The World Bank Productivity Project

2022-01-21, Grover, Arti, Lall, Somik V., Maloney, William F.

Place matters for productivity and prosperity. Myriad factors support a successful place, including not only the hard infrastructure such as roads, but also the softer elements such as worker skills, entrepreneurial ability, and well-functioning institutions. History suggests that prosperous places tend to persist, while “left-behind” regions—or those hurt by climatic, technological, or commercial shocks—struggle to catch up. This division gives rise to demands to “do something” about the subsequent spatial inequality. Such pressures often result in costly spatially targeted policies with disappointing outcomes because of a lack of analysis of the underlying barriers to growth and structural transformation and a fair appraisal of the possibility of overcoming them. The latest volume of the World Bank Productivity Project series, Place, Productivity, and Prosperity: Revisiting Spatially Targeted Policies for Regional Development makes three broad contributions. First, it provides new analytical and empirical insights into the three drivers of economic geography—agglomeration economies, migration, and distance—and the way in which these drivers interact. Second, it argues that these forces are playing out differently in developing countries than they have in advanced economies: urbanization is not accompanied by structural transformation, leaving cities crowded and accruing all the negative aspects of urbanization without being concentrated productively. Long-term amelioration of poverty in lagging regions requires advancing the overall national agenda of structural change and productivity growth. Third, it provides a heuristic framework with which to inform policy makers’ assessments of place-based policy proposals, helping them identify the regions where policy is likely to have an impact and those that would remain nonviable. The framework enables governments to clarify the implications of various policy options; to think critically about design priorities, including necessary complementary policies; and to navigate the implementation challenges.