Bridging the Economic Divide within Nations : A Scorecard on the Performance of Regional Development Policies in Reducing Regional Income Disparities
Regional inequalities represent a continuing development challenge in most countries, especially those with large geographic areas. Globalization heightens these challenges because it places a premium on skills: since rich regions typically also ha...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1637745/bridging-economic-divide-within-nations-scorecard-performance-regional-development-policies-reducing-regional-income-disparities http://hdl.handle.net/10986/19439 |
| Summary: | Regional inequalities represent a
continuing development challenge in most countries,
especially those with large geographic areas. Globalization
heightens these challenges because it places a premium on
skills: since rich regions typically also have better
educated and better skilled labor, the gulf between rich and
poor regions widens. While central governments in unitary
states are relatively unconstrained in their choice of
policies for reducing regional disparities, in a federation
the division of powers curtails federal flexibility in
policy choice. Thus in federal states large regional
disparities can represent serious threats, with the
state's inability to deal with such inequities creating
potential for disunity and, in extreme cases, for
disintegration. Inequalities beyond a threshold may lead to
calls for separation by both the richest and the poorest
regions. While the poorest regional may consider the
inequalities a manifestation of regional injustice, the
richest regions may view the union with the poorest regions
as holding them back in their drive toward prosperity. Under
these circumstances, there is a presumption in development
economics that decentralized fiscal arrangements would lead
to ever widening regional inequalities. The authors provide
an empirical test of this hypothesis. The authors conclude
that regional development policies have failed in almost all
countries, federal and unitary alike. Among 10 countries
with high or substantial regional income inequality, only
one (Thailand) has experienced convergence in regional
incomes. Still, federal countries do better in restraining
regional inequalities, because of the greater political risk
these disparities pose for such countries. The authors
classify countries by degree of convergence in regional
incomes: a) Countries experiencing regional income
divergence - Brazil, China, India, Indonesia, the
Philippines, Romania, the Russian Federation, Sri Lanka, and
Vietnam. b) Countries experiencing no significant change in
regional income variation - Canada and Mexico. c) Countries
experiencing regional income convergence - Chile, Pakistan,
Thailand, the United States, and Uzbekistan. Regional
development outcomes observed in these countries provide a
revealing look at the impact of regional development
policies. While countries experiencing divergence tend to
focus on interventionist policies, those experiencing
convergence have taken a hands-off approach to regional
development and instead focused on promoting an economic
union by removing barriers to factor mobility and ensuring
minimum standards in basic services across the nation. In
Chile, for example, convergence in regional incomes is
largely attributable to liberalizing the economy and
removing distortions so that regions could discover their
own comparative advantage. In Pakistan and the United States
convergence is attributable to greater factor mobility.
Paradoxically, creating a level playing field helps
disadvantaged regions more than do paternalistic
protectionist policies. |
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