For rapid, shared growth, governments must promote economic integration which, at its core, is about the mobility of people, products, and ideas, said a world bank report released in New Delhi on Thursday.
The 'World Development Report 2009: Reshaping Economic Geography' challenges the assumption that economic activities must be spread geographically to benefit the world's most poor and vulnerable.
''Throughout history, mobility has helped people escape the tyranny of poor geography or poor governance,'' said Indermit S Gill, director of WDR and regional chief economist for the World Bank's Europe and Central Asia region at a media briefing on the report.
''The report sees this as part of a vital process of economic integration, since mobile people and products form the cornerstone of inclusive, sustainable globalisation,'' Gill added.
The transformations along three dimensions - density, distance, and division - are essential for development and should be encouraged, the report asserts.
It states that density is the most important dimension locally, distance to density the most important dimension nationally, and division the most important dimension (or indeed obstacle) internationally. Therefore it advocates that urbanisation, mobility and regional exchanges should be encouraged with the overall objective to facilitate market access.
In the context of the financial crisis gripping the world, the WDR feared that protectionist tendencies in both developing and developed countries could seriously jeopardise both the recovery and longer term progress.
The report contended that markets favoured some places over others and countering the tendency would amount to fighting prosperity. It expected governments to facilitate such geographic concentration and initiate policies to provide for basic needs such as schools, security, streets and sanitation.
Call to change Indian policy
Referring to India, the WDR called for infrastructure development and reduction in transport costs because distance was a challenge and the problem was compounded by concentration of poor people in the rural areas.
It highlighted the case of Mumbai, which continued to attract people, and had twice the number of residents today than in 1980 when its population was 7.5 million.
The report says despite Mumbai's attempts to discourage inflows of people, who were attracted to economic opportunities, the city has twice as many people as in 1980s. Half of the city's population lives in slums as the government has not created the requisite infrastructure.
According to the report, in the second half of the 1990s, about three million people moved from economically backward states of Bihar and Uttar Pradesh to states such as Maharashtra and Punjab, where the level of economic activity was higher.
Instead of worrying about the size of metropolises, the report calls for policymakers to focus on improving the basic infrastructure to make sure these places work well like Tokyo or New York.
Gill pointed out that as education was an aspiration that cut across all regions, migration towards centres of economic concentration would follow. ''You can't be for more education and against more migration,'' he said in response to a question on the social fallout of large-scale internal migration.
WDR argues that the most effective policies for promoting long-term growth are those that facilitate geographic concentration and economic integration, both within and across countries.
''In a world where economic concentration is a fact of life, governments should improve land policies, provide basic services everywhere and invest efficiently in infrastructure,'' said Katherine Sierra, vice president, sustainable development. ''As the WDR shows, incentives intended to attract industry to lagging areas should be used sparingly.''
The report examined the Special Economic Zones (SEZ) in India and China, underlining the differing approaches in the two countries. China's approach reflected a strategy of exploiting the best locations to access external markets, while in India these had been developed by the private sector and targeted the large domestic market. But it felt that these were not as well located.
The study also revealed some interesting facts: half the world's production fits onto less than 5 per cent of its land, an area smaller than Algeria. Tokyo, the world's largest city, is home to 35 million - a quarter of Japan's population - but stands on just 4 per cent of its land.
Cairo produces more than half of Egypt's GDP, using just 0.5 per cent of its area. Brazil's three south-central states comprise 15 per cent of its land, but more than half its production. North America, the EU and Japan - with less than a billion people - have about two-thirds of the world's production.
Rural poverty rates are almost everywhere higher than in cities. In Brazil, China, and India, lagging states have poverty rates more than twice those in leading states. Countries home to the ''bottom billion'' - mostly in Sub-Saharan Africa and South and Central Asia - have 12 per cent of the world's population but less than 1 per cent of its GDP.
Korea went from more than 80 per cent rural to more than 80 per cent urban between 1950 and 1990, as its per capita income grew from present-day Benin's to more than Portugal's.
The United States, the world's largest economy, is also among the most mobile, with about 35 million people changing their place of residence every year.
In China, more than 150 million people moved to coastal areas during the late 1990s. Falling transport costs encourage specialization and trade between economies at similar stages of development.
Just over 100 years ago, London, then the world's largest city, had a population of 6.6 million. Mumbai, the largest city among low-income countries in 2000, had a population of 20 million. Mexico City is the largest city among middle-income countries with 22 million. And Tokyo - now the world's largest city with 35 million inhabitants - is proof that size does not equal dysfunction, the report noted.
Today, the volume of urbanisation is greatest in China and India. China has added almost 250 million people to its cities since 1985, India about 150 million.