Strategies of gain and strategies of waste: What determines the success of development - PowerPoint Presentation

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Strategies of gain and strategies of waste: What determines the success of development interventions?

Andrés Rodríguez-Pose & Callum WilkieSession IV: Supporting Lagging regions – Managing Economic Efficiency / Spatial Equity tradeoffsThe World Bank, Washington, D.C., 29 September 2017

1Slide2

Overview

Is there a trade-off between economic efficiency and spatial equity?Do we need development strategies for lagging-behind cities and regions?Comparing ‘strategies of waste’ and

‘strategies of gain’Lessons

learnt: separating strategies of gain from those of waste2Slide3

Territorial inequality is pervasive

Territorial inequality across the world

(

Second Theil Index,

2012

)

Source

:

Own elaboration

3Slide4

And seems to be on the rise

Changes

in regional

disparities

in

emerging

countries

Notes: Spatial inequality is measured using Theil’s index. Source: Ezcurra and Rodríguez-Pose, 2013

Spatial inequality

Country

Spatial units

Period

InitialFinalAverageArgentina231992-20060.0400.0970.057Bolivia91990-20060.0240.0500.033Brazil271990-20060.1020.1100.109Bulgaria61990-20060.0490.0840.067Chile131990-20060.0660.0690.072China311990-20050.0850.1260.123Colombia331990-20060.0760.0520.065Ecuador211993-20060.2110.2660.250Estonia51990-20060.0390.0880.069India321993-20050.0590.0900.074Indonesia302000-20060.2560.2230.246Latvia61993-20060.0300.1560.097Lithuania101993-20060.0040.0490.021Mexico321993-20040.1430.1450.147Peru241990-20060.1400.1350.142Philippines162005-20060.1630.1690.166Poland161990-20060.0090.0330.021Romania81990-20060.0080.0640.030South Africa91995-20050.1350.1140.119Thailand761994-20050.4390.4730.439Turkey261990-20010.0940.0760.081Venezuela231990-20060.0060.0280.024

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Does this matter?

“Regional inequality is proving too politically dangerous to ignore”-- The Economist, December 17, 20165Slide6

Cities and regions lagging behind revolting

Brexit

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Cities and regions lagging behind revolting

Donald Trump

Source: Wikipedia

County swing from 2012 to 2016

Results by county, shaded according to winning candidate's percentage of the vote

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Cities and regions lagging behind revolting

FranceSecond roundFirst round

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Cities and regions lagging behind revolting

Germany

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But, is this new?

Thailand

Source

: http://www.thaiwebsites.com/thailand-GDP.asp

Thailand’s

entrenched

territorial

inequalities

are

behind the political stalemateThis situation has paralysed the country, created social conflict and greatly affected the

economy

Region : GDP per capita* :

Bangkok and Vicinity 359,798

Central Region

226,501Eastern Region 414,568Northern Region 91,922North Eastern Region 67,888Southern Region 124,914Western Region 121,651All of Thailand 183,803

* Real GDP in Thai Baht at current market prices Source : Office of the National Economic and Social Development Board (NESDB)Note : data 2012 (last available mid 2014).Results 2011 elections10Slide11

But, is this new?

Populism a fact of daily political life in Latin America since at least the 1940sPerón’s ArgentinaFujimori’s PeruChávez’s Venezuela

Kirchner and Fernández’s Argentina

Bolivia/EcuadorPopulism has thrived in areas particularly affected by poverty, prolonged economic crisis, and persistent social problems (Roberts, 1995)

Territorial inequality at the root of armed revolt

Colombia, Peru, Nigeria, Indonesia

As territorial inequalities are higher in developing countries, the risk for them is far greater

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A big negative externality

Challenge has come from an unexpected sourceTraditional negative

externalitiesLand rentsCongestion

PollutionAttention to Interpersonal

Inequality

But

the poorest of the poor have not

yet rebelled

: Trump and Brexit

votesBut key negative externality overlooked: Territorial inequalityLong-periods of low-, no- or negative-growth

Industrial and agricultural declineBrain drain

No

hope

Geographies of

discontent, territorial distress12Slide13

Trade-off between efficiency and equity?

Excessive territorial equity affects economic efficiency through two channelsDirectUntapped potential

IndirectFuelling economic instability and social and political discontent (and/or unrest)

Threatening the foundations of growth and prosperity in lagging and leading areas alikeNo real trade-off

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Is territorial policy needed?

YesBut a different and a more efficient

policyDifferent: Place-sensitive

Strongly based on theory and evidenceBut sensitive to the different conditions of

cities and regions

Aimed

at tapping local

potential

And

enhancing the

opportunities (access to basic services, social outcomes)Offering portable skillsTackling institutional inefficiencies and bottlenecks head onMore efficientGoing from strategies of waste to strategies of gain

From strategies that leave a territory in the medium- to long-term in a similar or worse condition than before interventionTo yielding medium- and long-term sustainable economic outcomes

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Strategies of gain and strategies of waste

Report based on a review of successful and unsuccessful development strategiesStrategies of wasteTransportation infrastructure in the European Union

Special economic zones in PeruR&D-oriented innovation policy in the EUFilipino supply-side human capital approaches

Science and technology parks in GreeceStrategies of

gain

Shoring infrastructure gaps in Sub-Saharan Africa

Shoring infrastructure gaps in

Asia

Special economic zones in the Dominican Republic

Vietnam’s vocational and technical education project

Brazilian cluster APL policy15Slide16

Lessons learntSlide17

What leads to strategies of gain or waste?

Strategies of waste:Unbalanced nature of the interventions

Limited attention to local conditions Strategies of gain:

Awareness of local socioeconomic and institutional conditionsIntegration of specific initiatives/policies into broader development strategies

Alignment

of initiatives with the obstacles/challenges they are designed to address

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Lesson 1: The importance of integration and balanceSlide19

Lesson 1: The importance of integration and balance

Infrastructure-driven development, infrastructure-oriented policies, and the neoclassical growth theory

Inward investment strategies and growth pole theory

Human capital, knowledge, innovation and the endogenous growth theory

Cluster-based development policies and new economic geography and urban economics

Development policies built around four development axes

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Lesson 1: The importance of integration and balance

Strategies of waste generally focused on one ‘development axis’Each

intervention concentrated excessively on the rectification of one particular deficiency through one type of policy intervention

Strategies of gain marked by a distinct multidimensionality and by an integrative, balanced nature

Development strategies

as integrated strategies

They have to

consider the complexity of the factors that hinder development

And

involve a series of complementary structurally-, socioeconomically- and institutionally-oriented actions and initiatives20Slide21

Lesson 1: The importance of integration

and balance

RISK

RISK

RISK

RISK

ROOTING

ECONOMIC

ACTIVITY

INWARD

INVESTMENT

HUMAN CAPITAL,

KNOWLEDGE

CLUSTERS AND

LOCAL

FIRMS

INFRASTRUCTUREDEPENDENCEEASY ACCESS BY COMPETITORSSUBSIDIZING NON- COMPETITIVEFIRMSMIGRATIONBRAIN DRAIN

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Lesson 2: Understanding and responding to local conditionsSlide23

Lesson 2: Understanding and responding to local conditions with precisely-targeted interventions

Local contextual conditions were neglected or simply overlooked by strategies of wasteLack of adequate capacityToo reliant on mimicking what works elsewhere

Political meddling, collusion, pork-barrel (weak institutions)

Strategies of gain impactful because of the way and extent to which they:

Targeted

and mitigated the

exact

deficiencies that were hampering local and regional economic

performance

Targeted

and leveraged regional advantagesEnsuring that interventions are both tailored to local conditions and targeted appropriately facilitates a more efficient and effective deployment scarce resourcesSolid diagnosis a must23Slide24

Lesson 3: Awareness of frontiers and diminishing returnsSlide25

Lesson 3: Awareness of frontiers and diminishing returns

How close a territory is to a specific frontier can determine what type of investment should be pursuedThe positions of territories in relation to these frontier were often overlooked by strategies of waste

The further a territory is from the frontier, the greater the likelihood that

investments targeting basic deficiencies in basic infrastructure and/or human capital

will yield returns

As territories develop and move closer to the frontier, a greater emphasis should placed on the

careful consideration of other factors influencing

development

Institutions

Technological endowments

Growth poles, clustersNeed to prevent territories being stuck in development traps (e.g. middle-income trap) in transitions between frontiers25Slide26

Level of development

Policy complexity

Foundational:

Precisely

and narrowly-targeted

interventions to address debilitating

deficiencies and inadequacies

Contextual Conditioning

Broad-based, cross-cutting socioeconomic and institutional upgrading and reform

Pursuit of advanced development objectives:

Precisely

and narrowly-targeted

interventions to address bottlenecks and/or achieve more specific objectives

Degree of integration/policy precision

Conceptualising intervention suitability

Ex. Infrastructure expansion

Ex. Promotion of knowledge, knowledge intensive activities and the cultivation of conditions to support itEx. Institutional reformEx. Cluster policies/attraction of inward investment and activities26Slide27

Lesson 4: Institutions and institutional reformSlide28

Lesson 4: Institutions and institutional

reformThe effectiveness of even the most robustly informed and carefully designed development policy will be mediated (and possibly compromised) by the institutional ‘environment’ in which it is pursued

Recognition of the ‘institutional dimension’Actions necessary to mitigate

and minimise the potential for institutionally-related failures Need to integrate institutional reforms and capacity building initiatives

into

development approaches

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Cloncluding thoughts

Territorial inequality represents a powerful negative externalityThey leave economic potential idleGenerate social and political unrestAnd limit aggregate economic growth

There is no real trade-off between territorial equity and economic efficiency

Territorial equity undermines economic efficiency, both directly and indirectlyTerritorial development strategies are therefore needed more than everBut not necessarily more territorial strategies or more investment

But better strategies

Based on providing

opportunities

and

moblizing

local

potential29Slide30

Cloncluding thoughts

The success or failure of intervention is not a function not of what theoretical strand it is based on or of what it focuses on but rather of where

, how and by whom

it is pursuedThe potential of theory-led and empirically-grounded development approaches to

spatial and territorial

development

is

considerable

if policies:

Are both composed of and balance mutually-reinforcing interventions Are tailored and adapted to local conditions and realities Are aware of where a place is in the development cycleIntegrate institutional conditions and capacity building in the strategy30Slide31

Strategies of gain and strategies of waste: What determines the success of development interventions?

Andrés Rodríguez-Pose & Callum WilkieMore papers and information

at:http://personal.lse.ac.uk/rodrigu1/

@rodriguez_pose

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