June 15, 2010 - The gap in living standards between rich and poor regions within countries poses one of the most difficult policy questions for governments around the world.
Even industrialized countries are still struggling to find development solutions for economically lagging areas such as the Appalachian region in the USA, Calabria in Italy, eastern Germany, and South Wales in the United Kingdom.
A new World Bank report, Poor Places, Thriving People: How the Middle East and North Africa can Rise above Spatial Disparity, launched today in Dubai, United Arab Emirates, suggests that the Middle East and North Africa (MENA) region can raise living standards in disadvantaged geographic areas that are less economically developed with an informed mix of policy choices, rather than capital investments alone.
In a public event at the Dubai School of Government, a partnership of Harvard University Kennedy’s School of Government,Shamshad Akhtar, Vice President of the MENA region at the World Bank launched the report before an audience of senior government officials from across the region, academics, and media. In her keynote address, Akhtar introduced the report saying "We in the World Bank know the urgency for the governments of the Middle East and North Africa in addressing spatial disparities in living standards. We hear from ministers how concerned they are for areas such as northern and southern Lebanon, the northeast of Syria, the northwest of Tunisia, the southwest of Saudi Arabia and the mountainous hinterlands of Morocco."
The report starts off with the simple fact that concentration of economic activities in certain geographic centres is a powerful source of growth and competitiveness. When producers are closer to their consumers, they can share skilled labour and suppliers and they can learn from each other.
Any country that tries to fight this economic agglomeration does so at the cost of lower economic growth, employment and competitiveness. Economic agglomeration, however, is not the same thing as spatial inequality in living standards. In fact some countries, like France for example, have seen living standards converge across regions at the same time that economic activity has become increasingly concentrated around Paris.
"The region’s policymakers can address the often intolerable inequities caused by disadvantaged geography without compromising economic efficiency," says Alex Kremer, principal author of the report and Senior Economist at the World Bank. "We would like to suggest careful local analysis and the application of a mix of policies tailored to the characteristics of each lagging area. The key here is in the mix itself and to avoid broad prescription."
The report also challenges the assumption that the MENA region has to spend huge sums of money on mega-projects and subsidies for poorer areas. Smart solutions for poorer geographic areas are sometimes less obvious, says Kremer. "Take education for girls, for example. It’s critical that this be a key priority for the development of disadvantaged areas. Rural roads can make the difference as can thoughtful linkages between businesses and public institutions."
Spatial disparities – the gap between disadvantaged areas and those that are more developed – may be less important than they seem, the report suggests. It is therefore essential for policymakers to have an objective understanding of the degree to which location affects household welfare: in some countries location matters more than in others. For example in MENA, the spatial component of inequality is biggest in Morocco, followed, in order, by Egypt, Yemen and Syria, but is much less important in Jordan and Djibouti. Nevertheless, in no MENA country does rural-urban inequality account for more than a fifth of total inequality of household expenditure. Overall, MENA’s urban-rural and inter-provincial divides are no bigger than those in other developing regions of the world.
The fundamental question that the report strives to address is: How to reap the fruits of economic agglomeration, while addressing gaps in the quality of life between different places, as countries like France have done? The report proposes three policy packages to deal with this issue.
First, it asserts that leveling the playing field and investing in people must be a cornerstone of any policy response. MENA’s political and colonial history, characterized by strong central bureaucracies, centralized economic and fiscal policies, and weak accountability relationships, has resulted in a general neglect of some regions. To create a level playing field for development, the challenge is to address the historical disadvantages of populations on the periphery.
The second policy area urges greater connectivity to build linkages between wealthier areas and those that are economically disadvantaged. MENA’s lagging areas have a proximity advantage because 61% of the population lives within 3 hours of a major city. MENA can connect its lagging areas to agglomerating hubs by investing in key sectors such as transport, trade facilitation, and information and communication technologies.
Finally, the report demonstrates that governments can help facilitate cluster development in areas with unrealized potential, not by throwing large amounts of money and infrastructure at the problem, but instead by facilitating local actors and helping to coordinate their initiatives. This includes making space for public private partnership, investing in human capital as well as appropriate infrastructure and understanding what initiatives territories can support rather than trying to force investment with subsidies and tax breaks.
To sum up the key message of this report, one can simply say that while concentration of economic activity in certain areas may be an inevitable part of growth, governments have it in their power to mitigate spatial disparities through careful analysis and policy responses. It is a matter of policy choice and design, not geographic destiny.
In addition to launching the report, the World Bank will also hold a workshop the following day for government officials from across the region. Participants will have a chance to hear about global experiences and lessons from international organizations such as the Organization for Economic Cooperation and Development.
Workshop sessions will adress how to promote human development in lagging areas, especially in education, health and social protection. Participants will also share their countries’ experience of linking lagging areas to growth and services through transport, telecommunications and information technology links.
The workshop will also include a session on institutional arrangements for local and spatial development by examining on-going work to reconfigure the institutions and systems for local development.