flood losses in 2050 are projected to be approximately US$52 billion. Investment can forestall nonviability, but as with any investment, the cost of building prophylactic measures such as seawalls needs to be weighed against long-term economic potential, fiscal capacity, and governance capabilities. Not all regions will pass the test. Over the short to medium term, fiscal transfers and service provision will contribute to reducing the welfare gap between leading and lagging regions. Over the longer term, moving people out of unviable regions—investing in people instead of places, as suggested by the 2009 World Development Report (World Bank 2009)—may be the best course. Place-based policies in certain lagging areas are inevitably used to serve a fundamentally person-based motive: supporting poor households. Addressing this goal would be more efficiently achieved by making the tax system more progressive (as in France) or strengthening means-tested transfer programs (Kline and Moretti 2014).4 Equity per se is not a sufficient motivation for spatial policies, as Bartik (2020) and Neumark and Simpson (2015) note.
Three Arguments Often Used to Support Place-Based Policies for Nonviable Regions The political unpalatability of the conclusion that some regions are not viable is often enough to goad governments to embrace place-based development projects, despite frequent arguments about the superiority of other policy packages. Three countervailing arguments are often employed. Their validity depends heavily on context.
Argument 1. Excessive Expansion of the Leading Areas Increases Congestion Costs and Puts Excessive Pressure on Real Estate Prices Mass movements to cities can create a host of other problems. As Paul Krugman (1999) noted, “I am quite sure in my gut, and even more so in my lungs, that Mexico City is too big.”5 The same could be said of Mumbai or Jakarta or Los Angeles or any number of other cities. Political access, poor services in the rural areas, or the concentration of certain natural endowments may lead to overly large cities that are less productive than crowded, as chapter 2 discusses. However, problems in the major agglomerations are not somehow an argument for decentralizing to distant lagging areas. As Duranton and Venables (2018, 2020) note, the better policy response to this is likely to be policy within the booming region, as discussed in chapter 7 on cities and zones. In the case of China, for instance, Desmet and Rossi-Hansberg (2013) argue that reallocation of population to other cities could lead to large increases in national welfare. If all cities had the same level of efficiency, welfare would increase by 47 percent. If all cities had the same level of amenities, welfare would increase by 13 percent. However, the exercise is entirely about reallocation among cities, not to lagging regions. Further, they argue that improving the overall low
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Place, Productivity, and Prosperity
