Spatial The World Bank Reshaping Economic Geography Priorities for Territorial Integration Somik V. Lall The World Bank European Commissions Open Days Brussels, October 8, 2008 REGIONAL AND TERRITORIAL DEVELOPMENT: THE WORLD BANKS EXPERIENCE

Spatial 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 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 The World Bank The benefit.. Spatially unbalanced growth, with spatially balanced development

Spatial 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 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 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 The World Bank Sequencing Policies

Spatial 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 The World Bank Identifying Poverty Incidence and Mass Vietnam: Lagging areas have high poverty rates, but leading areas have concentrations of the poor

Spatial The World Bank India: lagging areas have high poverty rates and a big share of the poor Identifying Poverty Incidence and Mass

Spatial 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 The World Bank Even without formal barriers, fewer people have moved out of lagging areas

Spatial 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 The World Bank How can you apply this framework?

Spatial 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 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 The World Bank Now consider Uganda Industrial Development –Cornerstone of Ugandas accelerated growth strategy Policy promoting regionally balanced industrial development Can sources of accelerated growth be located anywhere in the country?

Spatial The World Bank Firms are geographically concentrated Emerging Champions

Spatial The World Bank Firms value market access and urbanization economies Access to markets

Spatial 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 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 Sub-National: Public Investment Choices State of Guerrero, Mexico

Spatial The World Bank Sub-National: Public Investment Choices State of Guerrero, Mexico

Spatial The World Bank Sub-National: Public Investment Choices State 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 The World Bank Sub-National: Public Investment Choices State 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 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 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

Spatial The World Bank THANK YOU