Friday, April 25, 2008

Role of mega-regions in the global economy

Richard Florida claims that the real drivers of global growth are mega regions.

He writes,"While there are 191 nations in the world, just 40 significant mega-regions power the global economy. Home to more than one-fifth of the world's population, these 40 megas account for two-thirds of global economic output and more than 85% of all global innovation.

The world's largest mega is Greater Tokyo, with 55 million people and $2.5 trillion in economic activity. Next is the 500-mile Boston-Washington corridor, with some 54 million people and $2.2 trillion in output. Also in the top 10 are mega-regions that run from Chicago to Pittsburgh, Atlanta to Charlotte, Miami to Tampa, and L.A. to San Diego. Outside of the U.S., you can find megas around Amsterdam, London, Osaka and Nagoya, Milan, Rome and Turin, and Frankfurt and Stuttgart.

Mega-regions are the true force driving the rise of emerging economies. Some 40% of Brazil's total economy is made up of a corridor stretching from Rio to São Paolo. Russia is propelled by the Moscow mega. India's economy is shaped by the mega-regions of Bangalore and Mumbai."

He argues in favor of urban policies that favor densification, improving fast-rail transit between mega-region nodes, modernizing airports, and achieving greater cross-border flows of goods and people.

Paul Krugman however feels that mega-regions may not contain the density necessary to reinforce the positive spillovers from a large concentration of talent. He favors considering a smaller geogrpahical area as the basic economic unit because they are amenable to greater labor mobility and noer positive externalities arising from information spill-overs and network effects.

The Free Exchange differs and favors larger geogrpahical areas as the basic unit of economic growth. It highlights the importance of "forward and backward linkages--that is, the importance of being near to suppliers and customers in a world where transportation costs are non-negligible".

Quoting a paper by Anthony Venables and Stephen Redding, it argues that market potential--the nearness of a place to other economically vibrant places - can explain quite a bit of the differences in global wealth.

Florida's hypothesis is the policy logic behind the fast risisng support among policy makers in India for the Mumbai-Delhi and Chennai-Bangalore growth corridors. The Government of India have been actively pursuing this idea. The Japanese Government has evinced considerable interest in the Mumbai-Delhi mega region growth corridor, and a Detailed Project Report (DPR) is currently under preparation with Japanese government assistance.

However, I am more inclined to believe that while such mega regions may promote and hasten growth in those regions with an already established critical mass of entreprenuerial or industrial activity, it may achieve little in under and un-developed areas. In these areas, it may be necessary to concentrate on more important specific policies that can stimulate the local economy. Further, a mega region approach, while very efficient for promoting manufacturing and industrial gorwth, may not be relevant in case of knowledge-based industries like software and biotechnology R&D, which do not involve the same extent of linkages.

A mega region approach may be more appropriate to the Mumbai-Delhi corridor, as it would string together the numerous, already established industrial growth centers there, and promote backward and forward linkages among them. This would take care of the many inefficiencies inherent in the economic growth in these regions. In contrast, it may achieve little in the barren and undeveloped space between Chenna and Bangalore. In many ways, mega regions are something similar to the concept of integrated regional economic planning.

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