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Skewed regional development

12:11 AM April 27, 2015

REGIONAL DEVELOPMENT used to be at the forefront of policy and academic discourse from the 1960s through the 1980s. That it has since faded only attests to a general sense of frustration with the country’s regional development that has become more lopsided than balanced. With climate-change-induced disasters in addition to persisting sociopolitical restiveness in Mindanao, the subject has assumed renewed relevance.

Balanced regional development, or reduction of intracountry regional inequalities, has long been a policy objective of many a developing country. In the Philippines, policy instruments toward this objective included direct industrial location controls (e.g., the 50-kilometer-radius ban against 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.

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In a book titled “The Spatial and Urban Dimensions of Development in the Philippines” (Philippine Institute for Development Studies, 1983), we 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 against 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, comprising exchange rates, tariffs, and tax/subsidy schemes for select 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 various licenses and permits. Add to these the budgets for infrastructure and social services that favored established urban centers (the home of oligarchy) at the expense of provincial towns and rural areas, and it’s easy to see why the government’s regional development goal remains elusive.

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MM or the NCR (National Capital Region) accounted for about 30 percent of the country’s total output in 1988, expanding to 35.7 percent in 2000 and 36.3 percent by 2013. The corresponding population shares were 13 percent, 13 percent and 12.8 percent (2010). If the NCR is merged with adjacent Calabarzon, such a mega-urban region would claim from under one-half to well over half of GDP, albeit with a combined population share of only 24 to 27 percent of the national, over the same period.

Since the GDP shares of the NCR and the notional mega-urban region were larger, to begin with, and growing appreciably faster than their respective population shares, it follows that people in these regions have been getting richer than those in other regions. Which has been at the expense particularly of those in the perennially lagging regions such as 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 Filipinos originate in the mega-urban region plus Central Luzon and Central Visayas. Consequently, the bulk of remittances go to the richer regions, and smaller shares to the lagging regions. Hence, while remittances do contribute to poverty alleviation in general, they help foster skewed regional development besides exacerbating income inequality across households (see my commentary, “Poverty’s end as chimera,” in the Inquirer, 3/11/15).

But the relative prosperity of the major urban centers is not without costs in terms of worsening congestion and pollution, making them precariously exposed to environmental disasters, as the experience with Tropical Storm “Ondoy” in September 2009 and several succeeding ones painfully illustrate.

Environmental stress that comes with rapid urbanization is a reality in other Asian countries as well. According to an Asian Development Bank report (2012), 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 be home to 21 of the world’s 37 megacities, and Metro Manila 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 safer places, and investing in drainage and flood-barrier infrastructure. All this is actually not new; it’s been bandied about for some time, but resolute and sustained action has 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 National Economic and Development Authority (1994) that I wrote with graduate student Rex David Israel, essentially echoing ex ante the ADB report.

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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.”

Ernesto M. Pernia is professor emeritus at the University of the Philippines and former lead economist at the Asian Development Bank.

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