Chapter 3: Regional Policy: What Works and What Doesn’t
Somik V. Lall INTRODUCTION Policy-makers are increasingly recognizing the necessity of developing strategies and identifying specific investment programs to reduce spatial differences in living standards within their national territories. Over the years, various sector programs of the World Bank have been helping policy-makers address these challenges through analytic work and lending services. These sectors include health and education, water supply and sanitation, social development, transport, rural and urban development, and private sector development. While it is likely that there will be complementarities or trade-offs between diverse interventions, these are not often accounted for. To improve the effectiveness of the World Bank’s policy guidance and project work, this chapter summarizes analytic approaches that can help in identifying the spatial and sectoral composition of public investments, and strategies that can accelerate economic integration of lagging regions with the rest of the country. This chapter stresses the importance of the 3Ds: density, distance and division. Urbanization increases density, and urbanization is the pathway to higher incomes. Also, distances need to be reduced (by increasing connectivity) because strong economic growth is rare without moving to highdensity locations. Furthermore, divisions need to broken down because isolation (whether geographical, political, economic, social or religious) can result in economic stagnation. Under almost all circumstances, growth will be unbalanced. Certainly, to attempt to decentralize production to very peripheral locations is to fight market forces. Nevertheless, aiming to make development inclusive is worthwhile because persistent spatial disparities in living standards are neither desirable nor inevitable. So, the key question...
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