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Document of the World Bank
Report No: AUS7341
World
Technical Assistance to Regional/Country Urbanization Review and Sub-National Finance
Urbanization Review Guidebook for TTLs Operationalizing a spatial lens to development policy
June 2016
GSUGL
OTHER
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Urbanization Review Guidebook for TTLs Operationalizing a spatial lens to development policy
Abstract: This report will primarily guide TTLs in leading the production of country-specific
Urbanization Reviews. The guidebook is intended to provide TTLs with a comprehensive list of
recommendations for thinking about the right questions in order to successfully produce an
Urbanization Review.
Word Bank, 2016
4
Contents
Introduction. How to use this guide .......................................................................................................... 8
Section I. How to do an Urbanization Review ....................................................................................... 8
Chapter 1. What an Urbanization Review is—and is not ......................................................................... 8
Urbanization Reviews inform effective urban policies and Bank operations ....................................... 9
Chapter 2. Understanding the Urbanization Review process .................................................................. 12
TTL responsibilities and team composition ........................................................................................ 12
Before starting: understanding the context ......................................................................................... 14
An analysis in three stages .................................................................................................................. 14
Section II. Step-by-Step Roadmap .......................................................................................................... 16
Chapter 3. Benchmarking—Problem Identification ............................................................................... 17
Choosing comparator countries .......................................................................................................... 17
Selecting indicators to measure efficiency, inclusion, and sustainability ........................................... 19
Economic growth and the urban economy .......................................................................................... 21
Urban growth ...................................................................................................................................... 21
Chapter 4. Diagnostics—Getting to the Root of the Problems ............................................................... 25
Identifying factor market policy distortions ........................................................................................ 25
System of cities approach ................................................................................................................... 28
Spatial analysis of individual cities ..................................................................................................... 29
Chapter 5. Policy Options, Investment Priorities, and Sequencing ........................................................ 36
Generating a policy framework ........................................................................................................... 36
Policy Instruments for Planning, Connecting, and Financing Cities .. Error! Bookmark not defined.
Policy prioritization and sequencing depends on local context and level of development ................. 38
Policies should focus on different levels of government .................................................................... 41
City-specific policies should differentiate across city types ............................................................... 41
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Appendices: Toolbox (links)
1. Urbanization and Growth—Facts and Trends
2. WDR 2009—Development in 3D Framework
3. PCF framework: Value, Coordinate, Leverage
4. Urbanization and Growth (Spence, 2009)
5. Summaries of Past Urbanization Reviews (2-page per UR)
6. Writing a message-driven report.
7. TTL Corner: link to inventory of sample ToR
6
List of Figures Figure 1. UR Components .......................................................................................................................... 14
Figure 2. Understanding the Urbanization Review process ........................................................................ 16
Figure 3. Illustrative key questions an Urbanization Review should answer ............................................. 23
Figure 4. Stringent regulations on building height or density regulations weaken the potential benefits of
agglomeration. ............................................................................................................................................ 27
Figure 5. The "Systems of Cities" approach ............................................................................................... 29
Figure 6. Population density gradients in Hanoi, Seoul, Bangkok, Beijing, Jakarta, and Barcelona ......... 30
Figure 7. Comparison of road density in Hanoi, Bangkok, New York, and Seoul ..................................... 31
Figure 8. Analytical toolbox: illustrative questions for identifying policy constraints ............................... 34
Figure 9. PCF framework ........................................................................................................................... 37
Figure 10. Assignment of Responsibilities ................................................................................................. 41
List of Boxes Box 1. A brief history of Urbanization Reviews ........................................................................................ 11
Box 2. Planning ahead: managing time and resources effectively .............................................................. 13
Box 3. Is Africa “Different”? ...................................................................................................................... 19
Box 5. Commonly used indicators for measuring economic and demographic growth in cities ................ 21
Box 6. What are commonly used indicators to measure urban form and efficiency of cities? ................... 29
Box 7. Policy Instruments for Planning, Connecting and Financing Cities ................................................ 36
Box 8. Levels of Development and Institutions, Infrastructure, and Interventions .................................... 39
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Acknowledgments The Urbanization Review Guidebook for TTLs was prepared by a core team including Somik V.
Lall (Lead Economist), Ana I. Aguilera (Jr. Professional Associate), Dennis Linders (Consultant),
and David J. Bulman (Economist).
The team is grateful for the important contributions made by Nancy Lozano (Senior Economist),
Annie Bidgood (Urban Specialist/Consultant), Paolo Avner (Economist), Tuo Shi (Economist),
Alexei Abrahams (Economist/Consultant), and Gunnar Eskeland (Senior Consultant).
The material in this document was enriched significantly thanks to peer review input provided by
Sumila Gulyani (Lead Urban Specialist), Jaafar Sadok Friaa (Program Leader), Dean Cira
(Program Leader), and Paul Kriss (Program Leader).
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Introduction. How to use this guide
1. This report is written to guide TTLs in leading the production of country-specific
Urbanization Reviews. In response to demand from the Regions to have a standardized guidebook
for TTLs on how to produce Urbanization Reviews, this report will guide TTLs in the process of
carrying out an Urbanization Review. The first section provides a broad overview of the
Urbanization Review process and TTL responsibilities, while the second section provides a more
concrete description of the three stages of an Urbanization Review: benchmarking, diagnostics, and
policy recommendations.
2. This guidebook provides TTLs with a comprehensive list of recommendations for thinking
about the right questions to assess a country diagnostic on urbanization. In supporting their
role as the intellectual integrators of Urbanization Reviews, this guide helps TTLs identify the
locally-specific key factors that limit the benefits from urbanization and provide a set of policy
recommendations for the short and medium term. The report guides TTLs in building teams and
planning tools based on experiences from previous and ongoing Urbanization Reviews.
Section I. How to do an Urbanization Review Chapter 1. What an Urbanization Review is—and is not
3. An Urbanization Review is a country diagnostic report that helps city leaders and national
policymakers identify the key impediments to sustainable and equitable urban growth.
Urbanization Reviews are prepared by TTLs and are intended to help local and national leaders
think strategically about the policy options and priority investments needed to harness the social
and economic benefits of urbanization.
4. Urbanization Reviews help promote an integrated approach to urban development and
improve the capacity of governments. These country diagnostics can help operational teams
prioritize what policy options and priority investments are technically, politically, and fiscally
feasible. What must be done to improve living conditions, especially in slums and hazard-prone
areas? To create jobs? To expand the coverage and quality of basic services? To transform cities
into hubs of national competitiveness? By providing answers to these critical questions,
Urbanization Reviews help city leaders and national policymakers to:
i. Think strategically about the opportunities presented by urbanization;
ii. Tackle the key bottlenecks that are holding back the potential benefits from urbanization;
iii. Develop their own blueprints to respond to cities’ most pressing problems; and
iv. Build consensus at the national and local level to drive the urban policy agenda.
5. Urbanization Reviews should be digestible documents focused on problem solving rather
than research. Urbanization Review diagnostics are not intended to be extensive academic pieces.
Rather, an Urbanization Review should provide the analytical tools and evidence that lead to policy
solutions. They should identify the most binding constraints limiting economic efficiency and
sustainability of urbanization, and provide policymakers a way to think and prioritize different
policy options.
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6. Urbanization Reviews leverage a common analytical framework. This common analytical
framework helps TTLs ask the right questions and prioritize policy investments in line with the
country’s strategy. To date, the World Bank has conducted Urbanization Reviews in more than 15
countries at varying stages of development. Past Urbanization Reviews are grounded on a common,
consistent approach guided by the World Bank’s “Planning, Connecting, and Financing Cities”
flagship report. This framework draws and operationalizes the key lessons derived from several
World Bank seminal publications including the World Development Report (2009) and “Urban
China: Toward Efficient, Inclusive, and Sustainable Urbanization” (2014).
7. While Urbanization Reviews should be consistent in approach, they do not seek commonality
in recommendations. Urbanization Reviews draw from global best practices and systematically
benchmark a country’s urbanization patterns against those observed in other places. Urbanization
Reviews support sustainable growth in cities by providing a consistent approach for understanding
their urban challenges and by tailoring solutions to specific contexts.
Urbanization Reviews inform effective urban policies and Bank operations
8. Urbanization Reviews begin with the premise that successful urbanization carries economic
and social benefits, which in turn requires effective policies and planning. By enabling
density—the concentration of people and economic activities—cities have helped transform
economies for many centuries. High densities enable social and economic interactions at much
higher frequency than in non-urban settings. These create a vibrant market for ideas that translates
into innovations by entrepreneurs and investors. The challenge is to match high population
densities with commensurate economic densities—to deliver on the aforementioned agglomeration
economies while managing the negative externalities of rising densities.
9. Urbanization Reviews seek to help policy makers harness density for agglomeration and
economic efficiency and to reduce economic distance to strengthen the national system of
cities and improve access to markets. Global experience shows that urbanization has led to a
diversity of viable and livable cities, different in size, location, and population density, but
well-connected at the national level and clustered at the local level and regional levels. Better
policies on efficient land transaction markets; removal of obstacles to worker mobility; and fiscal
and financial partnerships between the public and private sectors, can lead to a more efficient,
sustainable, and inclusive model of urbanization.
10. Policies and effective planning play a critical role in managing densities, because unregulated
markets are unlikely to get densities “right.” Spontaneous development of cities can create
negative side effects such as congestion or, alternatively, excessive sprawl. Why? Because the
productivity of firms and the job-opportunity generating aspects of increased density are positive
externalities accruing freely to all, whereas the increased costs of construction—such as buildings,
roads, and network utilities—necessary for higher density to remain efficient are not often fully
internalized by firms and households. This situation leads to lower levels of investment than would
be optimal and ultimately to weaker productivity improvements, less job creation, and lower wages
10
(Collier and Venables forthcoming). In addition, densification of buildings requires
complementary physical infrastructure that are typically the preserve of governments: roads,
drainage, street lighting, electricity, water, and sewerage, together with policing, waste disposal,
and health care.
11. Urbanization Reviews help inform policies and effective planning through in-depth
locally-relevant analysis, and these policies have translated into significant real-world
impact, most clearly demonstrated by the incorporation of Urbanization Review findings and
recommendations in national strategies and government actions:
In Colombia, working closely with the National Planning Department, the Urbanization
Review diagnostics and proposed solutions have led to the formation of a high level ministerial
commission to set priorities for the country’s urban development in line with the UR’s
recommendations.
In India, working hand-in-hand with the National Planning Commission and the Ministry of
Urban Development, the findings from the Urbanization Review have helped change minds
and shape the policy priorities for the country’s 12th Five Year Plan, which incorporates a
number of international lessons drawn directly from the India UR.
12. Urbanization Reviews have also equipped national and local governments with practical
tools to guide urbanization and investment decisions. For instance, the Sri Lanka Urbanization
Review delivered the very first spatial representation of the country’s infrastructure networks,
which continues to be used today by the Ministry of Transportation.
13. Urbanization Reviews also help to inform lending and technical-assistance operations aimed
at supporting the urban agenda and decentralization process in the country. By identifying
the most important bottlenecks that limit efficient and sustainable urbanization, the policy priorities
identified in each Urbanization Review often lead to further Bank’s engagements. Examples of
downstream lending operations resulted from previous Urbanization Reviews include: the Tunisia
Urban Development and Local Governance Project; Building Sustainable Indonesian Cities
through Integrated Planning Systems; Indonesia Northern Mountains Urban Program; Yinxi
Railway Project; Sri Lanka Strategic Cities Development Project; and the Turkey Sustainable
Cities Project.
14. Urbanization Reviews offer a systematic approach to global learning. The comparative
advantage of the World Bank is that we operate at global scale in a large number of countries across
every developing region. This puts us in a privileged position to know what works and what doesn’t
by learning from the mistakes and successful experiences around the globe. But, too often, we do
not have robust systems in place for shared, systematic learning—across regions, sectors, and time.
Urbanization Reviews seek to address this gap by demonstrating that global knowledge activities
and country-specific policy advice are two side of the same coin— local experiences should inform
global best practices, while global knowledge should inform the development of tailored solutions
to local problems.
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Box 1. A brief history of Urbanization Reviews
The Urbanization Review is a product line that was initiated to operationalize the World Bank 2009
Urban Strategy. The objective of the Urbanization Reviews is to help Mayors and other policymakers
identify the bottlenecks they face as urbanization
accelerates, and to propose policy options to tackle such
challenges. Lessons from previous Urbanization Reviews
have created a solid body of empirical evidence and a set
of solutions that are tailored to the fiscal, political, and
administrative realities of cities. Such systematic
assessments have helped in establishing the World Bank’s
leadership in shaping the policy debate for urbanization in
countries such as India, Colombia, Uganda, Tunisia, and Vietnam.
In 2013, lessons learned from the initial 12 pilot Urbanization Reviews were distilled into a practical
framework that helps city leaders adopt proven, evidence-based approach for guiding cities onto a path
of green and inclusive growth that avoids the mistakes of the past. This framework was launched as an
SDN Flagship Report, entitled “Planning, Connecting, and Financing Cities—Now: What City Leaders
Need to Know” which further evolves and standardizes the principles and diagnostics first articulated in
the WDR 2009 and fine-tuned through three years of battle-tested real-world application. This
Planning-Connecting-Financing Cities (PCF) framework now provides us, our clients, and our partners
with an evolving evidence base of global best practices that we can tailor to individual countries and
cities to help them realize their full development potential—even under the heavy constraint faced by
many developing cities. Today, the PCF frameworks serves as the foundation for over a dozen new
Urbanization Reviews, with a particularly heavy focus on Africa. Urbanization Reviews (completed,
ongoing, and planned) now cover over 50% of the urban world.
Urbanization Reviews today cover 53% of the world’s urban population
The launch of the PCF framework marks the start of a living knowledge base and toolbox that we will
continue to evolve with our clients and partners. The Urban, Rural, and Social Development Global
“Economists think about how
things are done and what things are
done, and they don’t think so much
about where things are done—it
can be the difference between
poverty and prosperity.” Indermit
Gill, Director, WDR 2009
12
Practice is committed to evolving and strengthening this common suite of diagnostics by continuing to
learn from experience and by jointly constructing a global pool of evidence and best practices that we
can all draw and build from. This guidebook is representative of this commitment.
Source: World Bank
Chapter 2. Understanding the Urbanization Review process
15. Urbanization reviews inform policy debates by using the Planning, Connecting, and
Financing Cities—Now framework to equip policymakers and researchers with a structure
for comparing a country’s and city’s observed patterns with benchmarks in other places or
with past conditions. Such comparisons help reveal how policy distortions constrain urbanization
and how investment shortfalls restrict the benefits from it. Once the review has identified the
possible constraints and shortfalls, it proposes policy options to show how a city can harness
economic and social benefits not just today, but in the future, as economies grow and institutions
are strengthened. Although the Urbanization Review is not intended to generate a policy or
investment blueprint, it should help in identifying and resolving key policy distortions. In so doing,
an urbanization review helps inform ongoing policy debates, including those related to slums and
natural hazards, infrastructure service provision, new growth poles and urban regeneration, and
innovation in municipal finance.
TTL responsibilities and team composition
16. TTLs are the intellectual integrators of Urbanization Reviews. TTLs commonly outsource the
different components of the report to experts and specialists; their job is to then integrate these
analyses into a common policy narrative that will help policymakers develop effective solutions in
cities. Successful Urbanization Reviews provide clear, integrated messages rather than stacking
different components of the report on top of each other.
17. In integrating a common policy narrative, TTLs must identify the binding constraints that
limit sustainable urbanization in the country. In most cases, TTLs will encounter multiple
barriers to sustainable urbanization. These may range from inefficiencies in the labor and land
markets, to the lack of coordination between urban growth and infrastructure investments. The role
of a TTL is to prioritize and identify the binding constraints to efficient and sustainable
urbanization by leveraging their expertise and cumulative knowledge of the World Bank.
18. The TTL of an Urbanization Review builds from the World Bank’s past intellectual
contributions to urban development. An Urbanization Review should start from the principles
articulated in these works rather than seek to replicate them. The purpose of an Urbanization
Review is not, for instance, to demonstrate that economic growth and urbanization go
hand-in-hand, a principle that has already been articulated in the WDR 2009 and elsewhere, but to
examine how the government can remove the impediments and policy distortions that constrain this
effect. As such, the TTL is expected to be familiar with—and build from—four key knowledge
products:
i. 2009 World Development Report – Reshaping Economic Geography.
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ii. Planning, Connecting, Financing Cities—Now!
iii. Urbanization and Growth (Spence, 2009)
iv. Past Urbanization Reviews.
19. TTLs are responsible for building a team with complementary areas of expertise. Although
team composition varies across regions, some common elements include a team of urban
economists, land markets experts, and municipal finance specialists. Correctly selecting this team
and maximizing the personal strength of its members are two of the most important tasks a TTL
faces.
20. The TTL and Urbanization Review team should work in partnership with clients and key
stakeholders. Urbanization Reviews cannot be produced in isolation from the Bank’s
headquarters in DC. Rather, Urbanization Review teams:
Work hand-in-hand with the client, through frequent consultations with local policy makers
and, later, by putting ideas to the test;
Conduct analysis jointly with in-country knowledge partners (universities, think tanks,
government research centers, etc.) to ensure local relevance and alignment to national strategic
priorities;
Nurture multi-sectorial teams to ensure a truly integrated perspective on the country’s urban
development challenges and opportunities; and
Tap global experts as needed to fill key knowledge gaps and ground the UR in global best
practices.
Box 2. Planning ahead: managing time and resources effectively
Stages of an Urbanization Review: the Urbanization Review process can be roughly
divided into three sequential stages: a. Collect data and benchmarks to form a composite picture of city performance;
b. Conduct in-depth diagnostics to identify problems and opportunities;
c. Identify, assess, and prioritize policy and investment alternatives.
Gathering the evidence: teams should use readily available data whenever possible to cut
down on time and cost—focus on nimble analysis, not data collection. The goal is not to
compile a comprehensive database of indicators, but to pragmatically compile “good
enough” evidence to build the case for change.
Urbanization Review teams should avoid collecting new data from scratch whenever
possible. Instead, teams should aim to collate and leverage existing data by partnering with
local stakeholders and integrating disparate datasets into a sufficiently complete (but by no
means perfect) view of a country’s urbanization patterns. Subsequent analysis should be
“right sized” around the key challenges and questions identified by the client and by the
initial rapid assessment of the key roadblocks to successful urbanization.
Managing expectations, timelines, and resources: on average, producing an Urbanization
Review costs around US$ 300,000, although some reports might cost less or more
depending on the specific circumstances.
14
Average timelines for intermediate and final deliverables: on average, it takes between
16 and 20 months to produce an Urbanization Review, starting from the date of CN review
meeting until the final delivery of the report. Source: World Bank.
Before starting: understanding the context
21. To shape the messaging and identify the key audience, a preliminary step of an Urbanization
Reviews should be to assess current political trends, concerns, and the primary aims of
government leaders. Most Urbanization Reviews are framed as having the country at a certain
“crossroads”, with effective urbanization policies holding the key to success. For instance, the
Tunisia Urbanization Review took place within the context of a broad national push for
decentralization and popular concerns that Tunis was “too big”. These were issues that the Tunisia
Urbanization Review needed to address for it to be relevant and timely. Such political trends can
either serve as constraints or as opportunities for influencing policy by answering the questions
most pressing in the minds of policy makers.
An analysis in three stages
22. Urbanization Reviews are structured in three stages. Each review starts by assessing a
country’s or region’s spatial transformation: how the urban economy is evolving, how demand for
the city is changing with economic development, the pace of new arrivals, and how these new
arrivals into the city are finding places to live and commuting to their jobs. The review should
benchmark these observed patterns against other countries and past experience. Such comparisons
help diagnose how policy distortions constrain urbanization and how investment shortfalls restrict
its benefits. Once the review has identified the possible constraints and shortfalls, it proposes policy
options. It aims to show how a city can harness economic and social benefits not just today, but in
the future, as economies grows, technologies change, and institutions are strengthened. The figure
below shows the three distinct stages of an urbanization review, which will also provide the main
structure of this guidebook.
Figure 1. UR Components
Urbanization statistics, relative
performance, historical trends
In-depth analysis of key challenges + opportunities—where does the
shoe really pinch?
Menu of integrated policy options and
investment priorities that are
fiscally and politically feasible
that can be tailored to local contexts + national priorities; Focus on taking a perspective on key urban challenges; Emphasize through cost-effective analysis
Tie into national discussions and focus on translating
15
23.
24. Through these three stages, the Urbanization Review moves from facts, to analysis, and then
on to policy options. First, the Urbanization Review examines the linkages between urbanization,
structural transformation, and economic development at a macro level. Second, the Urbanization
Review examines the country’s portfolio of cities—and the associated investment choices in
supporting the growth of primary cities versus secondary cities and small towns. Third, the
Urbanization Review explores the spatial evolution of individual cities and the coordination
between land use, infrastructure, and transport.
25. An Urbanization Review examines urbanization through a variety of complementary
analytical lenses to ensure an integrated perspective on a country’s urban development
challenges. The figure below summarizes the different frameworks and analytical tools used in
each of the stages of analysis.
Part 1—Benchmarking Part 2—Diagnostics Part 3—Policy Options
Theme
Provide stylized facts
highlighting a country’s
pace and form of
urbanization
Identify specific
bottlenecks and
opportunities
Provide a framework for
selecting and sequencing
policies and investments
Focus
Area 1
Concentration of people and
firms
Regulations that slow
down the fluidity of factor
markets (land, labor, and
products)
A menu of regulatory
reforms that reflect
tradeoffs between
economic efficiency and
political feasibility
Focus
Area 2
Extension of basic services
and connectivity across a
portfolio of settlements
Investment gaps in
delivering basic services
and infrastructure
Options for financing high
priority investments
Focus
Area 3
Magnitude and types of
externalities (slums, crime
and violence, traffic
congestion, and
environment degradation)
Government and market
failures that generate
negative social and
environmental
externalities
A matrix of options to
manage externalities and
spillovers
Source: World Bank.
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Section II. Step-by-Step Roadmap
26. This section outlines processes and questions that compose each of the Urbanization
Review’s analytical stages. The benchmarking stage compares a country’s performance against
global and peer benchmarks to help identify what problems and bottlenecks constrain the
contribution of urbanization to national development. The diagnostics section then analyzes these
issue areas to identify why these problems are occurring—i.e. pinpointing the driving factors of
critical constraints to successful urbanization and well-functioning cities. Finally, the policy
options stage proposes a set of policy recommendations on how these distortions can be addressed.
Section III (Appendices) provides the reader with useful resources for report writing and planning.
Descriptive benchmarking should be realistic. Diagnostics should be rigorous. And prescriptive
policy options should be implementable.
Figure 2. Understanding the Urbanization Review process
27. An Urbanization Review should center the analysis along three key imperatives: economic,
social, and environmental. The consequences of poor urban policies translate into large-scale
slums, congestion, environmental decay, and sharp inequalities as people concentrate in areas
without the accompanying investment in urban infrastructure. The main goal of an Urbanization
Review is to provide a throughout diagnostic on three pillars necessary for achieving sustainable
urbanization:
a. Economic efficiency: Cities in the developing world are growing at unprecedented rates.
While the concentration of people and economic activity in cities may lead to greater economic
prosperity by enabling social and economic interactions, the unprecedented speeds at which
17
cities are growing require managing urbanization more efficiently than in previous years.
Rapid urbanization comes with growing demands for land and labor, while densification and
rural-to-urban migration pose significant pressures on city infrastructure and public services.
Mayors and city leaders need to prepare a well-designed strategy to manage rapid urbanization
and embrace its benefits.
b. Social inclusion: If urban economic development is not socially inclusive, its beneficial effects
will diminish over time. In general, cities provide people with better economic and social
opportunities than rural regions. However, spatial disparities and the lack of access to
employment opportunities and social amenities lead to further inequality between the poor and
the non-poor. Hence, it is imperative than urban policies consider the effects on the distribution
of welfare across segments of the population and over time and space. For example, setting
minimum lot size regulations that are too high may force poor households to reduce their
consumption in food and other basic needs in order to comply with stringent regulations.
Further, housing subsidies that indirectly require households to relocate to remote areas of the
city may lead to the spatial concentration of poverty.
c. Environmental sustainability: With over 70% of energy generated currently being consumed
in cities—and as much as 80% of global greenhouse gas emissions attributable to urban
residents—getting urbanization “right” is at the heart of sustainable and resilient growth.
Reforms that lead to improvements in economic efficiency and equity should not come at the
cost of the environment and social structure. Sustainable urbanization means growth that can
be supported by the country’s environment (land, air, and water) and natural resources, while
providing an urban quality of life commensurate with social demands. Policies that improve the
urban environment, balance conflicting demand on land and water, and minimize the use of
natural resources would contribute to sustainable urbanization.
Chapter 3. Benchmarking—Problem Identification
28. The benchmarking section primarily looks at the nation’s structural and spatial
transformation relative to other countries. In this section, Urbanization Reviews examine the
pace and extent of urbanization and economic growth, the nation’s urban hierarchy, the quality and
distribution of people, jobs, and infrastructure investments, and assess the connectivity and features
of the system of cities; in order to examine whether urbanization is delivering economic growth and
performing as expected at its stage of development.
29. Using an international benchmarking exercise can be a powerful tool to identify potential
bottlenecks. By comparing the current situation to other international experiences, TTLs and
teams can detect potential barriers that limit an efficient and sustainable allocation of resources as
the country rapidly urbanized. What have other countries done differently to enable
well-functioning labor markets and factors mobility? Are current land use rules and regulations are
compatible with the country’s level of development? What factors enabled or constrained a
structural transformation in other countries with a similar rate of urbanization?
Choosing comparator countries
18
30. In selecting comparison countries, TTLs can choose to compare against either similar or
aspirational countries. Although development strategies are unique and country-specific in most
cases, many countries look at some best practices for benchmarking. Successful cases often
become a reference for other countries in the region, which then try to replicate and adapt these
policies to their own context. In doing an international benchmarking exercise, TTLs can compare
the current state of urban and economic development to similar countries in terms of the level of
development, rate of urbanization, and institutional setting. They can also select aspirational
countries for comparison, in order to align the key messages of the report with the country’s policy
agenda in terms of goals and performance indicators for the medium and long term. Successful
Urbanization Reviews are intended to inform – and influence – the urban agenda in the country.
a. Criterion 1: Urbanization level. The level of urbanization varies greatly across countries and
stage of development. According to the World Bank Development Indicators, the share of total
population living in urban areas ranges from 11.5% in Burundi to over 97% in countries such as
Belgium and Puerto Rico. Selecting comparison countries with similar levels of urbanization is
a good place to start. In addition, looking at more urbanized countries with similar trends to
those of the country of study can help identify policy examples on how other countries dealt
with rapid urban growth.
b. Criterion 2: Stage of development. Looking at countries with similar levels of income will
help TTLs and teams assess whether selected indicators on the state of urban infrastructure,
patterns of urban growth, and production in cities is comparable (i.e. “normal”) to other
international experiences.
c. Criterion 3: Similar institutional setting. Counties also vary in their form of government and
in their institutional setting. Institutions determine the rules of the game that delegate
responsibilities across branches of governments, regulate the inter-governmental transfer
mechanisms for the allocation of fiscal resources to sub-national governments, and shape the
incentives of households and firms for the allocation of land, labor, and capital investments.
When choosing countries for comparison, TTLs can select other economies with similar rules
and institutions, whether these are Federal Republics, monarchies, liberal democracies, or
centrally-planned economies.
d. Criterion 4: Regional and neighboring countries. Geography plays a large role in
development by determining the country’s endowment in terms of connectivity and access to
markets, and by enabling social and economic interactions in cities. A large body of literature
refers to the role of geography in development in an effort to identify whether there are some
geographic characteristics that are more favorable for economic development than others. For
instance, coastal economies correlate with a higher per capita income level than small
landlocked economies, presumably due to better natural endowments (see Diamond, 1997;
Sachs, 2001; World Bank, 2009). When selecting comparison countries, TTLs can select
neighboring countries or consider other economies in the region facing similar challenges in
19
terms of the use of natural resources, industrial composition, access to markets, and
connectivity across cities within the country.
Box 3. Is Africa “Different”?
Africa is urbanizing fast. By 2050, one in five people living in urban areas will be a resident of an
African city, up from one in ten today (United Nations 2011). This will add 850 million people to
Africa’s cities in less than 40 years. With Africa less than halfway through its urbanization, the
typical African city will more than double its population and many new cities will be built (Collier
2014).
Today, a debate is brewing among policy makers and academics on whether urbanization in Africa
is fundamentally different from the traditional patterns observed everywhere else. Scholars point
to two main issues.
First, Africa is urbanizing while poorer, limiting the extent to which durable structures in housing
and infrastructure can be financed. Countries in East Asia and the Pacific surpassed urbanization
rates of 50 percent in 2009 with an average GDP per capita of $ 5,300 in 2005 USD. The Middle
East and North Africa became 50 percent urban in 1981 with an average GDP per capita of $ 3,700
and Latin America and the Caribbean crossed the same threshold in 1961 at GDP per capita of $
2,300. Sub-Saharan Africa, by contrast, is currently 37 percent urban with an average GDP per
capita of $992 (WDI, 2005 Dollars). What this means that people have been concentrating in urban
areas without the accompanying investment in physical structures and human capital needed to
reap the expected economic benefits of agglomeration and governments have been less able to
manage negative externalities.
Second, urbanization in Africa may have been triggered by development of natural resource
exports rather than by improvements in manufacturing productivity. African cities in this regard
are consumption cities, not productive cities.
Source: World Bank.
Selecting indicators to measure efficiency, inclusion, and sustainability
31. At its core, the benchmarking section compiles specific information on three key modules: (a)
concentration of people and firms; (b) extension of basic services and connectivity across a
portfolio of settlements; and (c) magnitude and types of externalities (slums, crime and violence,
traffic congestion, and environment degradation). These three modules relate to questions
regarding efficiency, inclusion, and sustainability, as highlighted at the beginning of this section.
Figure 3 at the end of this chapter highlights key questions that the benchmarking phase of the
Urbanization Review should attempt to answer, as well as indicators related to these questions.
32. Building on the World Bank’s global expertise, an Urbanization Review should describe
whether different indicators of economic and urban growth are “normal” for the country’s
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stage of development. Apart from providing a snapshot at the current situation, it is critical that
TTLs and team provide a comparative evaluation of whether the country is experiencing economic
gains from urbanization. After carefully evaluating the current state of urban infrastructure, pattern
of urban expansion, and economic development outcomes, TTLs and teams should compare the
country’s current and historical situation to other experiences around the globe. Does existing
infrastructure correspond to the country’s level or urbanization? What do the international evidence
shows about matching public investments with rural-to-urban migration?
Box 4. Urbanization rate versus GDP per capita, global benchmarks
Comparing patterns of urbanization rates with comparator countries is a helpful way to identify
whether the urbanization process in a country is proceeding relatively “fast” or “slow.” For
example, the two charts below help show that for its level of income, Ghana is more urbanized
than comparator countries at similar levels of income, while Vietnam is significantly less
urbanized; in other words, Ghana has been urbanizing without attendant increases in wealth,
while Vietnam has been getting wealthier without rapid urbanization.
Source: World Development Indicators; World Bank staff calculations
Economic and demographic structure
33. Good Urbanization Reviews provide a comprehensive diagnostic on the evolution of
demographic and economic growth over the past decades. By examining trends on economic
and urban growth, an Urbanization Review should answer questions such as: what’s the evolution
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All countries, 2013
Vietnam, 1990-2013
Linear (All countries, 2013)
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Linear (All countries, 2013)
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of population growth and urban growth? How has the urban economy changed over the past
decades? What are the main industries and sector driving economic activity in cities?
34. Urbanization Reviews should try to rely on commonly used indicators to measure
demographic and economic growth in cities. A good exercise to have a panoramic view at the
current situation is to rely on readily available indicators that measure the growth of economic
activity and the pace of urbanization during recent years. A list of commonly-used indicators is
summarized as follows:
Box 4. Commonly used indicators for measuring economic and demographic growth in
cities
Economic growth and the urban economy GDP per capita, PPP (current international $). GDP per capita based on purchasing power
parity (PPP). PPP GDP is gross domestic product converted to international dollars using
purchasing power parity rates. An international dollar has the same purchasing power over
GDP as the U.S. dollar has in the United States. GDP at purchaser's prices is the sum of gross
value added by all resident producers in the economy plus any product taxes and minus any
subsidies not included in the value of the products. It is calculated without making deductions
for depreciation of fabricated assets or for depletion and degradation of natural resources. Data
are in current international dollars based on the 2011 ICP round.
GDP composition. Look at what are the industries or economic sectors that contribute more to
the country’s economy. Are these activities capital intensive or labor intensive? Do these
sectors locate in or nearby the major urban areas in the country? Have there been any changes
in terms on GDP composition over the past decades? When data is available, deepen in the
analysis to understand the cities’ economic portfolio. Do certain cities specialize in certain
economic activities? Or does specialization rarely occurs? Are certain cities attracting clusters
of productive activities? Or is urbanization mostly driven by consumption?
Employment by major industries and sectors. Look at what are the major industries or
sector terms of employment and number of firms. What are the industries generating more
jobs? Are certain sectors growing more rapidly over recent years? How many firms capture the
majority of the jobs? Does this vary across cities?
Exports and imports by city. Value of exports (imports) across major cities in the country.
This tells you whether a city’s economy relies heavily on international trade and whether this
could become an engine for economic growth.
Cities’ share of total employment. The percentage of the country’s total number of jobs
generated in cities.
Urban poverty rate (% of urban population). Is the percentage of the urban population
living below the national urban poverty line. It can be found under the name of “Poverty
headcount ration at urban poverty line (% of urban population)” in the WDI tables.
Urban growth Urban population (% of total). Commonly referred to as the urbanization rate, this indicator
refers to the people living in urban areas defined by national statistical offices. It is calculated
using World Bank population estimates and urban ratios from the United Nations World
Urbanization Prospects.
22
Spatial structure and urban form
35. Considerable international evidence suggests that an integrated system of cities enhances
economic efficiency and allows for functional specialization. Few places have the capacity for
highly diversified economic activity as they lack scale and access to resources. Instead, places must
specialize within a broader regional and national economic system—relying on others for inputs
and access to markets. In the end, all places are economically interdependent. This interdependence
can be harnessed by improving connectivity between cities of all sizes to reinforce agglomeration
economies and allow for the pooling of materials, labor, and ideas—and trade among firms.
Accordingly, successful integration across the national system of cities requires connecting
metropolitan cores with expanding peripheries and lagging areas with growth poles, so as to
facilitate the efficient movement of people, goods, and services.
36. Start by describing the population and economic density of major cities. Examine the pattern
of concentration of population and jobs and determine whether the city follow a mono-centric or
polycentric form. Analyze the pace of urban sprawl and the formation of information settlements
within the city. Have slums grown in certain areas of the city, increasing the concentration of
poverty and limiting access to basic services? How far does the city expand beyond the
administrative boundaries? How fast have the city grown over the last decade? Are there salient
patterns of newly developed land that could potentially raise the demand for urban services in the
short and medium term?
37. Describe the current state of urban infrastructure and examine the spatial disparities in
access to basic services. Describe the changes in land use over time and analyze the connectivity to
jobs and markets across different areas of the city. An Urbanization Review should answer
questions such as: do poor households locate to the periphery of the city, virtually disconnecting
from jobs and opportunities? Have urban policies have been successful in providing affordable
housing to the poor?
Primacy index. Measures the share of the country’s total population living in the largest
(primate) city. The Primacy Index is calculated by dividing the number of people living in the
largest city by the country’s total urban population.
Distribution of cities by city size. City leaders in developing countries need to prepare to
manage mid-size and large cities efficiently. A powerful way to convey this message is by
plotting the distribution of cities by population size over at least two periods in time. This can
be a powerful tool to inform policymakers of the magnitude of the challenge they face in terms
of managing urbanization more efficiently in order to avoid costly mistakes from the past.
Source: World Bank
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Figure 3. Illustrative key questions an Urbanization Review should answer
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Chapter 4. Diagnostics—Getting to the Root of the Problems
38. Diagnostics are about building the evidence to support key messages aligned with a common
policy narrative. This section provides guidance on commonly-used analytical lenses that TTLs
can rely on to identify the bottlenecks limiting sub-optimal urbanization and the driving forces of
urban expansion. For example, accelerating the shift in industrial activities to cities where land and
labor are cheaper would provide a stronger economic basis for those cities, and therefore promote
small and medium-size cities. At the same time, this shift in industrial activities would also reduce
migration pressures for the largest cities that would increasingly specialize in high-value services
and innovation, and attract higher-skilled labor rather than low-skilled industrial workforce.
39. The Diagnostics Section is primarily viewed through the analytical lenses of:
Factor markets: Land (especially densification, fluidity, and prices); Labor (especially
mobility, disparities in access and opportunity, and skills); and Capital (especially
creditworthiness/ transparency, access, and coordination and intermediaries).
System of cities: with a particular focus on connectivity; coordination, complementarity, and
resource sharing; and differentiated policies for different types of places.
Spatial analysis of individual cities: to assess the efficiency gains or costs of urban form on the
urban economy.
Identifying factor market policy distortions
40. Efficient factor markets support structural transformation and increased productivity.
Efficient urbanization makes the best possible use of the country’s productive resources – its
people, land, and capital. Reforms that remove barriers that prevent the optimal use of labor, land
use, and capital increase welfare by achieving higher factor productivity. Well-managed cities and
metropolitan areas can lead to rising efficiencies in infrastructure and service delivery through
agglomeration economies, reducing pressures on urban land and infrastructure.
41. An Urbanization Review should identify policy distortions in the three factor markets (land,
labor, and capital). While the concentration of people and economic activity in cities may lead to
greater economic prosperity by enabling social and economic interactions, the unprecedented
speeds at which cities are growing require managing urbanization more efficiently than in previous
years. In order to create jobs and meet the increasing demand for public services and infrastructure
in cities, three main factors of urban development need to be addressed:
a. Land markets and regulation – urbanization generates an
increase in the demand for land, and a problem arises when
land is scarce in places it is needed the most.
b. Access to jobs – making a city’s markets of labor, goods,
and services accessible to all neighborhoods within the
city, as well as to surrounding cities and towns, improves social welfare by giving consumers
options and, in many cases, better prices.
Useful Tip: “Look at prices. Prices
reflect general equilibrium
information”.
26
c. Well-functioning investment markets – finding sources for large capital outlays needed to
provide infrastructure and services as cities grow and urbanization picks up speed.
Land markets
42. Urbanization generates an increased demand for land. More efficient land use, denser cities,
modernization of agriculture, and better income and wealth distribution between rural and urban
areas all require more efficient and equitable utilization of land. Well-functioning land markets can
improve the efficiency of land use by increasing the compensation rural residents receive from land
conversion in rapidly urbanizing countries. Land reforms can also lead to denser cities, which helps
to reduce energy intensity and car use in cities, thus improving environmental sustainability. For
example, in countries such as China and Ethiopia, land requisition and conversion for industrial use
has been particularly inefficient because it has been driven by administrative decisions rather than
market demand. In both cases, the incentives for local governments to expand the city rather than
develop existing underused urban land are strong. In China, requisition of rural land and sale for
commercial and residential purposes yield to a large windfall gain for city finances. In contrast,
requisition of urban land is more expensive and cumbersome, because urban residents have
stronger property rights. Furthermore, national regulations that protect farmland from conversion
have the unintended consequence of fragmenting the urban periphery because available land for
conversion is often not adjacent to the core city.
43. Tight coordination of infrastructure investments, flexible density regulations, and public
housing allocation ensure that a city maximizes the benefits of agglomeration and effectively
connect people to jobs while avoiding congestion and sprawl. Regulations on building height or
density regulations are often put in place to conserve on existing infrastructure. But often, planners
misjudge the extent of regulation and end up setting these limits below what would be seen in an
unregulated market. Look, for instance, at the markedly low densities afforded by city regulations
in Mumbai (see Figure 4), versus the much more flexible and generous densities supported in New
York City. Mumbai’s low levels of density push out economic activity and housing to the fringes of
the city, significantly weakening the potential benefits of agglomeration and density while
promoting urban sprawl that is so detrimental to livability and sustainability.
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Figure 4. Stringent regulations on building height or density regulations weaken the potential
benefits of agglomeration.
Source: World Bank.
Labor markets
44. Fluid factor markets and worker mobility leads to better distribution of welfare and
improved access to services. Better allocation of land, labor, and capital is likely to accelerate the
shift of industry to secondary cities, and as job opportunities open up in these areas, migration
pressures in urban areas are likely to moderate. As surplus labor diminishes with more rapid
urbanization, the wage share in GDP will rise and urban-rural disparities will narrow. That would
also promote consumption – ideally driven by a growing middle class, whose demand will spur a
mode service-based urban economy. International experience suggests that when workers are able
mumbai
nyc
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to move freely across cities and sectors in search of better opportunities, wages and productivity
should converge across localities.
45. However, uncoordinated land and labor regulations can discourage worker and people’s
mobility. This will lead to sub-optimal allocation of resources and increased disparities between
urban and rural areas in terms of living standards and access to job opportunities. In China,
administrative barriers to worker mobility work as an expensive tax on migration. Lack of
portability of social security; insufficient low-income housing in cities; and differences in the
entitlement of public services in the city between urban residents and rural migrants; are among the
most important barriers to migration and worker mobility.
46. An Urbanization Review should look at the regulations and artificial barriers constraining
the fluidity of factor markets and increasing urban-rural welfare disparities. What are the
main factors limiting access to jobs in cities? What are the most important constrains for job
creation? For instance, in the case of China, barriers to migration have kept China’s urbanization
rate too low, thus underutilizing people’s potential and exacerbating urban-rural income inequality.
Unequal access to public services with urban household registration (hukou) and those without,
although diminishing, remains a barrier to mobility. At the same time, the large influx of migrants
puts pressures on urban services, and urban citizens perceive an erosion of service quality (World
Bank & Development Research Center of the State Council, the People's Republic of China, 2014).
Investments markets
47. Financing urbanization implies the mobilization of massive capital resources as well as
coordination between the private and public sectors. Local governments eager to attract
investments often provide subsidies in the form of inexpensive land, subsidized utilities, tax
reductions, and inexpensive credit for those who have access. However, when fiscal policies are not
coordinated with land and labor markets, these incentives might lead to the overuse of capital at the
city level. For instance, in China, local government debt has increased substantially over the past 20
years. To attract investments and jobs, local governments have heavily invested in infrastructure.
Recent data shows that capital investments in Chinese cities are twice as high as the optimal
incremental capital-output ratios (ICORs)1.
48. Urbanization Reviews should look at the efficiency on the allocation of capital of households,
firms, and government. In doing so, teams can identify whether capital investments in public
infrastructure aimed at attracting private investment to cities is having the contrary effect and
crowding out other sources of capital. What are the rules of game that determine the allocation of
investments of firms in prime real estate, and government investments in infrastructure? Do capital
markets function well to support households financing of housing?
System of cities approach
1 International evidence suggests that the capital use is efficient when ICORs are around 3, meaning that cities would need
capital formation of around 30 percent of GDP to achieve 10 percent growth. Actual investments in China’s cities have been at twice that level (World Bank & Development Research Center of the State Council, the People's Republic of China, 2014).
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49. Diagnostics should start with a portfolio approach (a “system of cities”) and then calibrate
solutions for individual settlements based on their role in the broader national hierarchy of
places. Function, not size, should serve as the metric for measuring a city’s performance—and
different types of cities serve different types of functions within the national system of cities.
Figure 5. The "Systems of Cities" approach
Spatial analysis of individual cities
50. The spatial form of cities determines the efficiency and sustainability of the urban economy.
Urbanization involves the change from low to high land values. When cities are growing, land in
the proximity of the city center increases its value as it provides closer connectivity to jobs, markets
and services. As urban household incomes increase and the country continues to urbanize, demand
for land, floor space, transport and infrastructure is bound to increase at an even faster pace (Ortiz
2011). As cites grow, demand for urban services and infrastructure increases, and the need for and
a more efficient and sustainable use of resources becomes even more critical.
51. An Urbanization Review should identify the policy constrains that limit an efficient
allocation of land. Land use planning does much to determine urban density, which in turns drives
much of the demand for urban infrastructure and largely determines the city’s functional efficiency
(Levy 2011). In doing an assessment of the current rules and regulations that determine the urban
form, an Urbanization Review should answer questions such as: do current land uses in the city
center reflect the maximum potential in terms of population and economic density? Are there
artificial barriers impeding an efficient use of land according to its value?
Box 5. What are commonly used indicators to measure urban form and efficiency of cities?
Start by describing the population and economic density of major cities. Examine the
pattern of concentration of population and jobs and determine whether the city follow a
mono-centric or polycentric form. Analyze the pace of urban sprawl and the formation of
30
information settlements within the city. Have slums grown in certain areas of the city,
increasing the concentration of poverty and limiting access to basic services? How far does the
city expand beyond the administrative boundaries? How fast have the city grown over the last
decade? Are there salient patterns of newly developed land that could potentially raise the
demand for urban services in the short and medium term?
Describe the current state or urban infrastructure and examine the spatial disparities in
access to basic services. Describe the changes in land use over time and analyze the
connectivity to jobs and markets across different areas of the city. An Urbanization Review
should answer questions such as: do poor households locate to the periphery of the city,
virtually disconnecting from jobs and opportunities? Have urban policies have been successful
in providing affordable housing to the poor?
Urban form and built environment Nominal population density. This indicator can be obtained by dividing the city’s total
population by its gross land area.
Real effective population density. To get a better estimate of spatial concentration, a better
statistic can be obtained by subtracting areas of water and undeveloped land from the gross
land area, to obtain the net land area. The real effective density is obtained by dividing the
city’s total population by the net land area.
Density gradient. Refers to the variation in population density in an urban area from the center
to the periphery. As shown in Figure 6, a steep density gradient indicates a higher concentration
of people in the Central Business District (CBD), as depicted in the cases of Bangkok and
Hanoi. This type of steep density gradient would suggest a mono-centric urban pattern, with a
large number of jobs and amenities concentrated in the CBD. In contrast, a flatter gradient as
shown in the case of Barcelona indicates a less-concentrated pattern; while the multiple peaks
would suggest a polycentric urban form.
Figure 6. Population density gradients in Hanoi, Seoul, Bangkok, Beijing, Jakarta, and Barcelona
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Source: Vietnam Urbanization Review, World Bank 2011.
Spatial distribution of households by income level. Look at the spatial variation of
households by income level. Do richer households locate near to the city center or to suburban
areas? Are poor households being pushed to the periphery of the city? Are slums concentrated
in the city’s historical district or to the outskirts of the city?
Percentage of single-family households. Looking at the percentage of single-family
households versus the share of multi-family households can tell you valuable information
about the living conditions of residents in urban areas. When data is available, plotting the
distribution of single and multi-family households can help you to better understand the
characteristics of neighborhoods within urban areas in the country.
Land use pattern. What’s the current distribution of land use within the city? Does the city
exhibit pockets of residential and commercial areas? Do current land use regulations allow for
mixed-use in the city center? How has land use changed over time in the city center and
periphery of the city?
Building density. This indicator can be obtained by dividing the total built-up area by the total
land in the city. The extent of the city can be defined according to the administrative or
metropolitan boundaries.
Transport modal split. Another important indicator of the urban form and living conditions in
cities is to look at what percentage of households relies on different modes of transport for
daily commuting. Depending on the context, these might include commuting by bus, cars,
motorbikes, light truck, or foot.
Road density. Commonly refers to the total area of primary and secondary roads as percentage
of the total urban area within a certain bandwidth of the city center. For example, given an area
of 9Km2 around the city center, the pattern of major streets in Hanoi (9% of total area) are
denser than in Bangkok (7.8%), but much lower than in Manhattan (31.9%).
Figure 7. Comparison of road density in Hanoi, Bangkok, New York, and Seoul
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Source: Vietnam Urbanization Review, World Bank 2011.
Planning and land use regulations Minimum Lot Size (MLS). This regulatory standard established that lots cannot be
subdivided below the minimum lot size in certain designated areas. For example, if 400 square
meters was established as the minimum lot size, this means that a lot could not be divided into
smaller lots.
Floor Space Index (FSI) or Floor Area Ratio (FAR). Density regulations –one of the tools
used most frequently by urban planners– cap the quantity of property that can be developed on
a plot of land. Such cap is often called the floor space index (FSI) or floor area ration (FAR).
So, for example, if the FSI in an area of the city is 1:1, it means that developers can only build
a building whose total floor space on the parcel is less than or equal to the total plot area. While
in some cases it may be possible to build a one-story building on a plot that entirely covers the
plot, and therefore achieves an FSI of 1:1, developers will typically build a building with a
“footprint” or “plinth” that covers less than 100 of the site, but they will build more than a
one-story structure. For instance, a developer could cover 25 percent of a plot and build a
four-story building and still meet the FSI regulation of 1:1. Lastly, it is very important to
highlight that there is no such thing as an optimal FSI. The “right” FSI for a specific area will
depend on the existing spatial structure of the city, the street patterns and widths, the level of
infrastructure (is there enough capacity to accommodate higher density?), and cultural and
social factors (are skyscrapers acceptable?) (Bertaud 2004).
Other planning regulations include setbacks (minimum distances to the front, rear, and
sides of a plot) and maximum building heights. Both are designed to protect adjacent
properties and preserve access to sun, air, and open space (parks and plazas). In addition to
these, plot coverage ratio regulations limit the total are of a plot that can be developed (Dowall
2012, World Bank 2013).
Source: World Bank
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34
Figure 8. Analytical toolbox: illustrative questions for identifying policy constraints
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Chapter 5. Policy Options, Investment Priorities, and Sequencing
52. Thinking through policy and investment choices—which public investments translate into
economic gains? The country-specific and city-specific diagnostics of the Urbanization Review
ultimately serve to formulate policy responses. Although the Urbanization Review is not intended
to generate a policy or investment blueprint, it should help in identifying and resolving key policy
distortions. Key questions that Urbanization Reviews help answer include:
Which public policies and investments can amplify the contribution of the urbanization process
and the urban economy to economic progress and poverty reduction?
How can policies be prioritized and sequenced to address pressing challenges at different
stages of urbanization?
What are appropriate responsibilities for local and national governments in translating
priorities into action?
53. Prioritization is key: one should not make urbanization harder by trying to do everything at
once. This likely means focusing first on building institutional capabilities at the city level, with a
particular focus on land markets. Then building the connective infrastructure to connect cities to
markets and people to jobs. And, finally, building the creditworthiness of cities and enhancing local
revenues.
Generating a policy framework
54. It is important that policy priorities and sequencing are developed according to a clear
framework. Urbanization Reviews should not provide a long list of unconnected policy
proposals, but should instead seek to group proposals into thematic areas and highlight priorities
and sequencing. Past urbanization reviews have used several different frameworks. These
include, but are not limited to:
Planning, Connecting and Financing
Density, Distance, and Division (WDR 2009)
Institutions, Infrastructure, and Interventions
Refocus, Redistribute, and Relax (Urban China 2014)
55. TTLs should recognize that there is no one-size fits all approach to developing a policy
framework. Below, the PCF framework is used as an example. This is one useful framework that
can be employed. But the others mentioned above are also useful in certain country contexts, and
TTLs may also develop their own frameworks if a specific country situation warrants a new
approach. The key is to use a framework that enables prioritization and sequencing, rather than
developing a laundry list of unconnected policy options.
Box 6. Policy Instruments for Planning, Connecting and Financing Cities
Why do we use the PCF framework? City leaders often focus on realizing targeted
37
investments—providing housing subsidies, increasing infrastructure spending, or creating new growth
poles. But history has shown us that a more integrated and holistic approach is needed—focused not just
on investments but also on institutions, markets, and rules. There is a need, therefore, to think
comprehensively about how policy and investment choices can influence the pace, magnitude, and
impact of urbanization and city development.
The PCF framework is structured around three key pillars:
i. Planning—charting a course for cities by setting the terms of urbanization, especially
policies for using urban land and expanding basic infrastructure and public services.
ii. Connecting—making a city’s markets (labor, goods, and services) accessible to other cities
and to other neighborhoods in the city, as well as to outside export markets.
iii. Financing—finding sources for large capital outlays needed to provide infrastructure and
services as cities grow and urbanization picks up speed.
Within each pillar, city leaders are advised to take three actions: to value, to coordinate, and to
leverage:
Figure 9. PCF framework
Cities need to plan for land management, which matters for countries and cities at all stages of
urban growth. To attract private investment, and enable provision of affordable housing and basic
services, policymakers need to strengthen land use planning and coordinate it with infrastructure,
transport, and natural hazard risk.
38
Cities need to connect people with jobs and schools, and businesses with markets. Careful analysis
is essential to determine short and medium term priorities for infrastructure investments—which must
anticipate the speed and magnitude of urban growth and which need to be coordinated with how land is
used in cities. Aligning land use and infrastructure can also help to promote inclusion and manage the
formation and growth of slums.
Cities need to find the money to pay for all these investments. Financing rapid urban growth
is challenging. But financing can become possible and more reliable when cities value and build
their credit worthiness, provide consistent rules for private investments, and enhance revenues
through taxes that come with increased economic growth. Experiences from countries such as
Colombia demonstrate that national governments can play a critical role in helping cities
approach local currency debt markets.
Source: World Bank.
Policy prioritization and sequencing depends on local context and level of development
56. Whichever “solutions framework” a TTL chooses to employ, the key is to adapt and
sequence solutions based on local context. Policy priorities and sequencing cannot be
considered in a vacuum. Local context will determine a country’s or city’s economic and political
capacity for reform, as well as the potential efficacy of policy choices. Levels of development in
particular may influence the outcome of policy efforts.
57. The maturity of the urban system determines the complexity of the policies required. At high
urbanization rates, green-field development is not possible and regions are bound into patterns that
will prevail for several years. As discussed in the framework provided below, for countries at early
stages of urbanization, much of the policy effort is likely to involve establishing basic institutions
for land use transformation and delivering basic services. A sequence of policies that starts by
developing “soft structures” or common institutions, followed by the development of “hard
structures,” focusing on connective infrastructure, would be ideal to generate win-win results for
spatial efficiency and equity. Even in countries at early stages of urbanization, a few large cities
will dominate the economic landscape. As a result, infrastructure will be needed to connect these
poles with international markets, other national cities, and rural areas. Mobility needs to be
maintained within these economic engines. In addition, remedial interventions may be needed to
correct government failures, where institutions related to land use and service delivery were not put
in place, or when market failures from urban externalities were not managed as the largest cities
grew. However, these interventions will only constitute a small part of the overall policy effort for
urbanization, with most of the attention focused on the building of “soft structures.”
58. As urbanization takes off, large cities dominate a bigger share of a country’s landscape and
connective infrastructure becomes a more important component of the policy portfolio. The
pace of urbanization often outstrips the capacity of policies and investments to build soft and hard
39
structures. As a result, at advanced stages, when most people and economic activities are
concentrated in cities, targeted interventions gain greater importance. Compensating and
countervailing interventions aid in catching up.
Box 7. Levels of Development and Institutions, Infrastructure, and Interventions
The complexity of policy efforts increases with urbanization (see figure). The challenges of
incomplete markets and under-provision of public goods are dominant in early stages of urbanization.
These challenges are amplified as congestion diseconomies kick in for places that rapidly take off, and
remedial measures to correct for externalities and retrofit the built environment dominate as the urban
system or a city matures. Why does this prove to be the case? At incipient stages of urbanization,
common institutions that regulate factor markets (land in particular) and deliver basic services are the
main priority. Fluid land markets (including property rights and land use and transfer regulations) have
a strong bearing on facilitating rural and urban transformations and the agglomeration of economic
activities and people. When urbanization is low, agricultural economic activities prevail and economic
densities are low. Because it is not clear which areas the market will pick, providing flexibility in land
markets and universal access to basic services will allow firms and people to locate where it is most
efficient. Because markets are incipient, the government must step in to address market failures. For
example, incomplete or asymmetric information on land prices might prevent land markets from
flourishing. Efforts to provide an independent institution for land valuation would help minimize the
effects of this market failure. From the perspective of a firm, providing basic services and enabling land
markets to become more fluid are efforts that will allow it to exploit internal economies.
Sequencing policies and investments for
urbanization
Institutions (i.e. land policies and
basic services)
Infrastructure (both public and private sector)
Interventions (correcting
government and market failures)
Incipient Stage
Enable private markets and provide social services—SOFT infrastructures
Intermediate Stage
Connective
infrastructure—HARD infrastructures
Advanced Stage
Compensating and countervailing interventions
40
As urbanization advances toward more-intermediate stages and markets grow stronger,
connective extra-urban and intra-urban infrastructure become essential. Transport infrastructure
connecting cities and rural hinterlands can integrate product markets, enhance inter-regional trade, and
facilitate economic specialization. If cities are not connected, they will be forced to behave as autarkies,
instead of specializing in the activity in which they are more productive. Improvements in connectivity
will allow firms to access product and input markets that are farther away, allowing them to exploit
internal, local, and urban economies of scale, both within the region as well as in places at some
distance. This is not to say that land markets and basic services will lose importance. On the contrary, as
firms and people start locating in urban centers to exploit localization economies, flexibility in land
markets will be of increased importance. Land assembly is a key element of infrastructure provision.
The institutions that guarantee the fluidity of land markets will also facilitate infrastructure expansion.
Further, government’s failure in providing public services could lead to inefficient rural-to-urban
migration. This migration may lead to increased congestion rather than higher productivity.
At advanced stages of urbanization, green-field development is not possible and urbanization
might yield undesirable results. Externalities from urbanization may lead to under-pricing private
actions, resulting, for example, in congestion or pollution. Institutional bottlenecks and government
failures might also impose barriers on the fluidity of factor markets, leading, for example, to housing
shortages. In many cities, government failures at previous stages of urbanization, such as
over-regulated land markets, end up pushing many households into slums. Consequently, within a
single city, large gaps in access to services continue to expand between the formal urban fabric and
informal settlements. Remedial interventions can reduce these differences and improve livability. In
addition, market failures might cause individual firms and households to ignore the social costs of their
location decisions, locking cities into emission streams and unsustainable urban forms.
59. Local context and levels of development must also be taken into account for prioritizing
policies. For example, in cities with low levels of urbanization, and considering the PCF
framework, putting financing first may neglect the overriding need to coordinate infrastructure
improvements (connecting) with policies (planning). And that will lock a city into undesirable
physical forms that can set back its development for decades, even centuries, as a city’s physical
structures, once established, may remain in place for more than 150 years. A primary focus on
financing—though understandable as an attempt to meet urgent needs—is likely to result in
unplanned cities if it is not coordinated with planning and connecting.
60. When institutions are weak, strengthening coordination between government actors to
concentrate on planning should be a priority. A good governance structure is a prerequisite. City
leaders, at all government levels, will have to work together. If this fails, everything else will
stumble. The needs are too urgent, and the resources too limited. This demands careful
coordination of action—by governments, firms, and citizens. Government agencies must
coordinate with one another to ensure the integrated planning of housing, transport, and industry at
41
all stages of a city’s growth. Different jurisdictions and layers of government must coordinate plans
and policies across boundaries to realize strategic investments at metropolitan or regional scale.
And governments and the private sector must coordinate the use and exchange of land to ensure
that land is used for its most productive purpose, including by facilitating densification and
agglomeration economies.
Policies should focus on different levels of government
61. Urbanization Reviews need to target policy recommendations at different levels of
government. City-specific policies will relate to local regulation and infrastructure provision.
National policies will often relate to the distribution of responsibilities among government levels,
and particularly the potential efficacy of different degrees of fiscal and administrative
decentralization.
62. In thinking about sequencing policy options and priorities, Urbanization Reviews commonly
address the role of different branches of governments and their interaction with market
dynamics. In particular, Urbanization Review look at three different levels of action when
prioritizing policy options:
o Policy areas in which governments should refocus their efforts
o Powers and responsibilities that governments should redistribute to different
administrative levels
o Policy areas in which the government should relax its role and rely more on markets
City-specific policies should differentiate across city types
63. Urbanization Reviews typically use the “system of cities” lens to offer tailored
recommendations for each type of settlement (see the Tunisia Urbanization Review as an
example). In metropolitan regions, for instance, governments should typically focus on managing
density for agglomeration via zoning and proactive, integrated land use and infrastructure planning.
This often requires strengthening regional economic integration via more robust metropolitan
Figure 10. Assignment of
Responsibilities
42
governance and emphasizing connective infrastructure, including by tackling local congestion.
Governments in medium-sized cities must typically concentrate their efforts on providing firms
with access to services, workers, and land while reducing economic distance to local, regional, and
international markets. Given their limited resources, medium-sized cities will often benefit from
pooling their resources and risks so that they can access credit markets as a group. In rural and
lagging areas, governments must typically focus on strengthening institutions that regulate and
value land to improve fluidity and on extending basic services and access to quality health and
education. This often means policies that invest in people rather than places, including by
promoting mobility.
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