How large are geographical economic disparities (spatial inequality) in developing countries and what explains the level and trends in spatial inequality? This paper from the World Institute for Development Economics Research (UNU-WIDER) synthesises research showing that spatial inequalities are high, with disparities between rural and urban areas. Disparities are also increasing, partly as a consequence of the uneven impact of trade openness and globalisation. Policy interventions must ensure a more spatially equitable allocation of infrastructure and public services, along with freer migration.
Spatial inequality is defined as inequality in economic and social indicators of wellbeing across geographical units within a country. There are two reasons why it should concern policymakers. First, inequality between a nation’s regions is one component of overall national inequality across individuals. When spatial inequality goes up, so does national inequality. Second, inequality between a nation’s regions may be of concern in and of itself, especially when the geographical regions align with political, ethnic, language or religious divisions.
The overall conclusion from the wealth of information presented in the studies is that spatial inequality is high, and in many countries, rising.
- A study of Africa, for example, showed that in 6 out of the 12 countries surveyed, the percentage of people below an asset poverty line was more than 50 percentage points greater in rural areas than in urban areas.
- For the 26 countries for which the studies used data over time, spatial inequalities have increased. For example, spatial inequality in China has increased dramatically over the last 15 years and now stands at its highest level in half a century.
- Most of the empirical studies that set out to explain spatial inequality in a country identified public infrastructure as a key explanatory factor. For example, in India, private sector firms tend to locate away from ‘lagging and inland regions’, which are the regions with poor infrastructure.
- Furthermore, the opening up of international trade in these economies has also had an impact on spatial inequality. A variable measuring of China’s trade openness provides at least partial statistical explanation of increasing regional inequality in China since the start of the economic reforms in 1978.
While there are efficiency gains from the concentration of economic activity in urban centres and in coastal districts, the associated regional inequalities are a major contributor to overall inequality. A two-pronged approach is needed to address the problem of rising spatial inequalities while still reaping the gains from agglomeration and international openness:
- The first component of the strategy is to remove barriers to the deconcentration of economic activity. These may be political and institutional obstacles, such as the need for firms to locate near political and administrative centres. It also requires the development of economic and social infrastructure to facilitate deconcentration, and to help interior and poorer regions benefit from integration into the global economy.
- The second component is to facilitate, or at least not impede, the migration of individuals and households to areas of high and rising wellbeing.
- Developing a deeper and more detailed understanding of the determinants of spatial inequality, is important in order to quantify and weigh the benefits of infrastructure allocation against its costs, and the cost of migration against its equity benefits.
