Somik V. Lall

Policy Reform, Economic Growth and the Digital Divide

Rapid growth of internet use in high-income economies has raised the spectre of a “digital divide” that will marginalize developing countries because they can neither afford internet access nor use it effectively when it is available. Using a new cross-country data set, this paper investigates two proximate determinants of the digital divide: internet intensity (internet subscriptions per telephone mainline); and access to telecom services. Surprisingly, no gap in internet intensity was found. When differences in urbanization and competition policy are controlled for, low-income countries have intensities as high as those of industrial countries. While income does not seem to matter in this context, competition policy matters a great deal. Low-income countries with high World Bank ratings for competition policy have significantly higher internet intensities. The papers finding on internet intensity implies that the digital divide is not really new, but reflects a persistent gap in the availability of mainline telephone services. After identifying mobile telephones as a promising new platform for internet access, the paper uses panel data to study the determinants of mobile telephone diffusion during the past decade. The results show that income explains part of the diffusion lag for the poor countries, but they also highlight the critical role of policy. Developing countries whose policies promote economic growth and private sector competition have experienced much more rapid diffusion of mobile phone service. Simulations based on the econometric results suggest that feasible reforms could sharply narrow the digital divide during the next decade for many countries in Africa, Asia and Latin America.

Agglomeration, transport, and regional development in Indonesia

How effective are public interventions in addressing significant regional disparities in formal manufacturing concentration in a developing economy? The authors examine the aggregate and sectoral geographic concentration of manufacturing industries for Indonesia, and estimate the impact of factors influencing location choice at the firm level. They distinguish between natural advantage, including infrastructure endowments, wage rates, and natural resource endowments, and production externalities, arising from the co-location of firms in the same or complementary industries. The methodology pays special attention to empirically distinguishing the impact of measured production externalities from unobserved local characteristics. Depending on the sector, the authors find that a mix of both forms of regional advantage explains the geographic distribution of firms. Based on the estimated location choice model, they illustrate the potential impacts of policy interventions on manufacturing distribution by simulating the effectiveness of transport improvements on relocation of firms. Their findings suggest that improvements in transport infrastructure may only have limited effects in attracting industry to secondary industrial centers outside of Java, especially in sectors already established in leading regions. The findings underscore the challenges for addressing the industrial fortunes of lagging regions, either through local decentralized policy interventions or national policies focused on infrastructure development.

Urban Poverty and Transport: The Case of Mumbai

This paper reports the results of a survey of 5,000 households in the Greater Mumbai Region conducted in the winter of 2004. The goal of the survey was to better understand the demand for transport services by the poor, the factors affecting this demand, and the inter-linkages between transport decisions and other vital decisions such as where to live and work. This paper, the first of several research outputs, describes the salient facts about travel patterns in Mumbai for both poor and non-poor households. A striking finding of the survey is the extent to which all households-especially poor households-rely on walking. Overall, 44 percent of commuters in Mumbai walk to work. The proportion of the poor who walk to work is even higher-63 percent. Walking is an even higher modal share for nonwork than for work trips. A second finding is that public transit remains an important factor in the mobility of the poor, and especially in the mobility of the middle class. Overall, rail remains the main mode to work for 23 percent of commuters, while bus remains the main mode for 16 percent of commuters. The modal shares for bus are highest for the poor in zones 1-3 (21 percent of the poor in zone 2 take the bus to work), while rail shares are highest for the poor in the suburbs (25 percent of the poor in zone 6 take rail to work). Is the cost and lack of accessibility to transit a barrier to the mobility of the poor? Does it keep them from obtaining better housing and better jobs? This is a difficult question to answer without further analysis of the survey data. But it appears that transport is less of a barrier to the poor who live in central Mumbai (zones 1-3) than it is to the poor who live in the suburbs (zones 4-6). The poor who live in zones 1-3 (central Mumbai) live closer to the non-poor than do poor households in the suburbs. They also live closer to higher-paying jobs for unskilled workers. Workers in these households, on average, commute short distances (less than 3 kilometers), although a non-negligible fraction of them (one-third in zone 2) take public transit to work. It is true that the cost of housing for the poor is higher in central Mumbai than in the suburbs, but the quality of slum housing is at least as good in central Mumbai as in the suburbs. The poor who live in the suburbs of Mumbai, especially in zones 5 and 6, are more isolated from the rich than the poor in central Mumbai: 37 percent of the poor live in zones 5 and 6, whereas only one-fifth of higher income groups do. Wages for skilled and unskilled labor are generally lower in zones 5 and 6 than in the central city, and it appears that unemployment rates for poor males are also higher in these zones. The lower cost of slum and chawl housing in zones 5 and 6 may partly compensate for lower wages. However, a larger proportion of workers in poor households leave zones 5 and 6 to work than is true for poor workers in other zones. Commuting distances are much higher for poor workers in the suburbs than for poor workers in zones 1-3.

Location, Concentration, and Performance of Economic Activity in Brazil

What are the prospects for economic development in lagging sub-national regions? What are the roles of public infrastructure investments and fiscal incentives in influencing the location and performance of industrial activity? To examine these questions, the authors estimate a spatial profit function for industrial activity in Brazil that explicitly incorporates infrastructure improvements and fiscal incentives in the cost structure of individual firms. The authors use firm level data from the 2001 annual industrial survey along with spatially disaggregated regional data and find that there are considerable cost savings from being located in areas with relatively lower transport costs to reach large markets. In comparison, fiscal incentives, such as tax expenditures, have modest effects in terms of influencing firm level costs. Although the results suggest that firms benefit from being in locations with good access to markets, the authors do not suggest that improving interregional connectivity would necessarily assist lagging regions. In the short run, improving interregional connectivity implicitly reduces a natural tariff barrier so firms currently serving large markets and benefiting from economies of scale can more easily expand into new markets in competition with local producers. Therefore, producers in the leading regions can crowd out local producers, which would be detrimental for local production and employment in the lagging region.

Tenure, Diversity, and Commitment: Community Participation for Urban Service Provision

What factors influence community participation in the delivery of urban services? In particular, does security of tenure enhance the probability of participation as it provides individuals with incentives to act collectively in pursuit of a common objective? In addition, are collective efforts less likely to succeed when there is a high degree of heterogeneity in culture or endowments among community members? We use household level survey data for Bangalore, India, to show that tenure security has a significant impact on the willingness of residents to participate even when neighbourhoods are diverse in terms of their cultural background and welfare status. Our findings suggest that participation is possible in heterogeneous communities when participation is a means to a common objective and not a goal in itself.

Africa's cities : opening doors to the world

Cities in Sub-Saharan Africa are experiencing rapid population growth. Yet their economic growth has not kept pace. Why? One factor might be low capital investment, due in part to Africa’s relative poverty: Other regions have reached similar stages of urbanization at higher per capita GDP. This study, however, identifies a deeper reason: African cities are closed to the world. Compared with other developing cities, cities in Africa produce few goods and services for trade on regional and international markets To grow economically as they are growing in size, Africa’s cities must open their doors to the world. They need to specialize in manufacturing, along with other regionally and globally tradable goods and services. And to attract global investment in tradables production, cities must develop scale economies, which are associated with successful urban economic development in other regions. Such scale economies can arise in Africa, and they will—if city and country leaders make concerted efforts to bring agglomeration effects to urban areas. Today, potential urban investors and entrepreneurs look at Africa and see crowded, disconnected, and costly cities. Such cities inspire low expectations for the scale of urban production and for returns on invested capital. How can these cities become economically dense—not merely crowded? How can they acquire efficient connections? And how can they draw firms and skilled workers with a more affordable, livable urban environment? From a policy standpoint, the answer must be to address the structural problems affecting African cities. Foremost among these problems are institutional and regulatory constraints that misallocate land and labor, fragment physical development, and limit productivity. As long as African cities lack functioning land markets and regulations and early, coordinated infrastructure investments, they will remain local cities: closed to regional and global markets, trapped into producing only locally traded goods and services, and limited in their economic growth.

Examining the Growth Patterns of Brazilian Cities

The share of urban population in Brazil increased from 58 to 80 percent between 1970 and 2000 and all net population growth over the next 30 years is predicted to be in cities. This paper explores population growth and its implications for economic dynamics and income generation among 123 urban agglomerations. Incomes are higher in larger agglomerations and in the South, but there is some indication of regional convergence with higher rates of income growth in poorer areas. In particular, agglomerations in the North and Central-West are growing faster than the more established urban centers in the South. Economic dynamics point to a process of increased diversification among larger cities, and greater specialization among medium-sized agglomerations. In bigger centers there is a trend toward deconcentration toward the periphery. The paper provides a simple analysis of correlates of labor supply, as measured by population growth and economic productivity, which is proxied by changes in per capita income.

Cities in Developing Countries: Fueled by Rural–Urban Migration, Lacking in Tenure Security, and Short of Affordable Housing

Abstract This chapter surveys and synthesizes existing research on urbanization and housing in developing countries. The goal is to provide a unified overview of the principal urban issues that arise in developing countries, painting a coherent picture that can provide a starting point for policy analysis. The chapter covers empirical work on rural–urban migration, theoretical research on migration and city-size determination, theoretical and empirical work on tenure security and squatting, and the issue of housing affordability.

Household Savings and Residential Mobility in Informal Settlements in Bhopal, India

Strategies to address the problem of informal settlements have focused on slum upgrading, sites-and-services programmes and tenure security. There has been less attention on what enables slum-dwellers to transition into the formal housing sector without direct intervention. This paper investigates residential mobility among slum-dwellers in Bhopal, India. One in five households succeeds in leaving a slum settlement and a major determinant is the ability to save on a regular basis. Due to limited outreach of institutional housing finance, most slum-dwellers rely solely on household savings for purchasing a house. These findings underscore the urgent need to improve savings instruments for slum-dwellers and to downmarket housing finance to reach the poorest residents of rapidly growing cities in developing countries.

Metropolitan Industrial Clusters: Patterns and Processes

Where do industries locate within a metropolitan area? Do different industrial sectors have different patterns of location/clustering? Can these patterns be understood with reference to industry characteristics? What is the geographical relationship between clusters of different types of industry? To what extent do localization economies influence the clustering process? These questions are investigated with geographically disaggregated industry location and size data from Mumbai, Kolkata, and Chennai. Chakravorty, Koo, and Lall analyze eight industrial sectors (food/beverages, textiles, leather, printing/publishing, chemicals, metals, machinery, and electrical/electronics) for evidence of global and local clustering, and distinguish between and test for co-clustering and co-location of industries. The results suggest an evolutionary model of industry location in mixed rather than specialized industrial districts. There is little evidence of localization economies from labor markets or buyer-supplier networks. The authors suggest that land use policy is the key variable influencing the intra-metropolitan spatial distribution of industry.