The Political Demand: Spatial Equity without Compromising Productivity
areas with low economic potential. In this report we will see that most of MENA’s populations are urbanizing but not redistributing from lagging to leading provinces. MENA’s policy makers, therefore, cannot always rely upon metropolitan growth and migration toward leading provinces to take care of underemployment in lagging provinces. This finding gives some weight to the case for place-based economic development policies, perhaps targeting lagging areas’ secondary agglomerations. However, place-based regional economic development policies that aim to secure spatially balanced growth have earned a bad reputation, and rightly so. The problem is that governments have usually tried to use financial incentives to create investor interest where it did not really exist. In fact, the forces of economic agglomeration are so strong and so persistent that governments’ attempts to combat them with incentives to invest in lagging areas have usually been overwhelmed. Even the greatest catastrophes, such as the near-destruction of German and Japanese cities by Allied bombs at the end of World War II, seem unable to redirect the spatial distribution of economic activity in the long term (Davis and Weinstein 2002; Brakman, Garretsen, and Schramm 2004). The history of policies aimed to stimulate investment in lagging areas is, therefore, littered with costly failures, as this report will describe in detail. When nonleading areas move to the front, it is not because government has deployed subsidies and incentives to influence firms’ location. It is because the market has responded to potential locational competitiveness, whether it be human resources (Ireland, southern United States), natural resources, or market access (Tanger-Tétouan and center-east Tunisia). This finding, therefore, means a new paradigm for the state’s role in promoting regional development. The government’s role is no longer to use incentives to steer investment toward lagging areas by distorting market forces; it is to help ensure that the private sector’s market-led decisions are underpinned by the necessary infrastructure, information, networks, and regulations. The key is not incentivization but coordination. However, the corollary of the new paradigm of regional economic development is that it just cannot apply to all lagging areas. It needs private investor interest in a lagging area’s unrealized commercial potential. So it is likeliest to succeed in middle-ranking regions or in areas with a strong skills or natural resource base. Conversely, it is least likely to work in very poor regions without such assets. This report will examine in more detail the lessons learned from global practice on this “new paradigm” for regional economic development. It will examine MENA experience and derive principles for MENA policy makers.
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