
Priorities for Territorial Integration
Somik V. Lall
The World Bank
European Commission’s “Open Days”
Brussels, October 8, 2008
REGIONAL AND TERRITORIAL DEVELOPMENT: THE WORLD BANK’S EXPERIENCE
Spatial Team @ The World Bank
Outline• Reshaping the territorial development debate
• Policy Framework– Institutions, Infrastructure, Incentives
• Sequencing policies – Spatial Information/ Data– Insights from analytic work
• Applying the framework– MICs– LICs– Sub nationals
Spatial Team @ The World Bank
• Typical Territorial Development Debate– Moving jobs to people? or People to jobs?– Policies focus on specific territories – Incentives and big infrastructure projects needed to jump
start economies of lagging areas.
• WDR2009 Reshapes this debate– Policies should connect people to opportunities – Mobile
people and connected places are key ingredients– Policy focus on connecting lagging and leading areas
primarily emphasizing spatial universality in basic living standards
Reshaping the debate
Spatial Team @ The World Bank
The benefit..
• Spatially unbalanced growth, with spatially balanced development
Spatial Team @ The World Bank
Three sets of instruments to connect lagging and leading areas!• Institutions
– Spatially universal: health, education, rural access, water, property rights -- use/ transfer, income tax policies, portable pensions
• Infrastructure – Spatially connective: inter-regional transport, logistics,
information and communication technologies
• Incentives – Spatially targeted: incentives, tax holidays, technology
transfer/ innovation, clusters, EPZs, SEZs
Spatial Team @ The World Bank
Tailoring policies to overcome country specific challenges
• Main challenge: overcoming distance between lagging and leading areas – How? Improve mobility of people
• Success in bringing distant areas closer to markets requires adapting to country circumstances– Challenge: Misplaced population densities
• Preferred option: physically connect people to economic density
– Challenge: weak market forces of factor mobility• Possible option: create economic density
Spatial Team @ The World Bank
• Sparsely populated lagging areas (China, Russia).
• Densely populated lagging areas in united countries (Brazil, Mexico).
• Densely populated lagging areas in divided countries (India, Nigeria).
A typology of countries
Spatial Team @ The World Bank
Sequencing Policies
Spatial Team @ The World Bank
Spatial data to understand country conditions
• Compile information:– Sub national / geo referenced data to measure
poverty, incomes, employment, industrial composition– Census or household data to measure labor migration– Inter regional trade data to measure production
linkages
• Generate Stylized Facts: – How large and persistent are “distances” across
regions? • Measuring and mapping poverty• Measuring geographic inequalities (Consumption ,
Production, Natural endowments)
Spatial Team @ The World Bank
Identifying Poverty Incidence and Mass
Vietnam: Lagging areas have high poverty rates, but leading areas have concentrations of the poor
Spatial Team @ The World Bank
India: lagging areas have high poverty rates and a big share of the poor
Identifying Poverty Incidence and Mass
Spatial Team @ The World Bank
Identify barriers to connectivity
• Identify why geographic differences in economic and social indicators persist?– Barriers to labor mobility – Inflexible land use and property rights– High transport costs
• Measure economic and social costs– Limited access to public services– Loss of scale and specialization in production
Spatial Team @ The World Bank
Even without formal barriers, fewer people have moved out of lagging areas
Spatial Team @ The World Bank
Identifying priorities for territorial integration
• Identify activities that generate the highest economic and social payoffs regionally as well as nationally– Calculate costs and benefits of investments
across regions and sectors
– Rank order options based on expected payoffs
Spatial Team @ The World Bank
How can you apply this framework?
Spatial Team @ The World Bank
Russian Federation:
• Sparsely populated lagging regions
• Market forces favor concentration
• Policy concerned with “balanced growth”
• Priorities: – Physically connect markets in leading and
intermediate regions– Regionally balance basic social services
Spatial Team @ The World Bank
India• Densely populated lagging regions• Low factor mobility• Rich natural geography –but low agriculture
productivity• Priorities for stimulating agriculture:
– Reduce spatial distortions in food procurement subsidies (institutions)
– Improve rural roads to increase connectivity between farms and local markets (infrastructure)
– Incentives for investments to better utilize local resources
Spatial Team @ The World Bank
Now consider Uganda
• Industrial Development– Cornerstone of Uganda’s accelerated growth
strategy
• Policy promoting regionally balanced industrial development
• Can sources of accelerated growth be located anywhere in the country?
Spatial Team @ The World Bank
Firms are geographically concentrated
Emerging Champions
Spatial Team @ The World Bank
Firms value market access and urbanization economies
Access to markets
Spatial Team @ The World Bank
Policies leading industrial development in lagging regions may involve trade-offs
• For manufacturing based growth accelerators– economies of scale will matter a lot
• As industrial clusters are in formation: – it is important not to counter them
• Export-led growth is made between cities; and regions close to export markets
Spatial Team @ The World Bank
• Policy dilemma: While no real geographic remoteness – located on corridor between capital and Acapulco – state remains poor and polarized
Poverty incidence, 2005 Share of national Gross Value Added, 2004
Guerrero
Puebla
Mexico
Oaxaca
Michoacan de OcampoMorelos
Mexico TlaxcalaFederally Administered Territory
Legend
Share of nat. GVA, 2004
0%
0.001% - 0%
0.001%
0.002% - 0.001%
0.002% - 0.003%
0.004%
0.005% - 0.016%
0.017% - 0.041%
0.042% - 0.058%
0.059% - 0.341%
Guerrero
Puebla
Mexico
Oaxaca
Michoacan de OcampoMorelos
Mexico TlaxcalaFederally Administered Territory
Legend
Poverty incidence, 2005
21% - 26.5%
26.6% - 34.5%
34.6% - 41.3%
41.4% - 45.5%
45.6% - 50.6%
50.7% - 55.7%
55.8% - 62.5%
62.6% - 67.8%
67.9% - 73.3%
73.4% - 76.3%
Sub-National: Public Investment ChoicesState of Guerrero, Mexico
Spatial Team @ The World Bank
Sub-National: Public Investment ChoicesState of Guerrero, Mexico
Targeting growth: 9 high growth potential municipios
targeting growth
others
9 high growth potential municipios
Targeting poverty: high poverty incidence municipios
targeting poverty
others
top 56 high poverty incidence
top 10 high poverty incidence
Spatial Team @ The World Bank
Sub-National: Public Investment ChoicesState of Guerrero, Mexico
Overall finding:
• No single best policy option that could maximize both economic growth and poverty reduction simultaneously,
but…
• Guerrero could better its chances of improving on both fronts (growth/poverty reduction) by: – Concentrating core transport infrastructure investments in municipios with
high economic potential, and – Evenly distributing public education spending to improve human capital
across all municipios.
Spatial Team @ The World Bank
Sub-National: Public Investment ChoicesState of Guerrero, Mexico
• Policy Options: – infrastructure to support growth in corridor,– social services to reach the most disadvantaged
communities everywhere;– focused action in remote indigenous areas might be
needed – but comprehensive solution strains weak local
institutional capacity
Spatial Team @ The World Bank
Takeaway• Consider the following rule: invest in activities that produce the
highest spatial returns : The outcome– Spatially unbalanced growth– Spatially balanced development
• In areas with rich natural and economic geographies -- countries should emphasize durable investments that accelerate national economic growth– Tilt investments to increase productivity of firms– Transport and telecom
• In areas with poor natural and economic geographies -- countries should emphasize portable investments that accelerate poverty reduction and stimulate labor mobility.
– Tilt investments to improve living standards of families. – social services -- basic education, health, water and sanitation
Spatial Team @ The World Bank
In the WDR 2009 framework, this means…
Dimensions and policy options for territorial integration
1D (Distance)
2D (Distance + Density)
3D (Distance + Density + Division)
Institutions
Infrastructure
Incentives