Regional development and urbanization

Ernesto M. Pernia

Posted on September 03, 2012

"REGIONAL DEVELOPMENT" used to be a buzzword in academic and policy circles from the late 1960s through the 1980s. That it has faded in recent years reflects perhaps a general sense of disappointment with the country’s regional development that has become more lopsided than balanced.

Balanced regional development, or reduction of intra-country regional inequalities, has been a policy objective of many a developing country for several decades back. In the Philippines, policy instruments toward this objective included direct industrial location controls (e.g., the 50-kilometer-radius ban against the location of industries in Metro Manila), investment incentives in favor of lagging regions, industrial estates, special economic zones, integrated area development, and regional growth centers.

In a book sponsored by the Philippine Institute for Development Studies titled Spatial and Urban Dimensions of Development in the Philippines (1983), we (Pernia, Paderanga, and five graduate students at the UP School of Economics) showed that the regional policies had been largely ineffective in countering the more potent biases for urban agglomeration induced by macroeconomic and sectoral policies. These were earlier dubbed by Gerry Sicat (1972) as "innocent looking policies" biased toward industrial concentration that hampered the pace of regional growth.

In other words, explicit policies for balanced regional development were no match vis-à-vis macroeconomic and sectoral policies that effectively acted as implicit spatial concentration policies. These were mostly part of the import-substitution industrialization strategy initiated in the 1960s, including exchange rates, tariffs, and tax/subsidy schemes for specific industries. They tended to draw industries and firms to locate in or around Metro Manila (MM) to be close to agencies dispensing foreign exchange and fiscal incentives besides those issuing licenses and permits. Add to these the budgets for infrastructure and social services that favored established urban centers at the expense of provincial towns and rural areas, then one realizes why the government’s regional development objective remains elusive.

MM or NCR (National Capital Region) accounted for about 30% of the country’s total output in 1988, expanding to 35.7% in 2000 and 35.8% by 2010. The corresponding population shares were 13%, 13%, and 12.8%. If NCR is merged with neighboring Central Luzon and Calabarzon, such a mega-urban region would claim well over half to just under two-thirds of GDP, and population share from 37 to 40% of total, over the same period.

Since the GDP shares of both NCR and the notional mega-urban region were larger, to begin with, and growing appreciably faster than their respective population shares, one can readily infer that people in these regions have been getting richer than those in the other regions. Which has been at the expense of the perennially lagging regions such as those in Mindanao, Bicol, Eastern Visayas, and Cagayan Valley, as well as agriculture in general.

Further compounding such regional inequality is that most of the higher-earning overseas labor migrants originate in the mega-urban region plus Central Visayas. Consequently, the bulk of remittances go to the richer regions while smaller shares get to the less developed ones. In other words, while remittances do contribute to absolute poverty alleviation, they seem to help foster lopsided regional development besides exacerbating income inequality across households (as noted in my column, BW, 4/2/12).

The relative prosperity of the mega-urban region, however, is not without costs in terms of increasing congestion and pollution, making it precariously exposed to environmental disasters, as the experience with Ondoy in September 2009 and more recently with Habagat poignantly illustrates.

The special chapter of ADB’s "Key Indicators for Asia and the Pacific 2012" comes as a timely reminder. It points out that of the Philippines’ total urban population, some 3.7 million are vulnerable to inland flooding and 6.8 million are seriously at risk of coastal flooding.

Environmental stress that comes with rapid urbanization is a reality in other Asian countries as well. According to the ADB report, since the 1980s Asia has been the fastest urbanizing region in the world such that it now accounts for nearly half of the world’s total city dwellers. In a little over a decade, it will own 21 of the world’s 37 megacities, and our MM will be one such.

The report further says: "Asia must follow a green urbanization path by instituting policies that help improve efficiency and conservation of resources and promote the use of new technologies and renewable energy." It points to waste-to-energy conversion plants, "smart" electric grids, building houses in safe places, investing in drainage and flood barrier infrastructure. These examples are actually not new; they’ve been bandied about for some time but resolute and sustained action have almost always fallen short.

In the broader context, green urbanization connotes the good old objective of regional development. I hark back to a simple recommendation in a paper on spatial development and urbanization for the NEDA (1994) I wrote with Rex David Israel (a graduate student), essentially echoing a policy implication in the above-mentioned book.

We said: "In addition to policy reforms that emphasize the economy’s comparative advantages and endowments, with the likely effect of reducing the NCR bias, there must be a deliberate effort to attend to the needs of the regions. In practice, this may simply mean improving access to basic infrastructure, education and health services… Reasonably adequate basic [physical and social] infrastructure, in addition to clear and consistent policies and procedures, seems to be the key to increasing investments in and improving the performance of regional economies."

The late Secretary Jesse M. Robredo worked tirelessly -- unheralded -- to energize and empower local governance in the regions -- with promising results. Let’s hope his successor carries on the good work he started.

Prof. Ernesto M. Pernia is with the UP School of Economics, fellow of the Institute for Development and Econometric Analysis, and former lead economist of the ADB.

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