Spatial Team @ The World Bank Reshaping Economic Geography Priorities for Territorial Integration Somik V. Lall The World Bank European Commissions Open.

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


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


• 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


The benefit..

• Spatially unbalanced growth, with spatially balanced development


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


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


• 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


Sequencing Policies


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)


Identifying Poverty Incidence and Mass

Vietnam: Lagging areas have high poverty rates, but leading areas have concentrations of the poor


India: lagging areas have high poverty rates and a big share of the poor

Identifying Poverty Incidence and Mass


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


Even without formal barriers, fewer people have moved out of lagging areas


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


How can you apply this framework?


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


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


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?


Firms are geographically concentrated

Emerging Champions


Firms value market access and urbanization economies

Access to markets


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


• 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



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



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.



• 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


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


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


THANK YOU

[email protected]

Spatial Team @ The World Bank Reshaping Economic Geography Priorities for Territorial Integration Somik V. Lall The World Bank European Commissions Open.

Documents

spatial team

world bank spatial data

world bank india

world bank outline

world bank sequencing

world bank tailoring

spatial distortions

spatial universality