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World Development Report 2009 PowerPoint PPT Presentation

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World Development Report 2009. Findings and emerging messages on Territorial Development. What the report proposes. Concentration of economic mass is inevitable and generally desirable At least within countries

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World Development Report 2009

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World Development Report 2009

Findings and emerging messages on

Territorial Development

What the report proposes

  • Concentration of economic mass is inevitable and generally desirable

    • At least within countries

  • But persistent spatial disparities in living standards are neither desirable nor inevitable

    • Not within countries, not between countries

  • The key to get both concentration (of production) and convergence (of welfare) is integration

    • Both within and between countries

  • When countries do this well, they will see unbalanced growth and balanced development.

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How it changes the way we see development

  • Bumps—from smooth to uneven

    • All places do not grow at the same time

    • Don’t expect that “right policies” will equalize growth in all places

  • Curves—from linear to nonlinear

    • When firms and people want to be where most other firms and people are, differences can keep increasing

    • Expect spatial disparities in production and living standards to first rise, and then fall

  • Spills—from neat to messy

    • Rising congestion leads to spillover of benefits to those nearby

    • Growth strategies which worked for earlier developers are not necessarily the best for latecomers

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Three spatial scales

Shanghai, China and East Asia represent the local, national, and international spatial scales, respectively

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Big challenges

  • A billion in slums

    • According to UN-Habitat, three quarters of the urban population in least developed countries are in slums

    • But absolute numbers in informal settlements are larger in middle-income countries

  • A billion in fragile lagging areas

    • According to WDR 2003, about a billion people in distant arid, rugged and forested lands

    • Mainly large countries that have grown

  • A billion in countries at the bottom of the global hierarchy

    • According to Paul Collier, in 60 countries, mostly in Sub-Saharan Africa and Central Asia

    • Mainly small countries that have not grown.

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Development in 3D

  • Density—economic output or total purchasing power per unit of surface area

    • Market potential, highest in large settlements where economic activity is concentrated

  • Distance—ease of access to markets

    • Areas within a country that are far from economically dense centers are more likely to lag behind

  • Division—barriers to market access

    • Most relevant in an international context, where impermeability of borders can be a problem

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Spatial Scale 1:

Spatial Scale 2:

Spatial Scale 3:







Part One:





















Part Two:

Factor mobility

Scale economies

Transport costs












Part Three:









Structure of Report

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Main Points

  • With development, differences between leading and lagging areas in economic mass become sharper, while those in social welfare becomes blurred

  • Labor mobility is the strongest natural mechanism to enhance agglomeration economies and facilitate convergence

  • Policies are needed to reduce differences in living standards between lagging and leading areas

    • Policies that integrate lagging and leading areas will help to unify countries;

    • But, forcing uniformity in economic production will be expensive as well as an elusive policy objective.

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Economic activities concentrate spatially while living standards converge with development

  • Spatial disparities in welfare are big, especially in developing countries

    • For the U.S., Canada and Japan, the income gap between lagging and leading regions is about 20 percent.

    • For a sample of 75 low and middle income countries, the gap is about 70 percent

  • Economic activities are spatially concentrated, and more so in developed countries

    • China’s coastal areas produce 50 percent of its output, on 20 percent of its land

    • Greater Tokyo has 40 percent of Japan’s output on just 4 percent of its land.

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Defining “Distance”

  • Physical geography is not the only determinant

    • Economic: time and monetary costs to reach markets can be reduced by improved infrastructure (see India slide)

    • Social aspects: psychic costs can be reduced by human capital investments

  • Destination of interest

    • Dense economic mass or markets

    • Distance-to-density: Accessibility to markets

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Euclidean vs. Economic Distance

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Distance to Density

  • Leading areas: dense economic mass

    • Thick markets of labor, capital, goods, services, and ideas

    • Networks of linkages among producers, workers, input suppliers, traders, and consumer

  • Lagging areas: distant from density

    • Higher poverty ratios, low productivity, high unemployment

    • Generally lower growth

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Vietnam’s poverty rate is higher in the lagging inland, but poverty mass is greater on the leading coasts

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in leading areas

With development, spatial concentration of economic activity initially rises, then levels off

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  • Within most countries in the world, economic mass is spatially concentrated

    • 25% of nations, e.g., Botswana, Brazil, Norway, Russia, Thailand produce half + GDP on 5% land

    • 50% of nations, e.g., Argentina, Saudi Arabia, Slovenia, Zambia, generate a-third+ GDP on 5% land

  • Spatial concentration of economic activity increases as countries develop

    • Evidence from time series

    • Evidence from cross-section

      • Administrative areas (national accounts)

      • Statistical areas (household survey data)

      • Geographic areas (Nordhaus’ geo-physically scaled economic data)

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With development, spatial concentration of economic activity rises, then levels off : Evidence from time series

At magnified scale < US$10000 Full sample: 10 countries

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With development, spatial concentration of economic activity rises, then levels off: Evidence from a cross section of countries

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Spatial disparities in living standards widen initially, can remain high for long periods, but narrow as economies reach higher levels of income


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Spatial disparities in income widen and remain high, before converging slowly: Historical evidence

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Spatial disparities in income remained high in the Canada and France for over two generations

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Spatial disparity in welfare widens and remains high, before slowly converges: Contemporary evidence

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Most developing countries are experiencing income divergence

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Despite the divergence…

…. the dynamics of spatial divergence are in the form of a “race to the top”

  • Allsub-national areas in East Asian and E. European & Central Asian countries grew in average wage and household income

    • even though by far the biggest gains have gone to the already leading areas.

  • Allsub-national areas have experienced improved welfare (e.g., poverty fell)

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Despite income divergence, non-monetary welfare measures converged

Poverty IncidenceAccess to sanitation

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What is different today?

The size of global market

  • World Trade as a share of Global GDP today is more than 15 times that in 1820

  • Successful development relies, more than ever, on an outward-oriented strategy which works with the market by focusing on leading areas to compete and trade.

  • Rapid growth and transformation of internal economic geography implies that spatial disparities will likely be greater than in industrial countries during comparable stages of development.

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An example

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Choices for integrating leading and lagging areas

  • Should policies focus on

    • Supporting market forces of out-migration from lagging areas (i.e., “moving people to jobs”)?

    • Provide incentives to support economic development within lagging areas (“moving jobs to people) ?

  • Should specific instruments focus on

    • Investing in places? Or

    • Investing in people?

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Underlying principle – integration can help unify countries

  • National constitutions, which reflect political discourse of countries, emphasize national unity as an important objective.

  • They focus on unity among people, and emphasize equal access to health and education

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A Policy Framework

  • Three sets of policies for integration

    • Spatially blind policies (institutions)

      • Help people move towards opportunities

      • Improve welfare outcomes of people

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Spatially blind tax policies help France benefit from concentrated production and declining spatial disparities

  • Scissor effect between the geography of production and income

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Spatially blind tax policies reduce spatial inequalities in the United States

  • Spatially blind income tax system reduces ex post income disparities across states

  • Data from IRS returns

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A Policy Framework

  • Three sets of policies for integration

    • Spatially blind policies (institutions)

    • Spatially connecting policies (infrastructure)

      • Inter regional transport investments reduce transaction costs

      • Telecommunication investments increase information flows

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A Policy Framework

  • Three sets of policies for integration

    • Spatially blind policies (institutions)

    • Spatially connecting policies (infrastructure)

    • Spatially targeted policies to support growth in specific regions (incentives)

      • Fiscal incentives and subsidies

      • Special economic zones

      • Industry location regulations, investment climate

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Tailoring policies to overcome country specific challenges

  • Main challenge: overcoming distance between lagging and leading areas

  • Success in bringing distant areas closer to markets requires adapting to country circumstances

    • Density: How sparse or densely populated are the lagging areas?

    • Division: How weak or strong are market forces of factor mobility?

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Large variations in population densities across and within countries

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In China, lagging areas have high poverty rates but fewer poor people

In China, people have left places with inhospitable geography, such as the

Qinghai-Tibet Plateau with an elevation of 4,000m, or the highlands of the central

region with elevations of 2,000m above sea level.

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In Brazil, the poverty ratio is high in the North, but most poor people live along the coast

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In India, the poverty ratio is highest in the heartland, and it is home to 60 percent of the country’s poor

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Proposing a taxonomy of countries

  • Sparsely populated lagging areas (Russia, Indonesia).

  • Densely populated lagging areas in united countries (Brazil, Mexico).

  • Densely populated lagging areas in divided countries (India, Nigeria).

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Reducing Distance: The policy framework in action



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Portable investments in human capital help people move towards opportunity

  • Investing in education (human capital formation) in “lagging” regions can increase the propensity to migrate

    • “Great migration” of African Americans out of the South

      • Positive effects of schooling

    • Female migration out of East Germany

      • By 2004, only 90 women for every 100 men left in the East (see map)

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Education helped women move towards opportunity following reunification in Germany

Number of women per 100 men in

the age group 18-29 in 2003.

  • A shortage of women in east Germany?

    • Higher education made it easier for women to be absorbed in labor markets of the West

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Reducing Distance: The policy framework in action



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Infrastructure investments can integrate lagging areas with national markets


  • Bridge over the Jamuna River opened market access for producers in the lagging Northwest around the Rajshahi division.

  • Better market access helped farmers diversify into high value crops and reduced input prices (Bayes 2007)

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But infrastructure investments that reduce inter regional transport costs often have unintended consequences

  • Local authorities in southern Italy actively lobbied for highway projects in the 1950s

    • Why? Proximity to a highway would yield great benefits to the local economies.

  • What happened? Subsequent investments that reduced transportation cost between northern and southern Italy accelerated the process of deindustrialization in the South.

    • Why? Reduction in transport costs deprived firms in the Mezzogiorno from the natural protection they had previously received from high trade barriers

  • To the disappointment of local authorities, highway construction led to increased concentration of production rather than dispersed benefits.

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And many infrastructure projects to connect lagging areas have been wasteful “bridges to nowhere”

  • US Transportation Equity act

  • $223 million to fund a “bridge-to-nowhere” in Alaska

  • connecting Gravina Island (population less than 50) to the metropolis of Ketchikan (pop. 8,000)

  • by a bridge nearly as long as the Golden Gate and higher than the Brooklyn Bridge

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Reducing Distance: The policy framework in action



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Incentives are effective when they exploit geographic advantages

China’s Special Economic Zones strategically opened up the country to external markets

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But, incentives that fight market forces are unlikely to succeed

  • Western Europe

    • Central government efforts of providing incentives to attract individual firms in lagging areas and finance large scale infrastructure projects

  • Brazil

    • Federal government fiscal incentives to attract firms to the Northeast-- interest rate subsidies, capital investment promotion, Free trade zones

  • India

    • Central government industrial licensing policy industry tried to stimulate industry in lagging regions by banning heavy industry from metropolitan regions and providing concessional finance to firms in lagging areas

  • These spatially targeted interventions tried to offset agglomeration economies that lead to concentration of firms and people

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Information Pre-requisites : “Know thy economy”

  • Invest in information on area-specific comparative advantages

    • natural, human and infrastructure endowments

    • Perceptions of entrepreneurs on local bottlenecks

  • Identify how different industries value market access, localization, and urbanization economies

    • Relocation of economic activity that value agglomeration and market access will need large scale investments and involvespatial equity-efficiency tradeoffs

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Reducing Distance: An instrument per challenge



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Summing up

  • Consider the following rule: invest in activities that produce the highest returns

  • In leading areas,countries should prioritize investments in places.

    • Emphasize durable investments (e.g., transport and telecom) that accelerate national economic growth

    • Tilt investments to increase productivity of firms

  • In lagging areas, countries should prioritize investments in people.

    • Emphasize portable investments (social services -- basic education, health, water and sanitation) that accelerate poverty reduction and stimulate mobility.

    • Tilt investments to improve living standards of families.

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