OVERVIEW CONVERGENCE Five Critical Steps toward Integrating Lagging and Leading Areas in the Middle East and North Africa Overview Convergence Five Critical Steps toward Integrating Lagging and Leading Areas in the Middle East and North Africa This booklet contains the overview, as well as a list of contents, from Convergence: Five Critical Steps toward Integrating Lagging and Leading Areas in the Middle East and North Africa. Washington, DC: World Bank. doi:10.1596/978-1-4648-1450-1. A PDF of the final book, once published, will be available at https://openknowledge.worldbank.org/ and http://documents.worldbank.org/, and print copies can be ordered at www.amazon.com. 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Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Memorandum to a Concerned Finance Minister. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Why do so many place-based interventions fail?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 How can the region’s countries approach convergence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Fragmented cities, stuck people, walled-off countries: The symptoms of institutional constraints on growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Place-based and centralized: How national policies and institutions in the Middle East and North Africa perpetuate economic inefficiency and spatial inequity. . . . . . . . . . . . . . 19 Five transitional steps to reduce institutional inefficiency, speed the Middle East and North Africa’s economic development, and enable convergent growth. . . . . . . . . . . . 25 The prospects for regional integration: Distant yet vital to the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Contents of Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 iii Acknowledgments This report was prepared by a team led the thoughtful advice of our peer reviewers: by Somik V. Lall, co-led by Ayah Mahgoub, Nabila Assaf, Safaa El-Kogali, and Harris and comprising Paolo Avner, Julie Biau, Selod. The report also reflects feedback from A lex C hu ne t , Ol iv i a D’Aou s t , U we participants in various workshops in which D eich m a n n , K at r i n H e ger M at h i lde we presented intermediate drafts, including Lebrand, Sally Murray, Emiko Naomasa, the World Bank’s MENA Chief Economist Diana Tello, and Yuan Xiao. Victoria Bruce- seminar, Sustainable Development Chief Goga supported production throughout. It Economist seminar, and Global Solutions was initiated and prepared under the guid- Group on Territorial Development seminar. ance of Ayat Soliman and delivered under The report benefited from discussions and the guidance of Sameh Wahba and Jaafar thoughtful insights from many colleagues, Friaa. It benefited from the contributions of including Tahir Akbar, Axel Baeumler, Chorching Goh, Ellen Hamilton, Leila Kevin Carey, Tabea Dietrich, Ibrahim K aba la n , E l isa C as c a rd i , a nd Paola Elghandour, Marianne Fay, Nancy Lozano Cordovez. Gracia, Maha Hussein, Hind Kadiri, Julian The report was commissioned by the Lampietti, Guido Licciardi, Augustin Maria, Middle East and North Africa (MENA) Balakrishna Menon, Mohamed Nada, Office of the Chief Economist, and the team Noriko Oe, Jean Pesme, Björn Philipp, Salma extends many thanks to Shanta Devarajan, Rasem, Francesca Recanatini, Jade Salhab, Rabah Arezki, and Daniel Lederman for Anastasia Touati, Mohamed Yehia, and their commitment to shedding light on Hoda Youssef. the nature and drivers of—and ways to The report was edited by Communications address—the core drivers of spatial inequal- Development Incorporated. The team thanks ity in the Middle East and North Africa. Bruce Ross-Larson, Nick Moschovakis, Matt The team benefited tremendously from Collins, Sarah Bridges, Ahmad Fakih, and the guidance and pushback of the report their teams. It was designed by Zephyr advisory group. The team thanks its mem- Incorporated, and the logo was designed by bers: Lamia Boutaleb, Paul Collier, Ishac Greenlines. Jewel McFadden, of the World Diwan, Hedi Larbi, Lant Pritchett, and Bank’s Development Economics Strategy and Tony Venables. The team is also grateful for Operations unit, and Mary Fisk and Deb v vi    A c k n o w l e d g m e n t s Appel-Barker, of the World Bank’s formal Andu Shuai Liu, William Stebbins and publishing unit, were responsible for Isabelle Poupaert for their communications managing the book throughout the publica- support. The report was cofinanced by the tions process. Mary Anderson was the U. K . D e p a r t m e nt for I nt e r n at ion a l copyeditor. The team thanks them all. The Development through the Multi-Donor Trust team also thanks Kristyn Schrader-King, Fund on Sustainable Urbanization. Memorandum to a Concerned Finance Minister Subject: Five critical steps toward environment in many cities and towns integrating lagging and leading restricts new firms from entering and grow- areas in your country ing, and the lack of complementary infra- st r uc t u re i nve st ment s hobble s lo c a l This memo introduces a report that you economies. Second, most residents in your may find useful and interesting. Focusing on lagging areas are stuck in place, unable to actions that can put countries in the Middle take full advantage of jobs that vibrant urban East and North Africa on a path to territorial economies can offer. So, what do your cities convergence, it concludes that governments need for more vibrancy and private sector can take the lead by tackling the economic jobs? They need larger markets—often and institutional causes of spatial exclusion. beyond national borders—to increase the Rising spatial disparities are threatening demand for goods and services, to increase economic growth and social inclusion in your the demand for human capital, and to create country and across the region. This report fulfilling jobs for young people. shows that opportunities for your citizens are How then, can you start building a con- shaped by accidents of where they were vergence machine for your lagging areas? born—much more so than in any other part You can reduce territorial disparities more of the world. Decision makers in your coun- immediately and effectively by taking five try and in other parts of the region have steps: taken steps to respond to the needs of people left behind in your cities and across your 1. Strengthen coordination and comple- regions. Even so, spatial disparities either mentarities across sectoral interven- continue to grow or are closing more slowly tions. Efforts to enhance job prospects in than would be expected given the volume of places left behind should operate across investment you have directed to those and address multiple development axes locations. simultaneously. Development strate- Why is territorial convergence so difficult? gies are more likely to succeed if they First, most lagging areas in your country are are multidimensional—including access limited by an inability to leverage the full to energy, transport, land, and markets returns to their endowments. The business in the same place, whether sequentially vii viii   M e m o r a n d u m t o a C o n c e r n e d F i n a n c e M i n i s t e r or concurrently. Because ­ starting anew which concentrates economic activity geo- is extremely difficult, there is little value graphically. For this, the fabric of cities in single-sector interventions. A  good needs to be spatially connected, dense with place to start is by anchoring investments people, and transit oriented—not sprawl- around cities, which have many of the ing, which perpetuates the dispersion of missing complements. Complementary people and jobs. Planners and regulators reforms that help get the prices right—for can attract firms to invest in cities by energy and for land—can go a long way reducing frictions such as zoning regula- toward creating the conditions for job tions; impediments to property acquisition creation in lagging areas. The good news and new construction (costs, height limits, is that you don’t have to pay more to see density limits); challenges to local business better results, because spatial coordination registration and licensing; limits on news will generate cost savings in the medium to and information; and obstacles to devel- longer term. oping local business networks. 2. Redistribute roles and responsibilities 5. Enhance market access for lagging areas, across tiers of government. Citizens in dif- nationally and regionally. Historically, the ferent parts of the country have varying region’s cities were part of economically needs, and local conditions require flexible central global trade networks. Many of service delivery models. Devolving respon- these cities persisted into modern times as sibilities for local revenue generation and large, often vastly populated urban areas. service provision to local governments can Yet with today’s thick national borders, make them better equipped and more their economic reach has been limited. accountable. Effective decentralization Countries across the region need to would also empower them to cover the enhance links across national borders— recurring costs of their investments. reducing tariffs and nontariff barriers 3. Enable greater mobility of your people (such as logistics and trade facilitation) between lagging and leading areas. Major and easing movements of goods and peo- gains in living standards can be reaped ple. They may also need to enact policies from greater domestic labor mobility. to strengthen domestic markets. Such Research for this report shows that living efforts will expand the size of urban econ- standards of people moving internally to omies, providing much-needed tax major cities can increase by 37 percent on resources to redistribute in areas left average across the Middle East and North behind. Africa region. Women are more likely to move and find jobs in urban areas, but The extent and sequence for implementing they need support to do so. One of the key each transitional step will depend on your constraints to greater mobility is the cre- assessment of your country’s readiness— dentialist education system prevalent political, technical, and administrative—to across the region. It needs to be more ori- implement these recommendations. ented toward marketable skills. These steps will allow you to promote the 4. Build dense and connected cities. Well- building blocks of a convergence machine functioning cities offer a wide variety of for spatial inclusion by pursuing economic jobs for women and men. Making land growth and inclusion rather than spatially markets in cities more efficient is critical targeted mandates. The only spatial require- for agglomeration and specialization— ments are that people across your country two dynamics that enhance job creation have access to high-quality basic services— and economic prosperity. Whether in and that economic development interven- larger or in smaller (secondary) cities, tions harness the spatial and economic agglomeration and specialization require dynamics of agglomeration, migration, and the benefits from high economic density, specialization. M e m o r a n d u m t o a C o n c e r n e d F i n a n c e M i n i s t e r    ix All levels of your government have roles: complementing every investment with institu- the national, the provincial, and the local. By tional measures that make the desired jobs requiring that all interventions be responsive more likely to appear. to the basic needs of all, you can put far more These steps may appear daunting, even of your nation’s forgotten people into jobs painful. But evidence from two centuries of than ever before. How? Not by trying solely experience from around the world has shown to bring jobs where people are but by also that the potential gains are worth the pain. focusing on where the jobs are most likely to The World Bank Group can help as you be and enabling people to move there, while decide on a way forward. About the Authors Somik V. Lall is the World Bank’s global Economics; and working papers. He holds a lead on territorial development solutions, a bachelor’s degree in engineering, a master’s lead economist for urban development, and degree in city planning, and a doctorate in the team leader of this report. He is a recog- economics and public policy. nized expert on development policy related to urban and territorial competitiveness, agglom- Ayah Mahgoub, a senior urban develop- eration and clusters, and infrastructure, with ment specialist at the World Bank, is the co- over 20 years’ global experience, most notably team leader of the Convergence report. She in Africa, Asia, and Latin America. He has leads urban and territorial development lend- been a core team member of the World ing and analytical projects in North Africa Development Report 2009: Reshaping and leads the World Bank knowledge groups Economic Geography and developed the pol- on competitive cities and results-based icy framework for development of lagging financing. Her focus areas currently are areas within countries. He is the lead author urban and territorial development, city com- of the World Bank’s flagship report on urban- petitiveness, intergovernmental fiscal sys- ization, Planning, Connecting & Financing tems, municipal finance, smart cities, and Cities—Now, as well as the recent Africa’s results-based financing. Ayah completed her Cities: Opening Doors to the World. Somik undergraduate and graduate studies in eco- heads a World Bank global research program nomics and international development at on urbanization and spatial development and Harvard University. Before joining the World previously founded the Urbanization Reviews Bank, she worked for the Center for Global program. His research and policy advisory Development, the United States Agency for interests focus on place-shaping policies I nternational Development’s (USA I D) around cities, clusters, and corridors and the Development Innovation Ventures program, functioning of factor and product markets, the Crown Prince Court of Abu Dhabi, and with more than 40 publications featured in Phipps Com munit y Development peer-reviewed journals including the Journal Corporation. She has also worked on urban of Development Economics and Journal of development in New York City, economic Urban Economics; edited volumes including integration of minorities in France, and the Handbook of Regional and Urban peace-building initiatives in Sudan. xi Abbreviations AGOA African Growth and Opportunity Act CDD Civil Defense Department CEPGL Economic Community of the Great Lakes Countries COFOG Classification of Functions of Government COMESA Common Market for Eastern and Southern Africa CPER State-Region Plan Contract (France) DAI Digital Adoption Index EBA enterprise bargaining agreement EPCI Établissement Public de Coopération Intercommunale EU European Union FDI foreign direct investment GAM Greater Amman Municipality GCC Gulf Cooperation Council GCI Global Competitiveness Index (WEF) GDP gross domestic product GFS Government Finance Statistics (IMF) GHSL Global Human Settlement Layers (dataset) GUF Global Urban Footprint (dataset) HIP Hawassa Industrial Park ICT information and communication technology IDA Industrial Development Authority (Egypt) IDP internally displaced person IMF International Monetary Fund ISIL Islamic State of Iraq and the Levant xiii xiv    A b b r e v i a t i o n s LEI Landscape Expansion Index LGPA Local Government Performance Assessment LGU local government unit LPI Logistics Performance Index (World Bank) MNAPOV Middle East and North Africa Poverty database NASA National Aeronautics and Space Administration OECD Organisation for Economic Co-operation and Development OSM OpenStreetMap PAFTA Pan-Arab Free Trade Area PARAS Project to Restructure Local Government and Services PIRLS Progress in International Reading Literacy PISA Programme for International Student Assessment PVH Phillips-van Heusen SEDAC Socioeconomic Data and Applications Center SEZ special economic zone TEN-T Trans-European Transport Network TFP total factor productivity TIMSS Trends in International Mathematics and Science Study TMSA Tanger-Med Special Agency TTN Tunisia TradeNet TVA Tennessee Valley Authority UDLGP Urban Development and Local Government Program UN-Habitat United Nations Human Settlements Programme VAT value added tax WEF World Economic Forum WGI World Governance Indicators WTO World Trade Organization WVS World Values Survey Overview T he Middle East and North Africa is people are marginal to the formal economy— suffering from spatially divergent or live outside it, seemingly forgotten. development. The uprisings of the Arab Spring in part reflected grievances of citizens who were (or were perceived to have Why do so many place-based been) left behind, particularly by accidents of interventions fail? where they were born. Although the trajec- Why have place-based spatial initiatives tory of every nation in the region varies, one largely failed in the region’s countries? Why stated objective is clear for them all: improve have they not yielded more sustainable jobs outcomes for people in areas that have been and growth? Although the challenges are left behind. many and vary across the region, recent Policy makers across the region have long work in economic geography shows that been trying to integrate their people spatially most of these place-based policies get one a nd econom ica l ly. Wish i ng to bri ng thing wrong: they attempt to treat inequity’s communities together and narrow economic ­ spat ia l a nd physic a l sy mptom s , not gaps, governments have made large capital its causes. Thus, to add jobs in a country’s investments in transport corridors and “new poorer areas, policy makers try to push new cities.” Wishing to provide jobs in places with production facilities into these areas. And to little economic activity, governments have meet the need for decent homes and ameni- designated new industrial zones supported by ties in poor urban neighborhoods, funds spatially targeted business incentives and support mass housing projects. Neither subsidized land and energy. effort has succeeded widely—because the Yet the results of these place-based initia- causes of spatial exclusion are not them- tives in these countries are mostly disappoint- selves spatial and physical; they are eco- ing (box O.1). The disparities between capital nomic and institutional. cities and lagging areas, and between richer First, a lack of economic density in rural and poorer quarters of cities, remain stark. areas, and even in many smaller municipali- Across much of the region, a fortunate few are ties, makes them inherently less competitive connected to opportunity, while many more than large cities because they are less suitable 1 2   CONVERGENCE BOX O.1  Place-based policies have not led to spatial convergence Insufficient attention to the economic causes of spa- such remote locations can be far more expensive tial exclusion has led governments in the Middle than supplying them in a city (where the cost can East and North Africa to pursue spatially targeted be spread across a larger number of customers). ­ interventions—yet most countries have little to show And firms that locate far from large urban areas for these place-based policies for several reasons: cite constraints in their business environment— the main challenges being political instability, low • New cities have not yielded the hoped-for access to finance, and low access to electricity. returns. Governments are building new cities as • New transport corridors have not facilitated a respite from the chaos of today’s large and bus- regional trade. Most middle-income Middle East tling metropoles—but the main result is that res- and North Africa countries have invested heav- idents are marooned far from jobs. In the Arab ily in national transport infrastructure, yet firms Republic of Egypt in 2012, 30 percent of the encounter high nonphysical barriers to trade national built environment budget was allocated within the region. Outside the Gulf Cooperation to new cities, which host just 2 percent of the Council (GCC), a the region’s countries score nation’s people. Today, the people who moved to poorly on such trade facilitation measures as those new cities must rely on their own cars or the quality of customs and logistics procedures. fleets of buses to shuttle daily to the older urban As a result, less than 7 percent of global intra- centers where they work (especially the Cairo regional merchandise trade occurs within the agglomeration) (Sims 2015). Middle East and North Africa, compared with • New industrial zones and newly designated 40  ­p ercent within East Asia and more than growth centers lack promise. Governments have 50 percent within Europe.b undertaken large-scale investments and offered generous subsidies to create jobs in socially and a. The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, economically excluded areas. But the proposed Saudi Arabia, and the United Arab Emirates. new industrial zones and growth centers often lack b. Global intraregional trade data are derived from the World Trade Flows database, Bilateral Data files, of the Center for International Data, University of the agglomeration benefits that larger cites already California, Davis,HYPERLINK https://cid.econ.ucdavis.edu/Html/WTF_bilateral​ have. Supplying infrastructure and amenities to .html. for large-scale investment. Large urban areas of competitiveness, business environment, have well-understood advantages in today’s and governance. Subnationally, firms global economy. Dense agglomerations favor report in surveys a range of impediments specialized, scaled-up production for interna- to doing business, and the challenges vary tional markets (box O.2). So, an industrial from city to city within countries. One zone set up far from a country’s main cities major challenge is the limited coordina- is, most likely, set up to fail. tion of complementary investments and Second, not only rural but also urban policies needed to make cities and regions economies in the Middle East and North attractive for entrepreneurs to establish Africa are constrained by widespread institu- and grow businesses. Sectorally siloed tional inefficiencies. Five main types will be interventions make cities and regions considered here: inadequate homes for businesses that need complementary factors such as good mar- •  Barriers to market entry and lopsided ket access, well-serviced land, and a rel- business environments, which var y evant talent pool. within countries. Several of the region’s •  Centralized control over local public countries significantly underperform rela- services. Outside the capital city in the tive to comparator countries on indexes region’s countries, smaller cities and O v e r v i e w   3 BOX O.2  Economic density and agglomeration effects: The urban advantage For firms participating in today’s regional and global The higher productivity of efficient urban agglom- value chains, economic density —the geographic con- erations can promote a virtuous circle of economic centration of economic activity—gives large cities an growth. As a rule, if firms and workers are mobile, edge over smaller cities and rural areas. Such density both will pursue productive opportunities across boosts efficiency by making workers and firms more space, preferring to settle near existing agglomera- productive. Economic density can make public ser- tions. Large cities become even larger and denser. vice provision less costly. And as production becomes Agglomeration effects imply that an efficient eco- more complex and diversified, the physical proxim- nomic landscape is not smooth—with equal economic ity of firms becomes more critical. Thanks to these density everywhere—but is instead lumpy, with large agglomeration effects, firms that specialize in produc- cities driving growth. However, economic distance ing tradables can operate more efficiently at scale and (the difficulty of access from lagging to leading areas) can thus compete more effectively. (Scale economies may limit economic actors’ mobility and location and specialization are two key drivers of firm and sec- choices by making migration costlier or less benefi- toral productivity. Scale allows a firm to reduce unit cial. Friction can also result from less obvious eco- costs, increasing productivity. Specialization allows nomic factors, such as divisions— ethnic, political, it to narrow its focus to a few products, making the religious, or linguistic barriers to interaction. most of its key advantages.) Source: World Bank 2009. other localities lack the authority to raise often lack the tradable skills demanded their own revenues and to manage local by the private sector. So, the region’s cities service provision. These functions can, are less attractive than they could be to however, generally be conducted more firms and investors, and citizens are con- efficiently by localities—and local gov- strained in their ability to leverage their ernment officials can be more easily held skills for employment across places. The accountable. emphasis on credentials, rather than on •  Urban regulatory frictions. Especially portable skills, also reduces the chances in urban areas, rigid and outdated regu- for young women and men to move to lations distort land markets and stymie cities where they can access better job development. For example, Tunisia pro- opportunities. hibits residential buildings higher than •  Barriers to the spatial mobility of goods three stories, and Jordanian regulations and people. Input and output flows are impose a minimum lot size of 100 square impeded within the Middle East and meters—restrictions that effectively limit North Africa by barriers, sometimes the supply of affordable formal housing. called “thick borders.” Among the main In addition, land transfer fees and build- barriers are limits on news and informa- ing permit fees tend to be high in the tion and practical constraints on travel region’s countries. and trade (such as visa difficulties, weak •  Credentialist education systems. In the infrastructure, and logistical hurdles). Middle East and North Africa, education Thick borders discourage firms in the is widely seen as providing a credential— region’s cities from creating jobs and and the credential is valued mainly as a expanding their economic reach—and ticket to public sector employment. As a also inhibit the growth of smaller special- result, even the most educated workers ized cities. In addition, within countries, 4   CONVERGENCE migration controls can distort labor mar- revenue and services. With greater f ­ unctional kets by reducing mobility from rural to authority, they can better tailor their service urban areas. delivery models to the characteristics of their territories and varied needs of their citizens, Based on the research for Convergence, including better leveraging ­ digital technolo- this overview outlines the roots of spatial gies for service provision. Decentralization of institutional inefficiencies across the Middle functions and finance is urgent in lagging East and North Africa—within cities, within areas that have been targeted for place-based countries, and across national borders—and investments, where local governments need it proposes institutional remedies and invest- to be empowered to cover the recurring costs ment priorities informed by economic geog- of these investments. The speed and design of raphy. The proposed reforms are ambitious. decentralization may vary based on current They will require strong leadership from city and historical institutional architecture, eco- and national governments. However, getting nomic geography, and other strategic deci- the region on a path to spatial convergence is sions. But regardless of the specific design worth being ambitious and taking on a chal- choices, decentralization is likely to deliver lenging agenda. better results when shifts in functional assignment are accompanied by commensu- rate shifts in resources and capacity. How can the region’s countries Step 3: Step away from credentialist edu- approach convergence? cation and toward schooling that cultivates The overview identifies five transitional globally tradable skills. Decentralizing steps that Middle East and North Africa school systems could help. But also needed is countries can take starting now, with the a shift in public sentiment: citizens who now urgent aim of getting the region to a path see the government as chiefly a job creator toward convergent development. must come to recognize that marketable Step 1: Enact new, evidence-based c ­ riteria skills will attract investment and growth. to guide future spatial interventions. To Such skills will also make workers more move on from decades of failed place-based mobile between lagging and leading regions, policy, require that the next generation of and such mobility is economically productive spatial interventions ensure efficient access to and desirable. a large urban market either within the coun- Step 4: Renew the focus on nurturing try or across national boundaries. Also focus urban agglomerations by streamlining land on identifying major bottlenecks that spa- transfer procedures and relaxing zoning reg- tial initiatives could clear—whether in land ulations in existing cities, lowering the regu- markets, skill markets, service provision, or ­ latory barriers to their redevelopment. trade and labor mobility. And thoroughly Spatial inclusion is less likely to happen in consult all stakeholders in an area, including new cities, since they are often disconnected local firms, authorities, and residents as well from contiguous urban fabric. Instead, inclu- as potential investors. The key issues here are sion follows economic growth, which will spatial coordination across complementary most likely occur in existing urban areas. To sectoral investments and measures to reduce promote the agglomeration and specializa- subsidies to large firms that distort the price tion that drive growth, policies should make of labor relative to capital and discourage cities more economically dense. A first step is labor-­intensive ­economic activities. to make existing urban land markets more Step 2: Devolve greater functional author- efficient. ity over local revenue generation and service Step 5: Expand market access for cities by provision to local governments. To empower thinning the “thick borders” that inhibit lagging areas, make localities more respon­ mobility across the Middle East and North sible, equipped, and accountable for both Africa, for both regional trade and migration. O v e r v i e w   5 For regional trade, add transit links and other across the Mashreq, the Maghreb, and the critical infrastructure and reduce nontariff G u l f C o op erat ion C ou nc i l (G C C) barriers. For migration, streamline customs subregions:1 and reduce internal migration controls. Focus on areas near major cities—but also on any •  Cities are physically and economically lagging areas that have already been targeted fragmented, precluding the economic for place-based investment. Expanding cities’ benefits of agglomeration. In the large cit- access to markets will help to expand the ies of the Middle East and North Africa, ­ fiscal base that can support greater redistri- planners and policy makers have tended bution to lagging areas. to start anew rather than work within As Step 1 suggests, policy makers are the existing urban fabric. The resulting urged to enhance the design and implementa- new cities and modernist neighborhoods tion of place-based policies such that they do not support the amount of interac- enable markets to take full advantage of three tion seen in historic districts or in newer growth drivers associated with economic informal settlements. A comparison of geography: agglomeration, migration, and 20 neighborhoods across 8 of the region’s specialization. Rather than solely focusing on cities shows that intersection d ­ ensity—a attracting capital to places where it is scarce, proxy for interaction potential—is almost a refined approach should focus on develop- three times higher in historic city centers ing the broader ecosystem that can make and informal neighborhoods than in mod- places attractive for investment while provid- ernist neighborhoods. Planners who put ing the opportunities for people to seek physical form before economic and social opportunities wherever their talents provide function have thus inhibited agglomera- the highest returns. tion effects. In the long term, making the most of these •  People are spatially and economically growth drivers will require reforming core stuck in place, lacking tradable skills and institutions and, in particular, working therefore limited in mobility. Around the toward regional integration in the Middle world, migration from places not doing East and North Africa. But in the short to well to those doing well has been key for medium term, the five transitional steps economic integration and the reduction should speed economic growth and thus of spatial inequalities. And although dis- add to the momentum and demand for fur- parities between subnational regions in ther  spatial convergence. All levels of the Middle East and North Africa con- ­ g overnment—national, provincial, and tribute to a 63 percent larger share of local—have roles to play. total inequality in consumption than else- where (see chapter 2), people are stuck in place. In contrast with other parts of Fragmented cities, stuck people, the world where higher education gener- walled-off countries: The ally increases spatial mobility, earning symptoms of institutional a university degree in the Middle East constraints on growth and North Africa does not make a per- Today, Middle East and North Africa son more likely to migrate. One reason is countries are not notably benefiting from that higher education confers credentials the three spatial dimensions of for coveted local public s ­ ector jobs, not ­ m arket-driven economic growth: agglom- tradable skills that are in demand by the eration, migration, and specialization. private sector. Other ­reasons analyzed in Instead, their economic development is this report include weak private sector characterized by three striking symptoms dynamism limiting the economic “pull” of institutional inefficiency, all of which of cities and frictions in trade and use of appear widely (though not universally) land. 2 6   CONVERGENCE •  Economies are walled off from others, governments in the region tend to assume an regionally and globally, by many barriers activist role in shaping markets, whether at that governments in the Middle East and the national or the neighborhood scale. The North Africa have created—or failed to preference for place-based investments remove. Compared with Europe or East inspires various interventions, from indus- Asia, few countries in the Middle East trial location regulations to growth poles and and North Africa benefit from growth new cities. The bets have high stakes: they spillovers from their neighbors. Indeed, consume an outsize share of public expendi- most export facilities in the region ship tures. Yet these countries appear to have raw materials directly to global markets. worse outcomes than their global peers, with The automobile production chains that isolated exceptions. include Morocco are based in Europe, not Policies that distort markets, spatially or in the Middle East and North Africa. otherwise, usually fall short of their stated goals. Many place-based interventions fail to achieve even their redistribution objectives— Excess centralization, the nature of and few are well designed and managed for place-based investments, and weak economic growth. Today, the economic envi- institutions have created less ronment across the Middle East and North competitive economic environments Africa is less efficient and less competitive than elsewhere in the world than those of comparator countries and Why are the Middle East and North benchmark regions. On the World Economic Africa’s urban areas fragmented, its people Forum’s Global Competitiveness Index, most still stuck in place, and its economies walled of the region’s countries underperform for off from each other and from the world? their income level (Schwab 2017), as further These symptoms have historical roots in a discussed in chapter 4.3 legacy of centralized administration and inat- Most countries in the Middle East and tention to lagging areas, first under the North Africa have national strategies that Ottomans, then under the Western colonial aim to balance growth spatially, bringing powers (Brixi, Lust, and Woolcock 2015; economic activity to lagging areas—but at World Bank 2011). Since independence, most what cost? Even assuming that a given place- of the region’s countries have ineffectively based policy can meet its spatial equity and sought to address this imbalance with inter- redistribution goals, do those gains justify the ventionist social contracts that focus on state associated compromises in economic effi- planning and redistribution over market out- ciency? Such trade-offs presuppose careful comes. While keeping government central calibration. However, in the Middle East and and hierarchical, such social contracts make North Africa, the pursuit of spatial equity the state responsible not only for service pro- through central planning has skewed spend- vision but also for other aspects of welfare— ing toward risky supply-driven interventions including much employment (Yousef 2004). that do not yield compensating benefits for Yet because natural resource rents and for- growth or inclusion. Celebrated successes— eign aid have limited the need to collect tax such as Dubai and Tangier—are isolated revenues, citizen participation in governance exceptions that prove the rule: all have inher- is low across the region (Mills and Alhashemi ent geographic advantages, and all receive 2018). In short, institutions remain weak unusually well-coordinated support. even as the public sector dominates markets. The weakness of national institutions National governments in the Middle East across the region’s countries—combined and North Africa have long used public funds with the state’s activist economic role and and subsidies to bet heavily on sectors and compounded by high political risk—is deter- industrial locations—and these development ring outside investment and thus hobbling bets shape markets. More than elsewhere, economic growth and job growth. On the O v e r v i e w   7 World Bank’s World Governance Indicators, population, predominantly local, and Middle East and North Africa countries lacking in economic mobility. score lower across the board than other •  As long as the region’s countries are m iddle-income and high-income regions.4 ­ walled off— disconnected from their Executives in the region perceive corruption regional neighbors and from the world— and inefficient government interventions as their cities cannot fulfill their potential: the most significant barriers to doing busi- cities need large markets. ness there. And in the eyes of the world, Whereas people throughout the Middle despite high financial openness, the Middle East and North Africa still look to the public East and North Africa is economically a sector for social services and for jobs, the pariah region: its countries receive the lowest region would benefit far more from institu- inflows globally of foreign direct investment tional reforms to integrate markets—creating (FDI) relative to gross domestic product incentives for private investment, skill acqui- (GDP).5 sition, and urban specialization in tradable Across many of the region’s countries, a goods and services. Short of this set of ideal thriving informal sector attests to the eco- reforms, the region’s economies can realize nomic potential of the poor. The poor have some benefits by better aligning government few roles in the formal economy and no real interventions with policies for efficiency and stake in the formal sector, which is largely competitiveness (see chapter 6). This report overseen by the state. The vast importance of presents findings on many specific aspects of informal employment to the poor points to the region’s economic geography (box O.3). failed policies and to the urgent necessity of For regional policy makers, the challenge is institutional reforms. Without new policies to confront the picture thus revealed and to that enable formal markets to function more give due weight to this evidence in their efficiently, the energies of the poor will not be deliberations. turned to more economically productive uses, The moment is critical. Choices today can and the Middle East and North Africa will set the next generation on a course either not achieve shared prosperity.6 toward more spatially convergent economic When will the region’s countries begin to growth—or toward further spatial interven- see faster progress on economic growth and tions that, in many cases, are likely to fail. spatial inclusion? Not until governments see and harness the economic potential of all and enable factor markets while expanding them Fragmented cities through regional integration. Otherwise, the To document the institutional constraints following will occur: on economic growth and inclusion, this •  As long as the region’s cities and city sys- report looks at the Middle East and North tems remain fragmented— with masses Africa across three spatial scales: within cit- of potential workers constrained from ies, within countries, and across national accessing opportunities and unable to boundaries. Why start with cities? Not just enter the formal economy—they cannot because cities drive economic growth glob- form the economically dense, efficient ally but also because the region’s urban popu- agglomerations that equip them to create lation share is among the highest in the world productive jobs and produce goods and (box O.4). services for regional and global markets. In the Middle East and North Africa’s cit- •  As long as the region’s education systems ies, the built-up area is on average quite spa- keep producing stuck people—locally tially dispersed—a fact likely to increase credentialed workers with limited trad- future development costs and thus limit pro- able, portable skills—the regional labor ductivity and welfare. The cost of this frag- force will remain small relative to the mentation is borne by all city residents, but it 8   CONVERGENCE is especially costly to low-income households. government development Masā kin Ùthmā n Take the Abdallah family, forced to move on the outskirts of Cairo (TADAMUN from the home they built in Ìzbit Khayrallah 2015).7 The move proved hugely expensive (a well-located and dynamic informal neigh- for the Abdallahs. It involved transport costs borhood in Cairo’s center) to the new to access current jobs; service costs for BOX O.3 Many signs point to one problem: The Middle East and North Africa’s economies are not moving sufficiently Many recent economic findings, reviewed in this policies have distorted factor markets. Specifically, report, raise pointed questions about the Middle East place-based policies have shaped inefficient land and North Africa’s slow economic and job growth— markets and discouraged labor-intensive job cre- and the relation of these indicators to national poli- ation, while spatial equity policies and a reliance on cies. For example, why do the region’s countries public jobs have reinforced a local orientation in the receive the world’s lowest net inflows of FDI relative labor market and reduced the regional demand for to GDP?a And why are people with university degrees tradable skills. For the region to achieve faster eco- in the Middle East and North Africa no more likely to nomic growth—and more convergent growth, with be hired away from their places of origin than people economic mobility and shared prosperity—national with only a primary education?b governments will need to reduce these distortions. Underlying these and many other symptoms is a basic problem that the region’s governments have a. The question of low FDI inflows is examined in chapter 3. yet to face: for generations, national institutions and b. For discussion of the returns on education, see chapter 2. BOX O.4  Drivers and results of high urbanization in the Middle East and North Africa Urbanization in the Middle East and North Africa 43  percent in Egypt to around 80 percent in the has been rapid, driven by economic development as most urbanized countries of the GCC and about well as by environmental and political crisis. The 87 percent in Lebanon.b Among three major Middle region’s urban population increased fourfold from East and North Africa subregions—the Mashreq, 1970 to 2010, and forecasts predict that it will double the Maghreb, and the GCC—the Maghreb now has again between 2015 and 2050 (UN-Habitat 2012). the lowest national urban growth rates (less than The pace of urbanization partly reflects economic 2 percent a year on average). development, geography, and migration to oil-rich The Mashreq is seeing faster urban growth, driven countries, especially the GCC countries. But it also in part by refugees. Economic migration to the cit- reflects drought and conflict: in 2018, the Middle East ies of the Mashreq and the Maghreb has been chiefly and North Africa contained an estimated 7.2 million internal and partly climate-driven as migrants are refugees, 10.5 million internally displaced persons, pushed out of rural areas where agriculture is suf- and about 15 million economic migrants.a fering from higher temperatures (UN-Habitat 2012). T he region’s cou ntries never theless display By contrast, migration to the GCC “city-states” (such varying urbanization shares and urban growth as Bahrain, Kuwait, and Qatar) has come mostly rates resulting from varying confluences of fac- from abroad, especially during the oil price boom of tors. Today’s urban population share ranges from 2003–13. box continues next page O v e r v i e w   9 BOX O.4  Drivers and results of high urbanization in the Middle East and North Africa (continued) FIGURE BO.4.1  The Middle East and North Africa is a highly urbanized region 100 90 80 OECD Urbanization (%) 70 60 East Asia and Pacific 50 40 30 20 10 0 Middle East and GCC Mashreq Maghreb North Africa Source: World Development Indicators Database 2016. Note: “Urbanization” is measured as the percentage of total population living in urban areas. The orange dashed line designates the Organisation for Economic Co-operation and Development (OECD) average. The yellow dashed line designates the East Asia and Pacific average. Maghreb refers to Algeria, Libya, Morocco, and Tunisia; Mashreq to the Arab Republic of Egypt, Iraq, Jordan, Lebanon, the Syrian Arab Republic, and West Bank and Gaza; and the Gulf Cooperation Council (GCC) to Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. a. Refugee data from the UN Refugee Agency (UNHCR) 2018 database: http://reporting.unhcr.org/node/36. b. In some countries, the definition of what constitutes “urban” contributes to significant disparities in reporting of urbanization versus agglomeration index levels—the latter being a metric of urbanization that classifies economic density using standardized criteria for population density, the population of a “large” urban center, and travel time to that urban center. amenities that were limited and thus more afford formal housing, in part because plan- expensive in the new city; and the cost of los- ning and building standards are rigid and ing the family’s social network. Significant outdated. In Cairo, formal housing units are hardships resulted. reported to be 20–30 percent vacant—even Although cities in the Middle East and as 70 percent of the city’s population occu- North Africa are not equally fragmented pies informal housing (World Bank 2012). (box O.5), many are quite fragmented in pop- The spatial fragmentation of many cities ulation density and the layout of physical in the Middle East and North Africa reflects structures, especially when controlling for both long-term and short-term growth pat- population.8 terns. Thus, Amman’s layout has become Within a city, spatial dispersion and frag- more linear with the expansion of Zarqa, a mentation make networked infrastructure nearby industrial town. But low-density and service provision costlier. They also informal settlements have also increased spa- make job matching less efficient and formal tial fragmentation in Amman as well as in housing more difficult to provide. In a highly other refugee destinations, such as Baghdad. fragmented city, firms are less likely to In the long term, modernist urban plan- quickly find people with the right skills. And ning in the Middle East and North Africa has low-density neighborhoods may indicate lost increased spatial dispersion, fragmentation, opportunities for infill development, contrib- and infrastructure costs—a pattern that con- uting to dysfunction in the formal housing tinues today. The low-density urban plans of market. For example, most Egyptians cannot the modernist era assumed horizontal 1 0   CONVERGENCE BOX O.5 In the Middle East and North Africa, some cities are more spatially fragmented than others In the Middle East and North Africa, Casablanca panels a and b). In contrast, Amman and Tripoli and Baghdad have a fairly high potential for inter- have ­l inear layouts and less concentrated popula- action among residents: people are more spatially tions (figure BO.5.1, panels c and d). concentrated than fragmented (figure BO. 5.1, FIGURE BO.5.1  Fragmentation varies significantly across urban areas of several capital cities in the Middle East and North Africa a. Casablanca, Morocco (4 million population) b. Baghdad, Iraq (10 million population) c. Amman, Jordan (3 million population) d. Tripoli, Libya (1.5 million population) Source: Developed from LandScan Global 2012 dataset, Oak Ridge National Laboratory, https://landscan.ornl.gov/. Note: Fragmentation is represented by the distribution of population within urban areas. (Each square represents population density per square kilometer.) For a detailed analysis, see chapter 1. expansion and private car travel. Globally, districts. And urban expansion in the GCC is many cities now reject such plans and pro- nearly as likely to occur through leapfrog mote density through vertical and infill devel- development as through infill—while in the opment. Yet most of the region’s cities have Maghreb subregion, infill development is not adopted policies for density. also rare, and extension development is the In the GCC subregion, city centers are norm (figure O.1). Leapfrog and extension being replaced with business and commercial development both tend to increase a city’s O v e r v i e w   1 1 infrastructure costs—leapfrog development FIGURE O.1  Aggregated 1990–2004 urban expansion trends of more so. capital cities in the Mashreq, Maghreb, and GCC subregions show In the short term, the wars and turmoil divergent patterns that have shaken the region since 2010 are 100 4 4 transforming many cities, with consequences 13 for their spatial forms and patterns of service 90 delivery. As with past conflicts, such as the 80 Lebanese civil war (box O.6), recent waves of war and unrest have altered urban footprints. 70 Cities in the Mashreq subregion have seen 60 69 72 large informal settlements come into being as Percent 66 50 people flee conflict—in Iraq, Fallujah and Ramadi are two of the country’s fastest- 40 growing urban centers—or as people spill 30 over from refugee camps, such as the 58 established by the United Nations Relief 20 and Works Agency for Palestine Refugees in 28 10 23 21 the Near East (UNRWA) for more than 1.5 million such refugees in Jordan, Lebanon, 0 the Syrian Arab Republic, and the West Bank Mashreqa Maghrebb GCCc (without Manama) and Gaza (Serageldin, Vigier, and Larsen 2015). In recent years, Jordan’s population Infill Extension Leapfrog growth rate has more than doubled with the Sources: Datasets from the European Commission Joint Research Centre’s Global Human Settlement refugee influx. Satellite photos show how the Layers. See Annex 1D for sensitivity analysis. Note: The analysis uses the Landscape Expansion Index developed by Liu et al. (2010), in which extension city lights of Amman have visibly spread and and leapfrog expansion increase infrastructure costs, with leapfrog having a higher cost impact. brightened (see chapter 1, box 1.1). a. Mashreq comprises the Arab Republic of Egypt, Iraq, Jordan, Lebanon, and the Syrian Arab Republic. b. Maghreb comprises Algeria, Libya, Morocco, and Tunisia. For Morocco, Casablanca was analyzed Across the Middle East and North Africa, instead of the capital city, Rabat. informal settlements are spontaneously c. GCC = Gulf Cooperation Council, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Manama, the capital of Bahrain, was excluded because of the bias created by stitching together the gaps in the urban fabric its geographical constraints and resulting in an exceptionally high share of infill urban expansion. created by modernist city plans—offering a possible model for formal, planned densifica- tion. All but invisible to their governments, geographic mobility: its people are stuck in the poor build economies of their own. Take place, both spatially and economically. the informal areas of Greater Cairo, where Socioeconomic inequality between areas of about 12 million people lived in 2010: these most of the region’s countries far exceeds that areas spatially resemble the city’s oldest seen in countries with comparable GDP neighborhoods (photo O.1). Often viewed as around the world (figure O.2). This excep- relics of medieval squalor, such compact tionally high spatial inequality can be related neighborhood structures may in fact repre- to low spatial mobility. Being located far sent an approach to reduce future urban spa- from a large city also increases business tial fragmentation and limit negative development constraints in the region’s coun- e x t e r n a l it i e s s u c h a s a i r p ol lut io n tries (figure O.3). (UN-Habitat 2012). In most parts of the world, people vote with their feet and move toward opportunity, but this happens less in the Middle East and Stuck people North Africa (figure O.4). While fragmented cities limit efficiency Similarly, around the world, higher edu- and thus reduce workers’ economic pros- cation generally increases spatial mobility— pects, the Middle East and North Africa’s but not in the Middle East and North high inequalit y may also ref lect low Africa, where earning a university degree 1 2   CONVERGENCE BOX O.6  Urban fragmentation as a legacy of conflict: Today’s polycentric Beirut In 1975, civil war splintered Beirut into sectar- owners’ religion and ethnicity. The result today is a ian neighborhoods. The city center, once vibrant, polycentric city with a Christian sector, a Muslim became a no-man’s-land. Economic activity relo- sector, and the now reoccupied historical center cated to new areas that were defined by firm (figure BO.6.1). FIGURE BO.6.1  After decades of conflict, Beirut became a polycentric city Source: Hanna 2016. Note: The darker the square, the higher the population density. PHOTO O.1 In Greater Cairo, recent informal settlements share a basic spatial structure with medieval neighborhoods a. Aerial view of Bab el Wazir (established 800 years ago) b. Aerial view of Fostat Plateau (established informally in the 1980s) Sources: UN-Habitat 2012, from Sims 2010; Google Earth satellite images. O v e r v i e w   1 3 FIGURE O.2 Inequality within most Middle East and North Africa countries exceeds that of global peers Level of inequality in relation to GDP per capita a. By GDP per capita b. By urban share of population 30 30 YEM 2014 YEM 2014 Between-region inequality (%) Between-region inequality (%) 20 IRQ 2006 20 IRQ 2006 EGY 2012 IRN 2014 EGY 2012 IRN 2014 IRQ 2012 IRQ 2012 TUN 2010 TUN 2010 TUN 2005 DJI 2012 DJI 2012 TUN 2005 YEM 2005 IRN 2009 YEM 2005 IRN 2009 MAR 2000 MAR 2000 10 10 JOR 2008 JOR 2008 JOR 2010 MAR 2006 JOR 2010 MAR 2006 JOR 2006 LBN 2011 JOR 2006 LBN 2011 0 0 10,000 20,000 30,000 20 40 60 80 100 GDP per capita (US$, PPP) Urban share of the population (%) Middle East and North Africa Rest of the world Source: Middle East and North Africa Poverty (MNAPOV) database, Team for Statistical Development, World Bank. Note: Each point corresponds to a country’s data for a particular year. (Countries represent all income levels. For a list of countries and survey years, see chapter 2, annex 2A.) Inequality between subnational regions was calculated based on a country’s first administrative level (for example, governorates, provinces, and so on). PPP = purchasing power parity. does not make a person more likely to FIGURE O.3 In the Middle East and North Africa, companies migrate (figure O.5). One explanation is located on the periphery face harsher constraints to business that, in this region, higher education confers development than those in the capital city Percentage-point change in probability of factor being a major constraint to credentials for coveted public sector jobs, company on the periphery instead of in the capital not the tradable skills in demand by the pri- vate sector (box O.7). Notably, women are Access to finance Political instability more likely than men to migrate in Algeria, Electricity Egypt, Jordan, Lebanon, Morocco, and Labor skills Tunisia, which shows that female migrants Corruption in those countries are on average more likely Telecommunications Tax administration to be employed at their destinations (as fur- Crime ther discussed in chapter 2). Access to land Across the Middle East and North Africa, Transportation rural residents face substantial barriers to –10 –5 0 5 10 15 migration or have preferences against it—or Percentage point change else they would have migrated already, Source: World Bank Enterprise Surveys, 2011–18. given the returns to welfare from doing so. Note: T-bars indicate 90 percent confidence levels. 1 4   CONVERGENCE FIGURE O.4  Within-country migration is lower in Middle East and North Africa countries (averaging 14 percent) than in the rest of the world (28 percent) 80 60 Internal migration rate (%) 40 20 0 Po an . Tu Iraq Le Ben e g il Ec han s Sl rtug a en l a za Ch ia ew b a In ui ue ne a a m ia Jo nia Su an kr n ba in B on El M eria ut lva o Th ela a C a nd M Ri d H alay ca du ia ua a er ay re d S ce zu ib in a, a T RB m ey te C ica St ile nz tes Bo ga ia ts nda M ana C wi M Pe a go u lia Af r itz gu r om ep ov a h do SwUru do Al raz G ra n i N m in do ne si U da So Sa xic Ir ric ta n G lan el eri ub on r Ar nis on s ne L pa U an a d h Ja urk e ai G iq rd n os ila a R R e Ta a al w e ab Ar pu Mo ni t, yp U Ve Eg Pa Sources: Arab Barometer Wave IV (2016–17) data; University of Minnesota’s Integrated Public Use Microdata Series (IPUMS) International database. Note: The internal migration rate is the number of lifetime within-country migrants per 100 population. Lifetime migration compares the place of current residence with the place of birth (within the same country). The data are from various years; see chapter 2, annex 2A, table 2A.1. The migration rates in Algeria, the Arab Republic of Egypt, Jordan, Lebanon, Morocco, and Tunisia are computed on the basis of the Arab Barometer Wave IV (2016–17) data; rates for other countries are from latest censuses available on IPUMS in which place of birth was available. FIGURE O.5  Globally, the probability of migration tends to rise An analysis performed for this work of sev- with education—but not in the Middle East and North Africa eral countries across subregions, using 2006–14 data, shows that living in a metro- 0.25 politan area brought welfare benefits inde- pendent of individual characteristics.9 The Marginal effect of migration on analysis studies individual characteristics probability of employment 0.20 and the returns to these characteristics from living in metropolitan areas of Djibouti (2012), Egypt (2012), the Islamic Republic of Iran (2014), Iraq (2012), Jordan (2010), 0.15 Morocco (2006), Tunisia (2010), and the Republic of Yemen (2014). The results show that people outside the metropolis were less 0.10 well-off not simply because of their age, gen- Less than primary Primary Secondary Tertiary der, education, ­m arital status, labor force Educational achievement status, water access, electricity access, or Middle East and North Africa World possession of a computer. Rather, a substan- Sources: Arab Barometer Wave IV (2016–17) data; University of Minnesota’s Integrated Public Use tial part of the welfare gap reflected higher Microdata Series (IPUMS) International database. returns to these individual characteristics in Note: Estimations employ a Probit model with controls for gender, age, marital status, metropolitan areas. Similarly, another anal- employment status, urban or rural residence, education level, and country fixed effects at 90 percent confidence intervals (dashed lines). Migration refers to lifetime internal migration, ysis suggests that across the entire region, if which compares the place of current residence with the place of birth (within the same country). all people were living in capitals—where the In this figure, “Middle East and North Africa” comprises Algeria, the Arab Republic of Egypt, Jordan, Lebanon, Morocco, and Tunisia. returns on their characteristics would be the O v e r v i e w   1 5 BOX O.7  Low spatial mobility—and high public employment—among university graduates suggest that the Middle East and North Africa’s higher education systems do not impart tradable skills A u n iver sit y e duc at ion i n M idd le E a s t a nd This suspicion is strengthened by employment North  Africa countries confers locally valuable data. In the Middle East and North Africa, a tertiary c redentials—but does it provide marketable skills? ­ degree increases the probability of getting a public Not according to international evidence. Globally, sector job far more than the probability of working spatial mobility among the educated is a sign of in the private sector (figure BO.7.2). If private sector human capital: people with tradable skills are likely jobs are lacking for graduates, one reason is that firms to move to places where those skills are in demand require complementarity between human and physi- (figure BO.7.1). Conversely, the low spatial mobility ­ cal capital investments; they will not invest in a place of the region’s university graduates suggests that their that lacks a trained, skilled labor force. human capital remains low. FIGURE BO.7.1  Human capital in the form of tradable skills increases spatial mobility Credentialistic Human capital education Mobility Immobility FIGURE BO.7.2 In the Middle East and North Africa, tertiary education diplomas are highly valued in the public sector Achievement a. Effect of education on Achievement b. Effect of education on probability of working in public sector probability of working outside public sector 0.4 0.4 Marginal effect of education Marginal effect of education 0.3 0.3 0.2 0.2 0.1 0.1 0 0 Primary Secondary Tertiary Primary Secondary Tertiary Educational achievement Educational achievement Source: Arab Barometer Wave IV 2016–17 data. Note: Marginal effects use Probit regressions controlling for urban or rural residence, gender, age, number of children, marital status, and country fixed effects. T-bars indicate 95 percent confidence levels. The regressions were calculated for six countries in the Arab Barometer data: Algeria, the Arab Republic of Egypt, Jordan, Lebanon, Morocco, and Tunisia. 1 6   CONVERGENCE highest—per capita consumption would skills (because of the distorted incentives increase by 37 percent (D’Aoust and Lall, shaping education systems) but also the forthcoming). nearby markets or infrastructural links to People in remote areas of Middle East and markets that they would need to succeed in North Africa countries—especially in the business. If not for barriers to migration, Mashreq and GCC subregions—are stuck many more of these people would have partly because their countries lack secondary moved to capitals already. cities and dynamic private sectors: they live in So why do many of the region’s countries the long shadow of the capital. Outside the lack secondary, midsize cities? One reason is Maghreb subregion, the Middle East and another sort of barrier: the “thick borders” North Africa is dominated by its metropoles. that wall off countries, blocking trade and People far from cities lack not only tradable investment. FIGURE O.6  Urban populations in the Mashreq and GCC subregions are highly concentrated in the largest city and even more so in large cities (of more than 1 million people) a. Share of urban populations in largest city 40 population in capitals (%) 35 Average share of urban 30 25 20 15 10 5 0 ric d ci d l A and ia eb be d C eq a Af an Pa an ib an ric C As hr hr a a fic an G Af si th t ia tra e ar a ag as or as h en p C ic As ut C ro M M e er N eE So Eu th Am st dl Ea id tin M La Regions Subregions b. Share of urban populations in large cities (exceeding 1 million people)a Average share of urban population 60 in cities > 1 million (%) 50 40 30 20 10 0 be d ric d ci d l A and ib an Af an Pa an ia ric n C eq eb Af ara an a fic a C As hr hr si a ar a th t ia tra e G or as C ic en p h as ag As h C uro Sa e er N eE ut M M th Am st So b- E dl Ea Su id in M t La Regions Subregions Sources: 2015 data from United Nations Department of Economic and Social Affairs (UN DESA) World Population Prospects database: https://population.un.org/wpp/. Note: For subregional figures, the estimates of a few countries were modified, considering the population of the whole agglomerations (which was not always the case in the World Development Indicators dataset). Maghreb refers to Algeria, Libya, Morocco, and Tunisia; Mashreq to the Arab Republic of Egypt, Iraq, Jordan, Lebanon, the Syrian Arab Republic, and West Bank and Gaza; and the Gulf Cooperation Council (GCC) to Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. a. The country-level figures were computed using either (a) cities of 1 million inhabitants or more, or (b) the share represented by the capital city in countries that had no cities exceeding 1 million inhabitants. O v e r v i e w   1 7 Walled-off countries FIGURE O.7  Few Middle East and North Africa countries trade electricity Trade with nearby countries confers economic advantages. But Middle East and North Africa countries are encircled by thick borders that constrain regional trade: onerous customs regimes and visa difficulties, high tariffs and nontariff bar- riers, regional infrastructure bottlenecks, and customs and logistics inefficiencies. L ack i ng de ep t rade ag re ement s , t he region’s countries are walled off from one another. Accordingly, firms in these countries trade far less than the region’s development levels might imply—and trade among countries within the region is strikingly low. These trade constraints are all the more striking given that the Middle East and North Africa is dominated by its largest cities, which eco- nomically should benefit from higher trade volumes. Across the Mashreq and GCC sub- regions, the share of a country’s urban popu- lation concentrated in its largest city—termed urban primacy—is among the highest in the world (figure O.6, panel a). And in these sub- Source: Ji et al. 2016, based on the United Nations International Trade Statistics Database regions, cities of more than 1 ­ million people (UN Comtrade) electricity trade statistics (http://comtrade.un.org). Note: Figure illustrates the Eurasian electricity trade network in 2010. Arrows indicate an electricity contain even higher urban population shares trading relationship between two countries. Full country names correspond to ISO 3 country codes. (figure O.6, panel b). Yet because the region’s Colors indicate seven “communities” as defined by Ji et al. (2016):  “A community in the electricity trade network consists of a group of nations tightly connected by electricity trade. Changes in one large cities lack access to regional or global nation have more effects on nations within the same community than on nations outside the markets, they fall short of their economic community.” The Middle East and North Africa countries are spread over four of these communities. potential. As a rule, large cities need large markets to In addition, when firms in the Middle East be productive and drive economic growth. and North Africa trade across borders, the That is because agglomeration effects presup- returns are lower than expected: firm-level pose scale. So, the specialized production data show that the region’s exporting firms tasks that make up links in global value are no more productive than the firms that do chains tend to be concentrated in large urban not export. And when its manufacturing agglomerations. In the Middle East and firms import critical intermediate inputs, North Africa, though, the economic reach of they pay a large and statistically significant large cities appears to be confined to domes- productivity premium (Francis and Schweiger tic markets. 2017). These patterns hint at an economic Although trade levels averaged across environment where access is privileged; the Middle East and North Africa seem where firms face barriers to entry, even if roughly in line with the region’s share of their operations may be more efficient; and global GDP, this statistic is deceptive: the where countries impose high barriers to buy- region’s trade consists disproportionally of ing goods from abroad. fuel exports. Trade in electricity, by con- Logistics inefficiencies appear especially trast, is less widespread in this region’s challenging—more so, for example, than countries than throughout much of the infrastructure (as discussed further in world (figure O.7). chapter 6). In 2018, most Middle East and ­ 1 8   CONVERGENCE North Africa countries fell in the middle or capital, and knowledge. Nearby countries lower range of the World Bank’s Logistics should accelerate their growth—creating a Performance Index of 160 countries. Among virtuous cycle of spillovers—and expanding them, three Maghreb states (Tunisia, regional markets should enable firms in con- Morocco, and Algeria) scored between 105 nected countries to benefit from scale econo- and 117. Exceptions included the GCC coun- mies.11 Because Middle East and North tries and Israel, which ranked fairly high Africa countries lack deep trade agreements across logistics indicators, followed by Egypt with their neighbors and trade facilitation is and the Islamic Republic of Iran.10 limited, the region’s large cities are missing A country whose major cities are cut off out on these spillover benefits (box O.8). from regional markets loses the opportunity Other regions—notably Europe and to reap positive spillovers from neighboring East Asia—have made regional trade a key countries. Ideally, a favorably endowed and driver of economic growth, while Middle fast-growing country with good policies East and North Africa continues to suffer should add to regional demand for workers, from high  restrictions on movements of BOX O.8  Large cities in the Middle East and North Africa show few spillover benefits from regional trade The spatial economic analysis in chapter 3 shows in  the world, what would happen to economic that the positive spillovers to the Middle East and output in a city from another region with greater North Africa’s large urban areas from regional trade spillovers if it were instead in the Middle East and are negligible (figure BO.8.1). In contrast, such spill- North Africa? A counterfactual for Bangkok is overs are positive across all countries globally—and revealing. If Bangkok were in the Middle East and strongly positive in East Asia and Pacific countries North Africa, its per capita GDP is estimated to with regional integration. drop from approximately US$12,000 to US$9,000 Given lower economic spillovers for neighbors in (figure BO.8.2). the Middle East and North Africa than elsewhere FIGURE BO.8.1  Spatial economic spillovers to large FIGURE BO.8.2  Bangkok’s per capita GDP would have city economies based on deep trade agreements with shrunk had it experienced the regional economic neighbors, by region spillovers of the Middle East and North Africa GDP simulation for Bangkok without regional economic 0.6 spillovers, 2000–15 0.5 Estimated spillover 0.4 13 coefficient (constant US$, thousands) 0.3 12 0.2 11 GDP per capita 0.1 10 0 9 l ric d ci d ric n be nd Al Af an Pa an Af ara ib a a fic a an th t ia ar a h 8 or as C ric Sa As N E e e b- th Am st e Su dl Ea 7 id tin M La Region 6 2000 2005 2010 2015 Source: Lebrand 2019. Year Note: The dependent variable is city GDP. Figure excludes Europe and Central Asia because the analysis of that region is less relevant to the Middle East and Bangkok, actual growth North Africa given the economic differences between the two zones. Also excluded Bangkok in Middle East and North Africa is South Asia because of the small number of observations for the region, rendering the results insignificant. Source: Lebrand 2019. O v e r v i e w   1 9 goods and people. With increased market and centralized public goods management, access, nonfuel exports could grow. Given assessing their implications for prosperity the size of many national economies in the and welfare. region, the regional service trade could be much higher. Countries could buy and sell Place-based interventions in the Middle much more electricity. Unfortunately, conflict East and North Africa are distortive and vested interests in many of the region’s while yielding low returns countries make comprehensive regional integration unlikely in the short term. ­ Public interventions in the economy may Because of thick national borders, Middle be institution-based, people-based, or place- East and North Africa cities generally lack based. Those that are institution-based sup- access to the large markets they need. To gain port governance, trade, and functioning such access, the region’s countries that border markets. Those that are people-based sup- the European Union (EU)—a large world port human capital, from health and nutri- market—can enter its supply chain through t ion to h ig h e r e du c at ion a nd s k i l l trade agreements. So far, Morocco and development. In contrast to both these types, Tunisia have benefited from this (although place-based interventions are often designed trade volumes are still low). The need for to improve development outcomes in particu- such agreements arises from the absence of a lar locations—whether directly through large regional anchor economy, as Western infrastructure investments or indirectly Europe was for Eastern Europe after 1990 th roug h incentives, subsidies, and or  as Japa n (succeeded later by t he regulations. Republic of Korea) was for China and other Place-based interventions, while often East  Asian  neighbors. In the long term, well-intentioned to overcome market and regional integration should be a goal of coordination failures, typically distort factor Middle East and North Africa policy makers. markets, limiting economic efficiency by Right now, more trade with Europe does not reducing the power of demand to drive spe- imply less trade within the Middle East and cialization and agglomeration. Land markets North Africa; the two are complementary. are hobbled by heavy regulations on land use, which bottle up demand for both residential and industrial structures. Labor markets Place-based and centralized: shrink with disincentives to migrate and to How national policies and acquire tradable skills: Why specialize and institutions in the Middle East migrate for a relatively high-productivity job and North Africa perpetuate in a distant city when you can hope that the economic inefficiency and spatial state will one day lavish its largesse on your inequity rural province? And private capital follows How does the Middle East and North the lead of policy makers rather than seeking Africa’s fractured economic geography and meeting demand from domestic consum- today reflect the impact of state interven- ers and international business partners. tions in factor markets, combined with the In the Middle East and North Africa’s cit- regional legacies of centralized administra- ies, many neighborhoods and livelihoods are tion and service provision? How have cen- strongly shaped by place-based policies—and tral governments shaped the region’s land, not for the better. Favored policies include labor, and skill markets economically and heavy zoning and location regulations as well spatially at the city, country, and regional as the construction of modernist neighbor- levels? What does the persistence of highly hoods and cities from scratch—often deter- centralized government contribute to these ring formal redevelopment. In response, poor spatially and economically distor tive urban residents and migrants develop resi- dynamics? This section looks at national dential neighborhoods informally. The result preferences for place-based investments is the spatially and socially fragmented city, a 2 0   CONVERGENCE symptom of market and coordination failures secondary cities that can specialize and trade (figure O.8). with neighboring markets—as well as that of Within Middle East and North Africa’s efficient agglomerations, which large cities countries, place-based investments typically need if they are to serve large international loom large in the national budget—not the markets. Rather than fostering specialized usual pattern for middle-income countries. production centers and economically dense The place-based, or spatially targeted, inter- agglomerations to meet market demands, the ventions often used in the region include supply-driven initiatives used by the region’s governments to attract private sector invest- •  Physical infrastructure investments; ment have done the opposite. Take Tunisia, •  C apit a l subsid ie s a nd ot her f is c a l which used incentives to attract domestic incentives; and foreign firms such as Benetton to lagging •  Subsidies to places such as growth poles interior areas: as soon as the incentives and industrial districts; expired, many firms closed their operations •  Regulation of where industries may locate (World Bank 2018a). Generally, place-based production; and firm location initiatives in the Middle East •  Public sector industrialization, with cen- and North Africa have delivered few jobs, tral planning of investment locations. and many apparent success stories have Compared with institution-based and proven elusive. p ­ olicies ­ eople-based policies, these place-based p Since the 1950s, as the region’s national consume an outsize share of country invest- governments have persisted in shaping mar- ment expenditures in the region (box O.9). kets directly through place-based policies, When resources flow so freely to place-based lagging areas have stubbornly remained interventions, vital investments in institutions behind. Governments initially adopted and people must be neglected or deferred. In activist territorial development policies to effect, governments place large bets on specific answer the needs and grievances of neglected locations and hope for a stroke of luck. Yet areas. Strongly spatial in their focus, such place-based interventions have a poor track policies had two main aims: to direct com- record in the region’s countries (box O.10). pensatory support to the areas left behind From a regional perspective, place-based and to create new geographic centers for investments discourage the formation of economic activity. But lasting successes— such as Dubai and Tangier (box O.11)—are few and far between. FIGURE O.8  Place-based interventions distort urban markets— In cities, within countries, and throughout which then fail the region, place-based policies have yielded low economic returns—yet in spite of lessons Fragmented like Tunisia’s, Middle East and North Africa Fragmented, opaque central government control development and countries continue to rely on such policies. underutilized land and of land and incomplete buildings (land market Indeed, several of the region’s governments land markets are increasing incentives and transfers for failures) investments in lagging areas, new cities, and industrial development zones without Onerous building and Mismatch in locations zoning regulations, of jobs and formal housing rethinking their approach. limiting building heights (land market failure); Why bet so much on policies with such and location of activities demand is met informally unpromising track records? Four reasons stand out: Preference for modernist •  Vested interests. Despite a spatial inter- Underutilized and ghost vention’s limited returns to the local and new cities through new city cities (land market failures) developments national economy, some groups may stand to gain considerably from it. O v e r v i e w   2 1 BOX O.9  Middle East and North Africa countries stand out in directing a large share of investment expenditures toward place-based interventions Across the Middle East and North Africa, a larger and North Africa spend less on spatially distortive share of public expenditures—including initial interventions and more on investments in institu- i nvest ment s a nd recu rrent ex pend it u res — a re tions and people. This pattern is illustrated in ana- channeled toward place-based interventions than lyzing expenditure distributions for one year for toward institution-based or people-based interven- several Middle East and North Africa and compar- tions. In contrast, states outside the Middle East ator countries for illustrative purposes. FIGURE BO.9.1  Government expenditure distribution in selected Middle East and North Africa countries, by spatial category, differs greatly from international comparators 100 Share of expenditure (%) 80 60 40 20 0 Moroccoa Egypt, Arab Jordanc Tunisiad Austria Spain South Africa Hungary Poland Rep.b Institution-based interventions People-based interventions 1. Broad-based governance and 2. Basic health, education, and related human capital improvements institutional reforms 3. Provision of basic public services 4. Skill development, worker training, wage subsidies Place-based interventions 5. Physical infrastructure for connectivity and to support local production 6. Subsidies and other incentives to capital 7. Growth poles, industrial districts, other location subsidies 8. Public sector industrialization and industrial location regulations Source: Government Finance Statistics (GFS) database, International Monetary Fund; government data for Middle East and North Africa countries (as described in notes below). Note: The GFS database does not include data for Middle East and North Africa countries except for partial data for the United Arab Emirates. For Middle East and North Africa countries, report team analysis was based on national data as described in notes a–d: a. Morocco information came from the 2017 Finance Law, specifically the “General Budget” and the “Public Establishments and Enterprises” segments. b. Egypt on-budget data came from the Financial Statement 2018–19, and the total expenses of the 48 economic authorities were retrieved from their 2016–17 financial statements from the Ministry of Finance website. c. Jordan information came from “Capital and Current Expenses (2018),” classified by all line ministries, reported by the General Budget Department of the Ministry of Finance. d. The Tunisia analysis considers the most recent five-year plan, the Development Plan 2016–20, and in chapter 4, further analysis is provided drawn from the 2017 Finance Law. •  Path of least resistance. Investments in territorial development policies in the vacant land may present policy makers Middle East and North Africa. with a course of least resistance, spark- •  Extrapolating from rare success stories. ing less opposition than reforms affecting Successes such as Dubai and Tangier may developed areas. inspire hope for replication. Yet the suc- •  Lack of credible evidence. Little concrete cess may not be clearly replicable. Or even information may be readily available on more likely, policies may not be carefully the failures (and the rare successes) of designed to account for challenges and complementary factors. 2 2   CONVERGENCE BOX O.10  Place-based investments amount to risky development bets—and the stakes are high Most place-based investments in Middle East and Even so, the region’s governments keep betting on North Africa countries have been supply-driven new cities and vast capital investments. Egypt allo- rather than demand-driven. As a result, they have cated 30 percent of its 2015–16 national built environ- led to inefficiencies. Consider the poor track record ment budget to new cities and zones that hosted only of Egypt’s 20th-century new cities. In the 23 new cit- 2 percent of the country’s population. In contrast, just ies created from 1979 to 2000, the total population 29 percent of that budget went toward existing cities today is less than 800,000—a fraction of the targeted and towns hosting 98 percent of the population (Sims 20 million—and some cities are still unoccupied (Sims 2015). And Saudi Arabia, with its balanced territorial 2015). Similarly, Saudi Arabia’s established “desert development policy, allocated about 30 percent of its cities” remain unoccupied or house a fraction of their 2017 budget to developing eight planned new cities target populations. (see chapter 4, table 4.2). BOX O.11  How to make successful spatial bets? Build on natural advantage Dubai and Tangier stand out as rare successes among well as Port Rashid (jointly managed by Dubai Ports the many spatial development bets made by Middle Authority until Port Rashid was closed). Today it is East and North Africa countries. What made these the biggest port between Rotterdam and Singapore two spatially targeted policies succeed? And what les- and dominates the Arabian Gulf. Based on its success, sons can the region’s policy makers take from them to the government launched many other free zones, each improve their own spatial bets? The answer, broadly, with institutional reforms oriented toward the specific is that both Dubai and Tangier have been blessed with industries Dubai sought to attract to its city. geographic advantages—and their governments intro- Likewise, the Moroccan government recognized duced institutional reforms, and public investments, substantial unrealized potential in Tangier, driven that enabled these cities to leverage those advantages. by its strategic geographic location at a historical Dubai benefited from its strategic location at the crossroads of the Middle East, Africa, and Europe. crossroads between continents. In the early 1900s— In 2002, the government of Morocco recognized even before the 1950s oil discovery in the United Arab that it could better leverage this locational advan- Emirates—Dubai was declared a free port, and Dubai tage. It established Tangier-Med Port Authority and Creek served as a trading post for deep-sea merchants. invested €1 billion to develop and expand the port and As demand for port services increased, the govern- develop the surrounding city and region. The project ment of Dubai embarked on an expansion of port was developed as part of an integrated framework, facilities that led to the establishment of Port Rashid supporting the development of four critical sectors: and later Jebel Ali Port at the end of the 1970s. • Transport infrastructure in roads and rail In parallel, the government launched Dubai’s first • Industrial and logistics free-trade zones free zone at Jebel Ali Port in the early 1980s. The zone • Training and education of the local workforce was governed by a legal framework that addressed a • Collaboration across levels of government agen- range of issues raised by investors and allowed local cies and private sector stakeholders to spur inter- as well as foreign investments to be made in a busi- national investment. ness environment comparable to any in the world for private sector development. This helped demand The Tangier area was also governed by an alterna- for port services to skyrocket at Jebel Ali Port as tive legal framework that addressed core institutional box continues next page O v e r v i e w   2 3 BOX O.11  How to make successful spatial bets? Build on natural advantage (continued) and business environment challenges elsewhere in Because the advantages of market access cannot the country. The development and expansion of the be spread equally across a territory, spatial initiatives port boosted manufacturing, resulting in 28 percent must be sensitive to a place’s distinct advantages employment growth over 2002– 04 and an annual and potential. Most important is to ask whether a increase of investment of 13.2 percent (Kulenovic place is suitable to agglomerations. Efficient econ- et al. 2015). Improvements in supply chain links, omies are not evenly distributed in space; rather, diversification of the local and regional economy, they are lumpy, with economic activity clustered in and production increases in manufacturing-intensive economically dense places— cities, leading areas, sectors such as the automotive industry all benefited and regional economic hubs—and places naturally from port growth. As a result, the region evolved situated at a crossroads between continents, such as from being one of Morocco’s most lagging in 2000 to Dubai and Tangier. one of the most leading today. Seen in a broader historical perspective, Public investment decisions and service the region’s governments have used place- provision in Middle East and North based policies to offer visible responses to Africa countries are still overly subnational grievances and citizens’ expecta- centralized—making spatial tion that the state will provide jobs. In a convergence through place-based region with some of the world’s worst rates of policy even more unlikely unemployment and labor force participation, Centralized decision making and budget- and with episodes of violent conflict and ter- ing can limit the efficiency of place-based rorism, governments have identified jobs and efforts to increase spatial equity. Spatial stability as central policy goals. Surveys show convergence policies are likely to fail that citizens across various Middle East and ­ w herever public investment allocation is North Africa countries have come to regard centralized—especially if budgeting is also the state’s main function as providing jobs— opaque, politicized, or unpredictable. not as providing services and not as provid- In  some Middle East and North Africa ing a voice to citizens (figure O.9). countries, sectoral and subnational invest- In practice, public policies that distort fac- ment expenditures flow to areas with the tor markets tend to undermine social stability greatest bargaining power, as in Egypt by inhibiting private sector and job develop- (World Bank 2012). Thus, grants and trans- ment. Policies to shape factor markets are fers are too often directed to leading rather likely to foster a vicious cycle of worse job than lagging areas. Even budget allocation and inclusion environments. Other distor- formulas risk being biased toward wealthier tions are less intentional—reflecting decisions areas, such as those with natural resources that are centralized, yet uncoordinated, and (World Bank 2016). insufficiently guided by a holistic view of Centralized service provision, too, can needs across areas. Unless territorial develop- limit spatial convergence—both within cities ment policy is guided by a strong territorial and within countries. Top-down arrange- planning framework (World Bank 2018b), ments typically cause service delivery to be lagging areas are unlikely to get the specific less efficient in places that are less connected help they need to develop their economies to the center, especially poor urban neighbor- through specialization and agglomeration. hoods (including informal settlements) or 2 4   CONVERGENCE FIGURE O.9  Respondents in surveyed Middle East and North Africa economies identified jobs enablement—not public service provision or citizen representation—as the most essential function of a democratic state Percentage of respondents selecting answers in multiple-choice format a. Responses, by economy b. All responses, urban versus rural Algeria Egypt, Arab Rep. Urban Jordan Lebanon Morocco Rural West Bank and Gaza Tunisia 0 20 40 60 80 0 10 20 30 40 50 Percent Percent Jobs Fair elections Public services Free speech Source: Arab Barometer Wave IV (2016) data. Note: Percentages add up to more than 100 because they reflect respondents’ selection of one statement from each of four sets of answers to the question (Wave IV, no. 515): “If you have to choose only one from each of the four sets of statements that I am going to read, which one would you choose as the most essential characteristics of a democracy?” Categories shown summarize each choice described. lagging areas of countries. In the Middle East schools— can reduce costs and improve and North Africa, most public services access (Boex et al. 2016; Chambers, Wild, remain overly centralized, including health and Foresti 2013). For such areas, policy and education (though the United Arab makers need to expand the connectedness of Emirates is a rare exception in education providers and clients: for instance, they could [World Bank 2018d]). improve accessibility to services through dis- When different neighborhoods or areas tance learning with radio and cellphones. contain citizens with heterogeneous prefer- Other options include having nonstate ser- ences, these differences make centralized vice providers fill service gaps and training administration even more inefficient. community members to deliver services Whether within cities or within countries, themselves. For water and electricity provi- residents of different areas may differ greatly sions, off-grid or off-network solutions, such in their preferences. If so, efficient service as local independent water providers or local delivery will require local involvement, as generators for power provision may be emphasized in World Development Report more feasible because of the different levels 2004: Making Services Work for Poor of scale  sensitivity of different types of People (World Bank 2003). The same is true infrastructure. for subnational areas. Although Middle East and North Africa Further, decentralized service provision countries are rightly concerned about spatial can allow for experimentation and for lever- disparities in service provision, the prevailing aging a variety of service delivery models response—territorial development policy that allow, through the use of digital tech- directed from the capital—may be perpetu- nologies and alternative institutional ating poor outcomes and distrust of the state. arrangements, more efficient service provi- Empirical studies link citizens’ trust in gov- sion to marginalized populations. For low- ernment to their perceptions of government density areas, providing mobile services—for performance (Brixi, Lust, and Woolcock example, mobile health units and mobile 2015). O v e r v i e w   2 5 Recently, countries including Lebanon and North Africa governments may remain and Tunisia have embraced initiatives to tied for the short term to spatially targeted decentralize local services—a welcome chal- initiatives—that is, to place-based policies. lenge to the Ottoman and colonial legacy of To contain the economic damage from these centralized administration. Still, the bulk of policies, the region’s decision makers can, service provision in the Middle East and through a new framework, impose criteria on North Africa that could be managed subna- place-based interventions that will make tionally is not yet decentralized and remains, them more efficient (though all are likely to at best, deconcentrated, with local decisions be distortive). assigned to remote arms of the central This begins with market size: picking the government. right policies for each place requires under- standing its existing and potential access to markets, which may be domestic or interna- Five transitional steps to reduce tional. Not all places have equal access to institutional inefficiency, speed domestic markets (including for labor and the Middle East and North skills), which are concentrated in economi- Africa’s economic development, cally dense urban agglomerations. And not and enable convergent growth all places are equally connected to external Can Middle East and North Africa gov- markets: some have natural advantages such ernments steer from today’s spatial symptoms as coasts or borders, while others have better and distortions—rooted in institutional inef- connective infrastructure. Because of varying ficiencies—toward a more productive eco- density and market access, policies that yield nomic landscape, with faster growth and a high returns in one place may have no prospect of spatial convergence? Yes, if policy impact— or even a harmful impact—in makers end their overemphasis on traditional another. place-based development, supply-driven Where place-based policies have already investments, and centralized investment been adopted, this framework would guide decisions and service provision. ­ decision makers toward supporting it with But that is not likely to happen all at complements—whether for markets and once. The following five transitional steps connectivity or for basic service provision. can help policy makers chart a gradual path And those complements should be priori- from territorial development policies that tized based on expressed demand from citi- are predominantly place-based and focused zens and firms on what is needed to make on addressing the spatial symptoms of weak those territories effective enabling environ- economies to ones that address the causes ments. Yet wherever possible, the approach of depressed growth. This would entail a should also involve transitional steps to shift away from single-sector, supply- reform institutions (such as the other four driven, place-based policies to an approach transitional steps outlined below). And it of first mapping a place’s inherent economic should focus on enabling agglomeration, advantages, then identif ying suitable migration, and specialization based on a interventions. place’s natural advantage (as discussed in box O.11). Thus, to enhance market access, locate industrial parks near large cities. Or Step 1: Adopt new, evidence-based identify a location’s most constrictive trade criteria to guide future spatial bottlenecks and then clear them with new interventions connective infrastructure, institutional Ideally, broad institutional and people- reforms. Or both. based reforms would make cities more effi- When considering whether to retain tradi- cient, people more mobile, and countries tional supply-driven, place-based policies or more connected. But in practice, Middle East to shift toward this approach, countries 2 6   CONVERGENCE BOX O.12  Remembering the forgotten: Institution-based policies for the urban poor The poor of the Middle East and North Africa are, productive potential within a city’s fragmented eco- all too often, the region’s forgotten people. They lack nomic l ­andscape—and should enable formal invest- formal housing and the credentials or connections ment in these hot spots, raising densities and loosening needed for a formal job. So, they live wherever they restrictive regulations. Informal settlements point to must—and work however they can. where labor is in demand and where potential formal The economic dynamism of the poor appears sector p ­ roductivity lies untapped. Policy makers can in the informal sector, especially among urban encourage formal investment in such neighborhoods migrants. Their restless economic activity attests to with ­ institution-based reforms: revising urban plans, their energy, effort, and ingenuity—but it is not eco- ­ r elaxing zoning regulations, and allowing higher nomically efficient. Informal markets are unlikely ­population densities. to generate the specialized scale economies that If the urban poor often seem invisible to policy spur faster, wider growth through trade in goods makers, the rural poor are even further from realizing and services. their potential productivity—especially those who live To bring poor urban residents and migrants into far from cities. In the Mashreq and GCC subregions, the formal sector and give them opportunity, coun- the scarcity of secondary cities means that many rural tries would first need to reform factor markets. One residents cannot access urban markets. More and reason that the region’s cities create few opportuni- more of them migrate to the metropolitan capital, ties for the poor in the formal sector is that these not simply because of conflict or climate change but cities have only weak links to regional and global because the investments needed at home are lacking. markets. So, governments should observe informal Once settled in cities, these internal migrants join the urban economies for hidden signs of demand and informal economy. should keep one principle firmly in mind: raise revenues, to make investment decisions spatial equity arises not from investments in and allocate expenditures, or to deliver local a place but from the economic growth that services. Lagging areas are often the least creates jobs for a country’s forgotten able to mobilize and manage local revenues, ­ people—wherever those jobs may be—paired because the central government wields more with policies focused on improving access to fiscal control over smaller municipalities basic services for people regardless of their than over larger ones. Further, transfers to location. Only faster economic growth, with these localities are often insufficient and lack transitional but positive steps toward more objective standards, transparency, and pre- efficient institutions, will allow the Middle dictability. This lack of budget authority, East and North Africa to harness the eco- together with the lack of local control over nomic energies of the poor (box O.12). service provision, can undermine the local execution and maintenance of place-based investments—the very investments that are Step 2: Devolve greater functional supposed to reduce spatial disparities. authority and resources for local In  Morocco, for example, a lack of local revenue generation and service capacity has caused many municipalities to provision to local governments execute less than 50 percent of their invest- Place-based policies to reduce spatial ment plans (World Bank 2018c). equity are often undermined by a lack of Further, centralized service delivery mod- local authority and resources—whether to els make it difficult to offer services tailored O v e r v i e w   2 7 to heterogeneous preferences of citizens in smaller (secondary) cities, agglomeration through the use of alternative delivery models and specialization require the efficiencies and digital solutions. The way that functional arising from high economic density, or the authority and resources are devolved can and geographic concentration of economic activ- should vary based on economic geography, ity (as discussed earlier in box O.2). Urban the current authorizing environment, and the economic density and efficiency generally are current institutional architecture and histori- high if development is spatially compact, cal trajectory. Such reforms, even if gradual dense with people, and transit-oriented—but and experimental, have proven most likely to low if development is sprawling, as with leap- succeed when they have ensured that the frog development and widely dispersed devolution of functional authority is accom- structures. panied by the critical complements of greater One way to make cities more efficient is to resources and capacity support. reduce local frictions—boosting demand and increasing economic density while also tak- ing care to monitor the externalities (side Step 3: Step away from credentialist effects) of economic and population density. education and toward schooling that Planners and regulators can attract firms to cultivates globally tradable skills invest in cities by reducing frictions such as Helping stuck people become more spa- •  Impediments to property acquisition and tially and economically mobile could make new construction (costs, height limits, the region’s countries more prosperous—and and density limits); more stable. Generally, people in underper- •  Challenges in local business registration forming areas around the world migrate to and licensing; jobs and opportunities. Their choices help to •  Limits on news and information; and manage excessive population densities in •  Obstacles to developing local business the lagging areas, and it can benefit their networks. ­ relatives in their places of origin. But in the Middle East and North Africa, All these frictions are pervasive in the fewer people migrate than would be pre- Middle East and North Africa and call for dicted from the welfare gains accruing to policy remedies. migrants. As noted earlier, this immobility Planners can also address friction affect- results in part from credentialist education ing households, especially formal housing that does not impart tradable skills. It also costs. And they can seek ways to internalize reflects the many frictions that inhibit labor the negative externalities, or social costs, of mobility—from land transfer fees to active urban density—for example, by levying con- controls. And it is compounded by strong gestion charges, repealing fuel subsidies, and local identities and identity-related divisions. improving traffic management. Efficient city plans must be able to reflect changing demand: if they cannot, frictions, Step 4: Renew the focus on nurturing negative externalities, and market failures urban agglomerations by streamlining will result. Governments must, for example, land transfer procedures and relaxing enable zoning and building regulations to zoning regulations in existing cities, evolve with changing social and economic lowering the regulatory barriers to their needs. Consider Jordan, where rigid zoning redevelopment and building regulations impose standards Making fragmented cities’ land markets that make housing unaffordable for all but more efficient will be critical for agglomera- the top 30 percent of the income distribution. tion and specialization—two dynamics that More than 70 percent of new housing devel- amplify factors of production and drive eco- oped in Jordan is done without a building nomic growth and jobs. Whether in larger or permit (CAPSUS 2018). 2 8   CONVERGENCE A city’s density creates positive externali- Egypt start trading more with each other ties in public service delivery, which tends to following a decrease in border restrictions. be more efficient with density—and less so As further discussed in chapter 6, a simula- with sprawl. Providing one cubic meter of tion exercise based on a quantitative eco- piped water costs US$0.70 –US$0.80 in nomic geography model examined the Tunisia’s dense urban areas, but it costs US$2 implications of reducing border crossing in sparsely populated areas. Similar differ- times from 50 hours to 20 hours. There are ences appear in education and health care major welfare benefits in South Sinai costs (World Bank 2014). And in Amman, (Egypt) and around Aqaba (Jordan) from Jordan, with its rapidly rising population, a increases in market access. Greater market World Bank study finds that the cost of new access can also introduce greater competi- infrastructure through 2030 will depend on tion by promoting technology upgrading whe t her u rba n g row t h is sprawl i ng and greater productivity, often facilitated (low  ­d ensity) or compact (high density). by cross-border investment. And it could The study concludes that sprawling growth— trigger the emergence of regional produc- the pattern of the recent past—will cost tion networks, leading to greater intrain- 14 times as much as compact growth (World dustry trade within the region and allowing Bank 2018b). Nevertheless, urban plans can- growth in one country to spill over to its not simply pursue density but must also neighbors. attend to service quality: where density is too Increasing the spatial mobility of people high, service quality can decline (a negative makes especially good sense for the Middle externality from congestion). East and North Africa, not just because of how migration benefits migrants and their families but also because the alternative— Step 5: Expand market access for cities growing productive jobs in lagging areas by thinning the “thick borders” that through place-based policy—is not broadly inhibit mobility across the Middle East feasible. Policies to increase both spatial and and North Africa, both for regional economic mobility in the region’s countries trade and for migration could adopt three central priorities: building Historically, Middle East and North skills and human capital, reducing frictions Africa cities were part of economically cen- in spatial movement, and finding ways to tral global trade networks. Many of these cit- manage social divisions. ies persist in modern times as large, often The most urgent priority for making peo- vastly populated urban areas. Yet with ple more mobile is, arguably, to reorient edu- today’s thick borders, their economic reach cation toward tradable skills (assuming first has been limited. Countries across the region that health care, water and sanitation, and today need to enhance links across national basic education are present). Next is to reduce borders—reducing tariffs and nontariff the frictions that hinder spatial and economic ­ barriers, easing movements of goods and mobility, including people—though at the same time they may •  Low job market information, with high also enact policies to strengthen domestic job search costs; markets. •  High fees for land or property transfers; Expanding the market regionally would •  High permit fees for construction; help firms in small countries benefit from •  Restrictive building regulations; and scale economies in production, including •  Government controls that limit internal better access to inputs. It is also likely to migration. support secondary cities that can be inter- locutors with cross-border economies. ­dentity—​ Finally, social divisions related to i Consider what can happen if Jordan and in some cases a strong local identity—can O v e r v i e w   2 9 pose the greatest challenge to policy makers. But the economic impacts of those efforts Where intractable social divisions prevent have been minor, especially when compared labor mobility, place-based policies could in with those in other world regions. Apart some cases be justified. from natural resource exports, trade and Some may see labor mobility as undesir- integration with the rest of the world have able, given the challenge the region’s cities also remained below potential, with such face in absorbing migrants (including refu- notable exceptions as Morocco’s automobile gees). But leaving people stuck is not a prag- sector. matic alternative. Efforts to induce growth in Regional integration and global trade are lagging areas face an even more unyielding complementary, so both should be pursued. challenge: lumpy economic landscapes are Both expand product markets: regional inte- persistent. For poverty to be rapidly and sus- gration also increases supply capacity in large tainably reduced, people must be able to part by enlarging input (factor) markets, move where the jobs are. and global integration facilitates investment and access to technology and know-how. Deeper trade agreements that the EU is nego- The prospects for regional tiating with Morocco and Tunisia could integration: Distant yet vital to ­ perhaps become templates for similar coop- the Middle East and North Africa eration between neighbors. This overview has recommended five tran- Ultimately, effective steps to closer sitional steps toward more efficient spatial regional integration will always require giv- investments and initiatives to promote faster ing up some sovereignty to regional institu- growth and eventual spatial convergence. tions that set and enforce certain rules. So In  the longer term, the Middle East and far, governments of the Middle East and North Africa should envision regional inte- North Africa have not been willing to trans- gration that will break down walls between fer regulatory powers to regional institutions countries; connect firms to larger markets; that would govern intraregional trade. But and foster ever-larger scale and agglomera- steps can be taken today that do not require tion economies that are specialized for trad- giving up sovereignty or giving it up only in able goods and services. All of the region’s limited areas. Such steps would help to build countries would gain from such integration— the trust and experience to promote more just as some are already gaining from trade comprehensive integration later. Initial exam- agreements with large markets elsewhere. ples involving different types of policy instru- Although the prospects for the Middle ments could initially involve just two or a few East and North Africa’s regional integration neighboring countries, as follows: may seem remote today, the subject bears dis- cussing because of the high stakes of regional •  Tariffs have mostly been removed within trade. Cooperation among the region’s coun- the Pan-Arab Free Trade Area, but trade tries today is strikingly weak, but not for any costs remain relatively high because of known structural reason. A more apparent nontariff measures and transport prices. cause lies in political tensions and violent Information about nontariff measures conflict. The upshot of today’s scant coopera- is scarce, but they mostly represent red tion is clear: the Middle East and North tape and cause major complaints. They Africa’s economies produce less than they contribute to the Middle East and North could by trading more—and more freely— Africa’s low scores on logistics perfor- with each other. mance. Transport prices would fall if Closer regional integration has been a more competition were allowed in logis- long-stated objective of the region’s countries, tics and restrictions to operations in and there have been a number of initiatives. neighboring countries were reduced. 3 0   CONVERGENCE •  Institutions could be established in limited elimination of regulatory barriers, and areas where contributions and benefits introduction of new customs regimes can be more clearly defined and a trans- suitable for logistics activities (Rouis and fer of some sovereignty is therefore more Tabor 2013). acceptable. For example, regional elec- •  R efo r m cu sto m s reg i m e s . Customs tricity pools, a regional transport author- p ro c e du r e s wou ld b e s t r e a m l i n e d ity, or, where willingness of countries is and customs regulations harmonized greater, even a competition authority or across borders with private sector par- dispute settlement mechanism would be ticipation (as in logistics), and border possible. control information would be shared •  Cross-border integration of physical internationally. infrastructure is generally quite accept- •  Fill infrastructure gaps. Connective able, but there is often little coordination infrastructure—perhaps on the emerg- in upgrading transport links on different ing model of a development corridor sides of a border. A clear, long-term vision anchored by transport links (roads, rail, for regional transport integration could and ports)—would involve not just paving guide future investments including, in the roads and laying rail but also ensuring an longer term, reestablishing or newly con- environment that benefits the wider econ- structing rail links in the region and con- omy, with incentives for development. solidating port operations where several •  Ensure compensation for relative losers. smaller ports currently operate. Gains from integration should more than suffice to compensate those who may end Although prospects for formal integration up worse off as a result of trade. may remain uncertain, spatially sensitive physical infrastructure investments that con- nect neighbors can create conditions for later growth to spread. Again, places with access Notes to large markets—whether in existing urban 1. The Maghreb subregion includes Algeria, agglomerations or potentially through Libya, Morocco, and Tunisia. The Mashreq regional and global trade—are the most subregion includes Egypt, Iraq, Jordan, f av o r a b l e t o s c a l e e c o n o m i e s a n d Lebanon, the Syrian Arab Republic, and West specialization. Bank and Gaza. Regional integration for the Middle East 2. These and other reasons are being further and North Africa can be broadly envisioned analyzed in forthcoming World Bank Middle as a six-point plan. East and North Africa reports. 3. The GCC countries are no exception: most •  Make the business climate more favor- score below their income peers. able and state functions more efficient. 4. Data from the World Governance Indicators Institution-based reforms to speed gov- Database, https://info.worldbank.org/­governance​ ernment processes—and to make doing /­​wgi/. business easier across the region—would 5. Data from the World Development Indicators be a prerequisite for integration. Database: https://databank.worldbank.org​ •  Reduce tariffs and nontariff barriers. /­source/world-development-indicators. Tariff reductions would be accompanied 6. Even middle-income citizens in Middle East and North Africa countries participate exten- by the removal of inefficient subsidies sively in the informal economy. Their (such as energy subsidies) with care to resources, too, could be used more produc- address regressive impacts of removal. tively if factor markets in the formal sector •  Liberalize the logistics sector. Private sec- were more efficient. tor logistics firms would replace today’s 7. Actual names of the interviewees in the inefficient state monopolies. Morocco TADAMUN (2015) report, “The Hidden offers a model with its logistics zones, Cost of Displacement,” have been withheld. O v e r v i e w   3 1 8. The potential-of-interaction method (De la De la Roca, Jorge, and Diego Puga. 2017. Roca and Puga 2017) measures the average “Learning by Working in Big Cities.” Review number of people within a given distance of E c on o mic S tu di es 84 (1): 106 – 42 . from any spot in the city. To capture the prac- doi:10.1093/restud/rdw031. tical likelihood of interpersonal interaction, Francis, D. C., and H. Schweiger. 2017. “Not So one can control for city population, and one Different from Non-Traders: Trade Premia in can also control for GDP—an inverse proxy the Middle East and North Africa.” Economics for the cost burden of commuting. Controlling of Transition 25 (2): 185–238. for both, cities in the Mashreq and GCC sub- Hanna, J. 2016. “Changing Realities: Traumatic regions have some of the world’s highest Urbanism as a Mode of Resilience in Intra-War potentials for interaction, making the average Beirut.” International Planning History across all Middle East and North Africa cities Society Proceedings 17 (3): 383–88. still quite high. But controlling for population Ji, L., X. Jia, A. S. F. Chiu, and M. Xu. 2016. alone (that is, disregarding the commut- “Global Electricity Trade Network: Structures ing advantage conferred by higher GDP), the and I mplications.” PL oS ON E 11 (8): average city in the region appears more e0160869. fragmented. Kulenovic, Z. Joe, Alexandra Cech, Drilon Gashi, 9. The welfare aggregate (in most countries Luke Jordan, Austin Kilroy, Megha Mukim, comprising total food and nonfood expendi- and Juni Tingting Zhu. 2015. “Six Case tures) was temporally and spatially deflated Studies of Economically Successful Cities: to account for price differences over time and What Have We Learned?” Companion Paper 3 between areas. for “Competitive Cities for Jobs and Growth: 10. See the World Bank Logistics Performance W hat , W ho, a nd How,” World B a n k , Index (LPI) 2018: https://lpi.worldbank.org/. Washington, DC. 11. Close proximity remains advantageous in Lebrand, Mathilde. 2019. “International Growth buyer-supplier networks despite the rapid Spillovers from Deep Agreements for Countries decline in global transport costs. and Cities.” Unpublished manuscript, World Bank, Washington, DC. Liu, X., X. Li, Y. Chen, Z. Tan, S. Li, and S. Ai. 2 010 . “A N e w L a nd s c ap e I nd e x fo r References Quantifying Urban Expansion Using Multi- Boex, Jamie, Ammar Malik, Devanne Brookins, Temporal Remotely Sensed Data.” Landscape and Ben Edwards. 2016. “Dynamic Cities? Ecology 25 (5): 671–82. T he Role of U rb a n S e r v i c e D el ive r y Mills, R., and F. Alhashemi. 2018. “Resource Performance in Africa and Asia.” Working Regionalism in the Middle East and North paper, International Growth Centre, London. Africa: Rich Lands, Neglected People.” Brixi, Hana, Ellen Lust, and Michael Woolcock. Brookings Doha Center Analysis Paper No. 2015. Trust, Voice and Incentives: Learning 20, Brookings Institution, Washington, DC. from Local Success Stories in Service Delivery Rouis, Mustapha, and Steven R. Tabor. 2013. in the Middle E ast and Nor th Afric a . Regional Economic Integration in the Middle Washington, DC: World Bank. East and North Africa: Beyond Trade Reform. CAPSUS (CAPSUS Sustainable Capital). 2018. Directions in Development Series. Washington, “Urba n Grow t h S cena rios. H ashem ite DC: World Bank. Kingdom of Jordan.” Project brief for the S c hw a b , K l au s , e d . 2 017. T h e G l o b a l World Bank, Washington, DC. Competitiveness Report 2017–2018. Geneva: Chambers, Victoria, Leni Wild, and Marta World Economic Forum. Foresti. 2013. “Innovations in Service Delivery: Serageldin, Mona, François Vigier, and Maren International Experience in Low-Density Larsen. 2014. “World Migration Report Countries.” Research repor t, Overseas 2015: Urba n M ig rat ion Trends i n t he Development Institute (ODI), London. M iddle  E ast and Nor th A frica Region D’Aoust, Olivia, and Somik V. Lall. Forthcoming. and  the Challenge of Conf lict-I nduced “ U n e qu a l Pl ac e s a nd S t u c k Pe opl e .” D i s p l a c e m e n t .” B a c k g r o u n d p a p e r , Unpublished manuscript, World Ban k, International Organization for Migration Washington, DC. (IOM), Geneva. 3 2   CONVERGENCE Sims, David. 2010. Understanding Cairo: The ———. 2016. “Syrians in the Middle East: The Logic of a City Out of Control. New York: Lives and Livelihoods of Refugees and Their American University in Cairo Press. Hosts.” Unpublished manuscript, World Bank, ——— . 2 01 5. E g y p t ’s D e s e r t D r e a m s : Washington, DC. Development or Disaster? Oxford: Oxford ———. 2018a. “From Disfavored to Unique: University Press. Tunisia’s Territorial Variety as an Asset. TA DA M U N. 2015. “T he H idden Cost of Policy Note on How Tunisia Can Leverage Displacement: The Move from Ìzbit Khayrallah Its Regions in a Differentiated Manner for to M a s ā k i n Ù t h m ā n .” R ep or t of t he Shared Prosperity.” Report No. 130184, TADAMUN Initiative, American University, P r o j e c t N o . 1 5 9 0 7 2 , Wo r l d B a n k , Washington, DC. Washington, DC. UN-Habitat (United Nations Human Settlement ———. 2018b. “Jordan—Urban and Municipal Programme). 2012. The State of Arab Cities Program for Balanced and Inclusive Growth: 2012: Challenges of Urban Transition . Concept State Program Information Document Nairobi, Kenya: UN-Habitat. ( P I D) .” C o n c e p t N o t e , R e p o r t N o . World Bank. 2003. World Development Report PIDC151796, World Bank, Washington, DC. 2004: Making Services Work for Poor People. ———. 2018c. “Maroc: Tirer avantage de Washington, DC: World Bank. l’urbanisation pour promouvoir un nouveau — — —. 2009. World Development Report 2009: modèle de croissance et réduire les disparités Reshaping Economic Geography. Washington, territoriales.” [Morocco : Take advantage of DC: World Bank. urbanization to promote a new growth model ———. 2011. Poor Places, Thriving People: How and reduce territorial disputes]. Policy Note, the Middle East and North Africa Can Rise World Bank, Washington, DC. Above Spatial Disparities. MENA Development ———. 2018d. “Unleashing the Potential of Report Series. Washington, DC: World Bank. Education in the Middle East and North — — —. 2012. “Arab Republic of Egypt: Reshaping Africa.” MENA Education Flagship Draft Egypt’s Economic Geography: Domestic f o r D e c i s i o n M e e t i n g , Wo r l d B a n k , Integration as a Development Platform.” Report Washington, DC. No. 71289-EG, World Bank, Washington, DC. 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Contents of Convergence Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Memorandum to a Concerned Finance Minister. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxv Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Why do so many place-based interventions fail?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 How can the region’s countries approach convergence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Fragmented cities, stuck people, walled-off countries: The symptoms of institutional constraints on growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Place-based and centralized: How national policies and institutions in the Middle East and North Africa perpetuate economic inefficiency and spatial inequity. . . . . . . . . . . . . . 19 Five transitional steps to reduce institutional inefficiency, speed the Middle East and North Africa’s economic development, and enable convergent growth. . . . . . . . . . . . 25 The prospects for regional integration: Distant yet vital to the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1 Fragmented Cities, Constrained Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Rapid urbanization has not brought commensurate economic benefits to the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Modernist planning and informality play crucial roles in the fragmented urban fabric. . . . . 38 Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Annex 1A Methodology for calculating the agglomeration index. . . . . . . . . . . . . . . . . . . . . . 52 Annex 1B Methodology for developing indicators of urban form. . . . . . . . . . . . . . . . . . . . . . 53 33 3 4   CONVERGENCE Annex 1C Methodology for analyzing road and intersection densities. . . . . . . . . . . . . . . . . . 54 Annex 1D Comparison of Global Human Settlement Layers and Global Urban Footprint datasets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 2 Unequal Spaces and Stuck People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 High disparities and low migration hinder economic mobility. . . . . . . . . . . . . . . . . . . . . . . . 60 Low migration suppresses labor mobility in the Middle East and North Africa. . . . . . . . . . . 69 Credential-oriented education systems offer one explanation for low internal mobility. . . . . 80 Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Annex 2A Data sources and coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 3 Walled Urban Economies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Large cities will remain important in the Middle East and North Africa landscape . . . . . . . 92 Regional integration can deliver large markets for the Middle East and North Africa’s cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Annex 3A Methodology for analyzing productivity across regions. . . . . . . . . . . . . . . . . . . . . 114 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4 How States Shape Markets through Spatial and Private Sector Development Bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Competition regimes in the Middle East and North Africa: How do they differ from other regions, and why? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Middle East and North Africa governments intervene in markets to shape economic geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Government interventions cause varying magnitudes of spatial distortion in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Implications and persistence of governments’ approach to shaping markets in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Annex 4A Disaggregation of government expenditure, by government level, for each of the comparator countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Annex 4B Disclaimers regarding the classification of government expenditures. . . . . . . . . . . 149 Annex 4C Classification of the IMF database. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Annex 4D Reasons for excluding other Middle East and North Africa countries from the spatial analysis of government expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 5 Centralized Government: Contributor to Economic Geography . . . . . . . . . . . . . . . . 157 What do citizens expect of the state in the Middle East and North Africa?. . . . . . . . . . . . . 158 Centralized government responses reinforce spatial bias, undermining instead of encouraging convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Decentralization has complex implications for spatial disparity . . . . . . . . . . . . . . . . . . . . . 165 Efforts to move from state-centric to citizen-centric approaches vary across the region. . . . 172 Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 CONTENTS O F C O N V E R G E N C E   3 5 6 Five Steps for Enabling Growth through Thriving Cities and Towns in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 Transitional Step 1: Adopt new, evidence-based criteria to guide spatial interventions . . . . 180 Transitional Step 2: Devolve greater functional authority and resources for local revenue generation and service provision to local governments . . . . . . . . . . . . . . . . . . . . 188 Transitional Step 3: Step away from credentialist education and toward schooling that cultivates globally tradable skills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Transitional Step 4: Renew the focus on nurturing urban agglomerations by streamlining land transfer procedures and relaxing zoning regulations in existing cities, lowering the regulatory barriers to their redevelopment. . . . . . . . . . . . . . . . . . . . . 194 Transitional Step 5: Expand market access for cities by thinning the “thick borders” that inhibit mobility across the Middle East and North Africa for both regional trade and migration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Concluding remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Boxes O.1 Place-based policies have not led to spatial convergence. . . . . . . . . . . . . . . . . . . . . . . . . . 2 O.2 Economic density and agglomeration effects: The urban advantage. . . . . . . . . . . . . . . . . 3 O.3  Many signs point to one problem: The Middle East and North Africa’s economies are not moving sufficiently. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 O.4 Drivers and results of high urbanization in the Middle East and North Africa . . . . . . . . 8 O.5 In the Middle East and North Africa, some cities are more spatially fragmented than others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 O.6 Urban fragmentation as a legacy of conflict: Today’s polycentric Beirut. . . . . . . . . . . . . 12 O.7 Low spatial mobility—and high public employment—among university graduates suggest that the Middle East and North Africa’s higher education systems do not impart tradable skills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 O.8 Large cities in the Middle East and North Africa show few spillover benefits from regional trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 O.9 Middle East and North Africa countries stand out in directing a large share of investment expenditures toward place-based interventions. . . . . . . . . . . . . . . . . . . . . 21 O.10 Place-based investments amount to risky development bets—and the stakes are high. . . . 22 O.11 How to make successful spatial bets? Build on natural advantage. . . . . . . . . . . . . . . . . 22 O.12 Remembering the forgotten: Institution-based policies for the urban poor . . . . . . . . . . 26 1.1 The impact of conflicts on urbanization in the Middle East and North Africa . . . . . . . 35 1.2 The impact of Lebanon’s civil war on Beirut’s urban form. . . . . . . . . . . . . . . . . . . . . . . 46 1.3 Refugee self-sorting and fragmentation in migration to urban areas . . . . . . . . . . . . . . . 51 2.1 The ongoing effects of conflict on people of the Middle East and North Africa. . . . . . . 68 2.2 Methodology for calculating the cost of barriers to migration. . . . . . . . . . . . . . . . . . . . 71 3.1 Economic growth can be contagious—but in the Middle East and North Africa, it is not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4.1 The process for building a housing unit in Jordan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 4.2 The IMF Government Finance Statistics database . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 4.3 Government expenditure data for a subset of Middle East and North Africa countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 5.1 Comparing Arab Barometer and World Values Survey responses on government’s role. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 5.2 Handling decentralization in fragile environments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 5.3 Spatial bias in Egypt’s subnational fiscal architecture. . . . . . . . . . . . . . . . . . . . . . . . . . 168 3 6   CONVERGENCE 5.4 Recent advances in implementing decentralization agendas across the Middle East and North Africa, by region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 6.1 Spatially sensitive “last mile” education provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 6.2 Do cheap land and labor create opportunities for lagging regions? . . . . . . . . . . . . . . . 183 6.3 Big bottleneck or big opportunity: Targeted place-based policies in Afghanistan and Morocco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 6.4 Industrial zones in Egypt: Suffering a lack of density and complements . . . . . . . . . . . 186 6.5 How the dynamics of large investors can justify government intervention . . . . . . . . . 187 6.6 Instruments to improve scale and coordination among local governments. . . . . . . . . . 189 6.7 Government-regulated private sector service delivery in the Republic of Yemen and Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 6.8 How special economic zones supported China’s incremental integration into global markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 6.9 Logistics, more than infrastructure, impedes trade in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 6.10 Scaffolding for cross-border trade and migration in the Great Lakes Region. . . . . . . . 202 Figures BO.4.1 The Middle East and North Africa is a highly urbanized region . . . . . . . . . . . . . . . . . . . 9 BO.5.1 Fragmentation varies significantly across urban areas of several capital cities in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 O.1 Aggregated 1990–2004 urban expansion trends of capital cities in the Mashreq, Maghreb, and GCC subregions show divergent patterns . . . . . . . . . . . . . . . . 11 BO.6.1 After decades of conflict, Beirut became a polycentric city . . . . . . . . . . . . . . . . . . . . . . 12 O.2 Inequality within most Middle East and North Africa countries exceeds that of global peers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 O.3 In the Middle East and North Africa, companies located on the periphery face harsher constraints on business development than those in the capital city . . . . . . . . . . 13 O.4 Within-country migration is lower in Middle East and North Africa countries than in the rest of the world. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 O.5 Globally, the probability of migration tends to rise with education—but not in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 BO.7.1 Human capital in the form of tradable skills increases spatial mobility. . . . . . . . . . . . . 15 BO.7.2 In the Middle East and North Africa, tertiary education diplomas are highly valued in the public sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 O.6 Urban populations in the Mashreq and GCC subregions are highly concentrated in the largest city and even more so in large cities. . . . . . . . . . . . . . . . . . . 16 O.7 Few Middle East and North Africa countries trade electricity. . . . . . . . . . . . . . . . . . . . . 17 BO.8.1 Spatial economic spillovers to large city economies based on deep trade agreements with neighbors, by region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 BO.8.2 Bangkok’s per capita GDP would have shrunk had it experienced the regional economic spillovers of the Middle East and North Africa . . . . . . . . . . . . . . . . 18 O.8 Place-based interventions distort urban markets—which then fail. . . . . . . . . . . . . . . . . 20 BO.9.1 Government expenditure distribution in selected Middle East and North Africa countries, by spatial category, differs greatly from international comparators . . . . . . . 21 O.9 Respondents in surveyed Middle East and North Africa economies identified jobs enablement—not public service provision or citizen representation—as the most essential function of a democratic state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1.1 Urbanization in the Middle East and North Africa is catching up with Europe and Latin America, 1960–2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 CONTENTS O F C O N V E R G E N C E   3 7 1.2 Urban population growth rates in the Middle East and North Africa vary by subregion, 1990–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1.3 The Middle East and North Africa displays the world’s highest urban concentration as measured by the agglomeration index . . . . . . . . . . . . . . . . . . . . . . . . . 37 1.4 Economic growth per capita has not kept pace with urbanization in the Middle East and North Africa, 1990–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1.5 Cities in the Middle East and North Africa display a lower share of urban tradable employment than in other regions of the world. . . . . . . . . . . . . . . . . . . . . . . . . 38 1.6 Fragmentation varies significantly across urban areas in several capital cities in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.7 The Middle East and North Africa as a whole displays average interaction potential compared with other regions but varies widely by subregion . . . . . . . . . . . . . 41 1.8 Gulf Cooperation Council countries seem to compensate for their urban fragmentation with lower commuting costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 B1.2.1 After decades of conflict, Beirut became a polycentric city. . . . . . . . . . . . . . . . . . . . . . . 46 1.9 In the Middle East and North Africa, historic centers and informal neighborhoods display higher road and intersection density than modernist neighborhoods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 1.10 Aggregated urban expansion trends in capital cities in the Mashreq, Maghreb, and GCC subregions show divergent patterns, 1990–2014. . . . . . . . . . . . . . 47 1.11 The urban expansion of Middle East and North Africa capital cities varies within subregions, 1990–2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 2.1 Inequalities within most Middle East and North Africa countries exceed those of global peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 2.2 Access to electricity has converged except in low-income economies of the Middle East and North Africa, where the poorest regions remain underserved. . . . . . . 62 2.3 Primary school completion remains lower in the poorest regions of the Middle East and North Africa, except in the Islamic Republic of Iran. . . . . . . . . . . . . . 63 2.4 Projected infrastructure needs and financing in the Middle East and North Africa. . . . 64 2.5 Access to a safe water source lags behind in the poorest regions of the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 2.6 Far higher shares of population and economic activity are exposed to high or very high water stress in the Middle East and North Africa than in world averages. . . . . . . 65 2.7 Economic losses from inadequate water supply and sanitation in the Middle East and North Africa vary by economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2.8 Violent events and water risk are associated with higher spatial inequalities in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 2.9 Within-country migration is lower in the Middle East and North Africa than in the rest of the world. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 2.10 Net migration flows in Tunisia reflect the movement of people from high- poverty to low-poverty regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 B2.2.1 Consumption gap between leading and other regions. . . . . . . . . . . . . . . . . . . . . . . . . . . 72 B2.2.2 Share of the consumption gap explained by endowments. . . . . . . . . . . . . . . . . . . . . . . . 72 B2.2.3 Share of the consumption gap explained by returns to endowments. . . . . . . . . . . . . . . . 72 2.11 Migration to leading regions could increase consumption potential significantly in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 2.12 Among the bottom 40 percent who migrate to leading regions, the migration benefits are restricted to the top . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 2.13 Consumption gaps between the metropolitan region and others vary across countries and are largely explained by differences in returns to endowments . . . . . . . . . 75 3 8   CONVERGENCE 2.14 Morocco shows signs of regional convergence in living standards. . . . . . . . . . . . . . . . . 78 2.15 Poverty rates at origin and destination influence migration in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 2.16 Distribution of occupations among internal migrants and stayers in the Syrian Arab Republic, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 2.17 Internal migration rates are higher among women than men in several Middle East and North Africa countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 2.18 Unemployment rates are higher in the Middle East and North Africa than in upper-middle-income countries of other regions, particularly for educated women. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 2.19 In the Middle East and North Africa, female migrants are more likely than male migrants to be employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 2.20 Education has virtually no effect on migration in the Middle East and North Africa, in contrast with the rest of the world. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 2.21 Higher education in Middle East and North Africa households is not reflected in daily expenditure as much as in other regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 2.22 In the Middle East and North Africa, tertiary education diplomas are highly valued in the public sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3.1 Urban primacy rates are high in the Middle East and North Africa, driven mainly by population distributions in the GCC and Mashreq subregions . . . . . . . . . . . 92 3.2 Urban population distribution is skewed toward large cities in the GCC and the Mashreq, but concentrations are much lower in the Maghreb. . . . . . . . . . . . . . . . . . . . 93 3.3 Distribution of the urban population skews toward the largest cities in the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 3.4 High urban concentration in the Middle East and North Africa cannot be explained solely by fuel-export-driven consumption cities . . . . . . . . . . . . . . . . . . . . . . . 96 3.5 In the Middle East and North Africa, firms in the capital city have 6 percent higher productivity than firms on the periphery—the highest location-related effect of any region in the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 3.6 In the Middle East and North Africa, companies on the periphery are likelier than those in the capital city to face major constraints . . . . . . . . . . . . . . . . . . . . . . . . . 97 3.7 Selected countries, including Tunisia, show large gaps in access to public services between the primary city and the other urban areas. . . . . . . . . . . . . . . . 98 3.8 Fiscal transfers to local governments in the Middle East and North Africa are among the lowest in the world, only slightly above Sub-Saharan Africa . . . . . . . . . . . . 98 3.9 Fiscal decentralization in the Middle East and North Africa reflects larger transfers of fiscal autonomy in the Maghreb than in the GCC and Mashreq subregions . . . . . . . 99 B3.1.1 Sweden would be far poorer under Tunisia’s low regional economic spillovers . . . . . . 101 B3.1.2 Spatial spillovers based on deep trade agreements with neighbors, by region. . . . . . . . 102 B3.1.3 Bangkok’s per capita GDP would have shrunk had it experienced the Middle East and North Africa’s regional economic spillovers. . . . . . . . . . . . . . . . . . . . . . . . . . 102 3.10 Many Middle East and North Africa economies have higher average tariffs than their economic peers in other regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 3.11 Merchandise trade as a share of GDP in many Middle East and North Africa countries is quite low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 3.12 Only a small share of global intraregional merchandise trade occurs within the Middle East and North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 3.13 As a share of GDP, the Middle East and North Africa’s intraregional service trade is small relative to the size of its economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 CONTENTS O F C O N V E R G E N C E   3 9 3.14 Overall, the Middle East and North Africa has a high degree of capital openness. . . . 107 3.15 FDI inflows to the Middle East and North Africa remain low despite the region’s relatively high capital openness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 3.16 Remittances are significant contributors to several Middle East and North Africa economies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 3.17 Use of digital technologies correlates closely with economic wealth. . . . . . . . . . . . . . . 112 3.18 Many Middle East and North Africa countries make it hard to visit, and their citizens also face difficulties traveling elsewhere. . . . . . . . . . . . . . . . . . . . . . . . . . . 113 4.1 Middle East and North Africa countries are less competitive than most countries of comparable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 4.2 Business regulations in the Middle East and North Africa are rated distant from good practice with respect to efficiency and quality. . . . . . . . . . . . . . . . . . . . . . . . . . . 122 4.3 The Middle East and North Africa has consistently ranked lower than other middle- to high-income regions on the Worldwide Governance Indicators, 2007–17. . . 124 4.4 Private investment has responded less to reforms in the Middle East and North Africa than in other regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 4.5 Government interventions can create varying degrees of spatial distortion . . . . . . . . . 132 B4.2.1 The public sector and its main components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 4.6 Distribution and changes in government expenditures of comparator countries reflect priorities through a spatial lens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 4.7 Government expenditure distribution in selected Middle East and North Africa countries show priorities through a spatial lens for one year . . . . . . . . . 138 4.8 Government expenditure distribution in selected Middle East and North Africa countries, by spatial category, differs greatly from international comparators. . . . . . . 138 4.9 Subsidies made up 23–31 percent of Tunisia’s yearly budget, with the greater share linked to current expenditure, 2013–17. . . . . . . . . . . . . . . . . . . . . . . . 141 4.10 Subsidies on current expenditures, representing 19 percent of Tunisia’s total budget, are mainly for place-based interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 4.11 Subsidies on capital expenditures, representing 7 percent of Tunisia’s total budget, are less focused than current expenditures on place-based interventions. . . . . . . . . . . . 142 4.12 Jordanian current public expenditures, by spatial category, 2018. . . . . . . . . . . . . . . . . . 145 5.1 Respondents in surveyed Middle East and North Africa economies identified functions to improve socioeconomic well-being as the most essential characteristics of democracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 5.2 Rural respondents were more likely to cite government’s role in job creation and public service provision as essential characteristics of democracy . . . . . . . . . . . . . 159 5.3 Across Middle East and North Africa economies, subnational surveys also show a preference for governments’ role in job creation over public service delivery . . . . . . 160 B5.1.1 WVS respondents from most Middle East and North Africa economies identified economic growth as the country’s “most important” goal . . . . . . . . . . . . . . . 161 5.4 The subregions of the Middle East and North Africa represent a spectrum in the degree of decentralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 5.5 The fiscal decentralization of subnational governments in the Middle East and North Africa remains low compared with OECD countries . . . . . . . . . . . . . 165 6.1 Framework for effective spatial policy in the Middle East and North Africa, from foundations to final steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 B6.9.1 Among the Middle East and North Africa countries, about half improved their logistics performance between 2010 and 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . 201 4 0   CONVERGENCE Maps B1.1.1 Massive migration patterns to urban areas in the Mashreq region are visible through nighttime light changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1.1 Visual representations of urban expansion show the extent of development, by type, in selected Middle East and North Africa capitals, 1990–2014. . . . . . . . . . . . . . . 49 B1.3.1 Refugees are concentrating in three main neighborhoods in Tripoli, Lebanon, 2015. . . 51 1D.1 Comparison of Global Human Settlement Layers and Global Urban Footprint datasets for Cairo and Casablanca, 2016. . . . . . . . . . . . . . . . . . . . . . . 55 2.1 Middle East and North Africa populations are concentrated in the areas closest to international markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 2.2 Consumption gaps in the Islamic Republic of Iran, by region, 2014. . . . . . . . . . . . . . . . 76 2.3 Consumption gaps in Iraq, by governorate, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 B6.8.1 China gradually increased special economic zones from 1980 through the 1990s. . . . 197 Photos O.1 In Greater Cairo, recent informal settlements share a basic spatial structure with medieval neighborhoods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.1 Developments in or near the capitals of United Arab Emirates and Egypt represent modernist urban planning theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 1.2 Aerial views show that, in density and spatial patterns, recent informal settlements highly resemble historic districts across several cities of the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Tables 1C.1 Selected neighborhoods for analysis of road and intersection densities in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 2.1 Economic activity benefits more from natural geography in the Middle East and North Africa than in Sub-Saharan Africa and Latin America but less so than in other regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 B2.1.1 Violence in four current major crises has affected between one-third and two-thirds of the population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 2A.1 Sources and years of global census data, by country. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 2A.2 Countries and years of survey data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.1 City size relative to a country’s total urban population is associated with positive or negative effects on economic growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 3.2 Trade agreements are fewer and shallower in the Middle East and North Africa than in other regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 3.3 The Middle East and North Africa has few agreements with important future markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 3.4 Trade in the Middle East and North Africa is still dependent on natural resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 3.5 The Middle East and North Africa has higher service trade restrictions than any other region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 3.6 Migration in the Middle East and North Africa has been driven by both job seekers and refugees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 3.7 Large migration flows have led to equally large remittance flows in the Middle East and North Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 3.8 Largest intraregional estimated remittance flows in the Middle East and North Africa, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 CONTENTS O F C O N V E R G E N C E   4 1 B4.2.1 Classification of expenditure, by government function, within divisions and groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 4.1 On average, comparator countries invest more in people- and institution-based interventions, and less in place-based interventions, than do Middle East and North Africa countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 4.2 New cities in Saudi Arabia’s development plan and spatial strategy. . . . . . . . . . . . . . . 140 4.3 Spatial classification of Tunisia’s Finance Law 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 4.4 Concentration shares of indirect subsidies in Tunisia, by income decile, 2010 . . . . . . . 143 4.5 Off-budget economic authorities in Egypt are highly spatially distortive. . . . . . . . . . . . 143 4.6 On-budget and off-budget expenditure by economic authorities in Egypt, by spatial category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 4.7 Jordanian public expenditures, by spatial category, 2018. . . . . . . . . . . . . . . . . . . . . . . 144 4A.1 Disaggregation of government expenditure for comparator countries, by spatial category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 4A.2 Distribution and changes in government expenditures by comparator countries through a spatial lens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 4A.3 Expenditure distribution in the Middle East and North Africa is highly weighted toward spatially distortive policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 4B.1 Difficulties in classification of spatial categories of government expenditures . . . . . . . 150 4C.1 Classification of subcategories of the IMF Government Finance Statistics (GFS) database into eight spatial categories. . . . . . . . . . . . . . . . . . . . . . . . . . 150 4D.1 Estimated shares of public expenditures, by category, in Lebanon, the Republic of Yemen, and Iraq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 B6.9.1 Logistics Performance Index (LPI) rankings of Middle East and North Africa countries, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 ECO-AUDIT Environmental Benefits Statement The World Bank Group is committed to reducing its environmental footprint. 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Policy makers across the Middle East and North Africa have for many years articulated plans to integrate their people spatially and economically. Wishing to bring communities together and narrow economic gaps, governments have made large capital investments in transport corridors and “new cities.” Hoping to provide jobs in places with little economic activity, governments have designated new industrial zones supported by spatially targeted business incentives. Yet the results of these place-based initiatives in the region have largely underdelivered in terms of yielding more sustainable jobs and growth. Spatial inequality contributes to a 63 percent larger share of inequality in this region than in any other region. Sharp disparities remain between capital cities and lagging areas, as well as between richer and poorer sections within cities. Across much of the region, a fortunate few are connected to opportunities, while many more people are marginal to the formal economy—or live outside of it. Convergence: Five Critical Steps toward Integrating Lagging and Leading Areas in the Middle East and North Africa considers the numerous and varied challenges. It explains that many of these place-based policies are ineffective because they treat the spatial and physical symptoms of inequity rather than its root causes, which are economic and institutional. Convergence presents the five roots of spatial inequity in institutional inefficiencies across the Middle East and North Africa—urban regulatory frictions, credentialist education systems, centralized control over local public services, barriers to the spatial mobility of goods and people, and barriers to market entry and lopsided business environments—within cities, within countries, and across national borders. It proposes five transitional steps to enable convergence informed by economic geography: • Strengthen coordination and complementarities across initiatives. • Redistribute roles and responsibilities across tiers of government. • Enable mobility of people between lagging and leading areas. • Build dense and connected cities. • Enhance market access nationally and regionally.