Can Backward Subnational Regions Catch Up with Advanced Ones?

This economic policy note examines the disparity in per capita incomes of both backward and advanced regions in developing countries, and explores a number of possible causes and policy intervention to bring about equalization (convergence). Among the causal factors discussed are transportation costs, barriers to trade, factor mobility, and internal migration. While recognizing that the disparities are likely to remain substantial for sometime, direct intervention is suggested to prod convergence. One such area could be bringing together private sector and other actors to develop an informal marketplace to encourage appropriate clusters. The note downplays the importance of large public infrastructure, unless justified by private demand, strategic investments in leading sectors, and equalizing fiscal transfers between national and subnational regions.