Spatial Inequality and Economic Development: Theories, Facts, and Policies

Although systematic evidence on the extent of spatial inequality in developing countries is still relatively scarce, a growing body of work documents the existence of such inequalities in countries in Africa, Asia, Europe, and Latin America (Kanbur and Venables 2005a, 2005b; Kanbur, Venables, and Wan 2006). Little consensus has emerged, however, on the causes of spatial inequality or the ways in which policy makers should respond to it. From the standpoint of economic effi ciency, spatial inequality may be benefi cial or harmful. If it results from regional specialization based on comparative advantage or returns to scale in production, it may be benefi cial, because productivity increases. If, however, it is caused by external economies that are not internalized, the level of inequality may not be optimal. Spatial inequality in the form of the excessive concentration of urban population in large primate cities may impose a variety of social ills in society. From the standpoint of equity, it may be socially undesirable if it contributes to social inequality across regions. It may also be socially destabilizing if the regional divergence in economic welfare and political interests contributes to social instability. What are the causes of spatial inequality? What is the nature of the evidence on its causes? What is the optimal level of spatial inequality? Does