With William Kerr and Alexander Segura.
Developing countries have become much more globally integrated. On a global dimension, they now trade a lot more with other countries than they did two decades ago. Domestic connectivity at the country level has been helped through investments in road networks as urban and rural areas are becoming better connected not just through roads but phones lines and faster flows of knowledge.
How global and local connectivity influence spatial development and distribution of jobs is a tricky question. A naïve approach might look industry-by-industry at their exposure to trade or highways and ask what happens to the average wage in the industry as highways form. This approach, however, risks confounding several forces. It could be, for example, that a decline in the average wage represents a positive outcome if 1) those firms and workers who were already in the industry are experiencing wage growth, and 2) the industry overall expands to pull in workers from subsistence agriculture. A declining average wage can signify the second factor is dominating the first factor, but this might be cause for celebration by policy makers rather than a source of concern.
Many observers have examined how rapid increases in imports and exports have influenced firms and the overall economy. Others have explored economic geography with a focus on domestic connectivity, infrastructure, and urbanization. There has been much less work at the interface of these two strands, and yet there is a clear link between the two.
Connectivity within a country can have quite different consequences compared to the global connectivity of trade. For example, internal infrastructure is more likely to be associated with changes in the spatial allocation of activity within a country, while external trade can substantially shift the overall sizes of sectors. On the other hand, both forces can reduce the misallocation of activity.
So how has global and local connectivity impacted spatial development and shared prosperity? The answers could lie at the intersection of five important themes in the current development discourse: trade, transport, urbanization, agglomeration benefits, gender and informality. How these intersections have evolved is still not well understood. Do trade, transport and market access to inputs impact creation of new enterprises differently in the informal and formal sectors? Do their effects operate differently across manufacturing and service enterprises? Does the manufacturing sector cluster around service-dense locations? Or do services cluster around manufacturing-dense locations? Does the “trade and urbanization gradient" operate separately for the creation of female owned enterprises and male owned enterprises? Do linkages between formal and informal enterprises generate more or less employment under different trade and urbanization gradients? How do they impact agglomeration economies in labor pooling and input/output relationships?
These intersections open up a rich policy agenda on how trade/transport/urban/gender policies should be further refined to promote shared prosperity with an increased focus on informal sectors, lagging regions and women owned enterprises. The answers could shed more light on spatial development, shared prosperity, the nature of the clustering process and the policies needed to help facilitate positive externalities that emerge from clustering