Final Report - JICA Research Institute

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportThis paper was commissioned for the ADB-JBIC-World Bank East Asia Pacific InfrastructureFlagship Study. The views expressed are those of the author only.

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTABLE OF CONTENTS1. Introduction ..........................................................................................................11.1 Background and Objectives............................................................................................11.2 Coverage of the Paper ...................................................................................................12. Urbanization Trends in the EAP Region ...............................................................32.1 Urbanization Trends in the EAP Region .........................................................................41) Rapid Increase in Urban Populations.............................................................................42) Urbanization vs. Economic Growth in the EAP Region ..................................................52.2 Changes in National Land Structure along with Urbanization.........................................71) Concentration or Diversification of Cities........................................................................72) Widening of Disparity ...................................................................................................102.3 Urbanization in Metropolitan Areas...............................................................................131) Emerging Huge Metropolises .......................................................................................132) Densification of Core Urban Areas ...............................................................................133) Extension of Urban Areas beyond Jurisdictional Boundaries .......................................142.4 Changing Environments Surrounding Urbanization......................................................161) Globalization as a Dynamo for Urbanization ................................................................162) Changing Urban Functions with Technical Innovation..................................................183. Impact of Urbanization on Infrastructure in the EAP Region ..............................203.1 Increasing Needs for Urban Infrastructure....................................................................203.2 Implications of National Spatial Development...............................................................211) Increasing Needs for Infrastructure to form efficient National Land Structures.............212) Expansion of Disparities in Infrastructure Service Levels.............................................213.3 Impact on Infrastructure Development in Emerging Huge Metropolises.......................231) Expansion of Urban Areas............................................................................................232) Impact on Livability of Cities.........................................................................................253.4 Impact of Urbanization on Emerging Surrounding Environments .................................283.5 Summary of Urbanization Impacts on Infrastructure in EAP Countries.........................294. Key Issues and Strategies for Infrastructure Development and Service Provision...........................................................................................................................314.1 Financial Resources for Sustainable Infrastructure Development ................................311) Infrastructure Investment in the EAP Countries ...........................................................312) Financial Resource Development ................................................................................324.2 Balanced National Land Development .........................................................................361) Impact of Infrastructure on Regional Spatial Structure .................................................362) Roles of National Urban Policy.....................................................................................363) Infrastructure Development in Compliance with National Land DevelopmentStrategies .....................................................................................................................394.3 Growth Management of Urbanization in Metropolitan Areas.........................................46

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report1) Interaction of the Expansion of Urban Area with Trunk Infrastructures.........................462) Long-term Perspective and Comprehensive Approaches ............................................473) Land-use Management ................................................................................................484) Efficient Operation of Existing Infrastructures ..............................................................495) Comprehensive Infrastructure Development ................................................................526) Infrastructure Provision for Urban Poor........................................................................537) Governance Improvement and Capacity Development ................................................554.4 Infrastructure Development Strategy in response to Globalization and IT Innovation...561) Balanced Development under Globalization ................................................................562) Strategic Infrastructure Development Targeting IT Industry..........................................585. Summary of Recommendations .........................................................................59AppendixA. Japanese Experience of National Land DevelopmentB. Growth Management and Urban Transport Infrastructure DevelopmentC. Experience of Developed Countries on Financing Urban Transport InfrastructureD. Basic Data of EAP Countries

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportLIST OF FIGURESTable 2.1.1 Scale and Speed of Urbanization of EAP Countries................................................. 5Table 2.1.2 Average Annual Growth rate of GDP and Urban Population, and Poverty Index byRegion...................................................................................................................... 6Table 2.2.1 Regional Disparities in the EAP Countries, 2000.................................................... 12Table 2.3.1 Cities with more than 8 Million Population, 1950-2000........................................... 13Table 3.2.1 Regional Disparities in Infrastructure and Social Service Levels, Thailand in 199922Table 3.2.2 Regional Disparities in Infrastructure and Social Service Levels, Malaysia in 199922Table 3.3.1 Access to Infrastructure (Citywide and Informal Settlements) (% of households withconnection)............................................................................................................. 27Table 4.2.1 National Urbanization Policies in the EAP Countries.............................................. 37Table 4.3.1 Traffic Situation Changes in Namsan Tunnel Corridors.......................................... 50Table 4.3.2 Motorcycle and Car Ownership and GDP per capita, 2002.................................... 51LIST OF TABLESFigure 2.1.1 Urbanization in the World.......................................................................................... 4Figure 2.1.2 Urbanization Trends and Economic Development in Developing Countries byRegion, 1960-2000................................................................................................... 5Figure 2.1.3 Urbanization and GDP per Capita of Selected Countries (1960-2000).................... 7Figure 2.2.1 Population in Largest and Second-largest Cities, 2000............................................ 7Figure 2.2.2 Share of Primary Cities (agglomeration) and Urbanization Rate, 1950-2000 .......... 8Figure 2.2.3 Share of Primacy Cities (agglomeration) and Urban Populations, 1950-2000......... 9Figure 2.2.4 Population Distribution in the EAP Countries, 2000 ................................................. 9Figure 2.2.5 Urban Population Ratios and Gini Indices of Selected Countries, 2000 .................11Figure 2.2.6 Economic Development and Regional Disparities 1) , Thailand, Malaysia, andJapan...................................................................................................................... 12Figure 2.3.1 Expansion of Urban Areas in Metro Manila ............................................................ 15Figure 2.3.2 Urbanization Pattern, Metro Manila ........................................................................ 15Figure 2.3.3 Expansion of Urban Area in HCM Metropolitan Area.............................................. 16Figure 3.1.1 Historical Changes in Vehicle Ownership and Road Lengths ................................ 20Figure 3.2.1 GRDP and Infrastructure Service Levels by Region, Philippines........................... 22Figure 3.3.1 Population Growth Rates, South of Metro Manila, 1980-2000 ............................... 24Figure 3.3.2 Industrial Areas in CALA......................................................................................... 24Figure 3.3.3 Expansion of Urban Area in Jakarta Metropolitan Area, 2002................................ 24Figure 3.3.4 Expansion of Urbanized Areas in Ho Chi Minh City ............................................... 25Figure 3.3.5 Relationships among Population Density, Road Density, Average HouseholdIncome, and Average Length of Stay in Metro Manila ........................................... 28Figure 4.2.1 Economic Development and Regional Disparity, Japan......................................... 39Figure 4.2.2 Public Investment Distribution among Regions, Japan .......................................... 43Figure 4.2.3 Public Investment Allocation by Sector................................................................... 44Figure 4.3.1 Expansion of Urbanized Area, 1952-1985 .............................................................. 46

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportABBREVIATIONSADBEAPFDIHICJBICJICAHDIUNWBGDPGRDPBMAEBMRITMSCCALAQOLODAFLIPESDTDMKIPNGOAsian Development BankEast Asia and PacificForeign Direct InvestmentHigh Income CountryJapan Bank for International CooperationJapan International Cooperation AgencyHuman Development IndexUnited NationsWorld BankGross Domestic ProductGross Regional Domestic ProductBangkok Metropolitan AdministrationThe Extended Bangkok Metropolitan RegionInformation TechnologyMultimedia Super CorridorCavite and Laguna RegionQuality of LifeOfficial Development AssistanceFinancial Loan and Investment Program (in Japan)Eastern Seaboard DevelopmentTransport Demand ManagementKampung Improvement ProgramNon Government Organization

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report1. Introduction1.1 Background and ObjectivesInfrastructure gaps and bottlenecks have been a constant problem in the economic growthand poverty reduction efforts in many developing countries in East Asia and the Pacific(EAP) region. Properly addressing this basic constraint provides the rationale for this jointstudy by the Asian Development Bank (ADB), the Japan Bank for InternationalCooperation (JBIC), and the World Bank (WB). This study aims to formulate and developsound policy basis for the provision of effective and sustainable infrastructure servicesacross the EAP region. Addressing this issue, however, has become more complex due toa number of external and internal factors that vary per country. External factors includeaccelerating urbanization, globalization of economies, increasing competition, as well asgrowing democratization, and decentralization. Meanwhile, internal factors couldencompass the lack of resources, inadequate institutions, lack of administrative capacities,geographic characteristics, and many others,. The ADB, the JBIC, and the WB havedelineated the main themes of this umbrella study along these issues and constraints.The main objective of the study is to review and identify the likely impacts of urbanizationon infrastructure development in the EAP region. Its specific objectives are:(a) Review the trend of urbanization from various aspects and identify the characteristics inthe region,(b) Review the impacts of urbanization on infrastructure development and serviceprovision.(c) Assess the key concerns that have typically arisen under various types ofinfrastructures within a city and across cities under the process of urbanization.(d) Provide a general framework to address urbanization in infrastructure project designand implementation with complementary institutional mechanisms.1.2 Coverage of the PaperUrbanization trends and the forces that drive them have already been discussed in manyresearch papers and institutes, including the Stanford Asia/ Pacific Research Center, theUnited Nations University, as well as international organizations such as the ADB and theWorld Bank 1) . However, these existing literature and centers only list the key issues ininfrastructure development and do not comprehensively describe implications forinfrastructure development, along with policies and strategies, including institutions anddevelopment strategiesThis report analyzes key issues of infrastructure development under urbanization as wellas detailed urbanization policies and strategies. Trends and characteristics of urbanizationare summarized based mainly on the existing references. This report is organized asfollows:1) Review of Urbanization Trends: Trends and characteristics of urbanization in the1) Main references regarding East Asian urbanization are listed in World Bank website.(http://wbln0018.worldbank.org/External/Urban/UrbanDev.nsf/0/478FD26E057A42F48525694D000F5D9E?OpenDocument1

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportEAP region is reviewed and compared at the global, regional, and city levels. Recentchanges of roles and functions of cities in emerging new environment are alsodescribed.2) Impacts of Urbanization on Infrastructures: This chapter summarizes the impact ofurbanization on infrastructure, including the increasing need for infrastructure,implications from national land structures, impacts on urban livability. Impact of urbaninfrastructure to enhance urban agglomeration effects and encourage innovations isalso discussed.3) Issues and Strategies in Infrastructure Development: Issues and strategies areanalyzed based on experiences in Japan and the subject countries in the EAP basedon responses to impacts of urbanization (as summarized in Chapter 3) and in order tomaximize the positive ones and minimize negative ones. Key issues are listed andfurther discussed in the Appendix.4) Summary of Recommendations: Following the analysis in Chapter 4,recommendations on the key issues for future infrastructure development in the EAPcountries are summarized.2

2. Urbanization Trends in the EAP RegionStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportUrbanization refers to a process in which an increasing proportion of an entire populationlives in cities and suburbs of cities. Historically, it has been closely connected withindustrialization (Fairfield Faculty, The Urbanization of the World). Likewise, urbanizationencompasses changes in form and social character that illuminate larger changes in socioeconomic conditions. Changes in the economy and in the scale of cities altered theorganization of social life and the space within them. Thus urbanization has vast andmultifaceted impact, which significantly vary by country and by city.Urbanization in the EAP region started in the 1970s with an overwhelming magnitude andspeed compared to trends in the developed countries. In general, urban population growthis a result of the high population growth rate and the constant in-migration from the rural tourban areas. 2) While speed and scale are diversified per country and region, urbanizationtrends are expected to continue in the future. By 2030, the urban population ratio in Asia isexpected to reach 54.5%, which is 67% of the current level in the developed countries.Urbanization is integrated with changes in industrial structure and the lifestyles of urbanresidents. It is also closely related with economic development. It has commonly beenobserved that there is a strong correlation between urbanization and economicdevelopment. The World Bank stated that cities are sources of productivity and innovationand it is necessary to “get the best from the cities” (WB. 2003a). However, urbanizationwithout growth has been observed in some African countries (Fay and Opal. 2000).Considering that urbanization is an irreversible trend, the key agenda on urbanization is itsimpact on social, economic, and environmental aspects. Specifically, the key issues ofurbanization are as follows:1) Whether it contributes to economic growth,2) Whether it achieves poverty reduction.3) Whether it leads to the reduction of disparities in living environment, social welfare,security, and environment.4) How to respond to urbanization in order to maximize the above-mentioned impacts.Urbanization has caused several problems, but it also has contributed to nationaldevelopment in many countries. The latter depends on a country’s policy responses tourbanization as well as the country’s social, political, and geographical background.2) In the 1960s and 1970s, the major factor for urbanization was natural population growth in urban areas ratherthan in-migration. Since the 1980s, the share of in-migration has exceeded natural growth, which is especiallytrue in Asia. The contribution of migration in the 1960s and 1980s was 40.4% and 54.3% on average fordeveloping countries, and 40.4% and 63.6% in Asia, respectively. Reclassification of cities, which affectsstatistics, also contributes to the increase in urban population. (Kato. 2001)3

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report2.1 Urbanization Trends in the EAP Region1) Rapid Increase in Urban PopulationsOngoing Urbanization and Increases in Urban PopulationsAlthough urbanization in the EAP region has gone full scale since the 1970s, its share ofurban population is still small compared with other regions. In 2000, while the urbanizationrates for the developed and developing countries were 74% and 41%, respectively, that ofthe EAP region was only 36.5%.It is expected that urbanization in the EAP region will continue in the future. Urbanpopulations in Eastern and Southeastern Asia will grow to 1,470 million in 2030 and theirshare of the population pie in the entire region will equal to 62% of the total (60% of thesewill be in China). The total urban population in this region shall account for 30% of theworld’s total urban population in 2030. During the next three decades (from 2000 to 2030)urban populations are estimated to increase by 1.9 billion, of which 0.66 billion will bethose in Eastern and Southeastern Asia. (UN. 2002b)Figure 2.1.1 Urbanization in the World1,800,000(62.1)1,200,000(47.4)600,000(40.2)(33.5)(84.6)(75.5) (37.1)(53.5)19501975200020300Eastern and SouthEastern AsiaWestern andSouth-Central AsiaLatin America andthe CaribbeanAfricaNote: The number between parentheses indicates the share of urban population in 2000 and 2030.Eastern and Southeastern Asia include China, Democratic People’s Republic of Korea, Japan,Mongolia, Republic of Korea, Brunei Darussalam, Cambodia, Democratic Republic of Timor-Leste,Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore,Thailand, Vietnam.Source: UN. 2002b.Scale and Speed of Urbanization in the Developing EAP CountriesThe characteristics of urbanization in the Asian region (including South Asia) are diverse.The region includes Singapore and Hong Kong, which both have a 100% urban population,as well as Nepal and Bhutan, which both have a 90% rural population (Kato. et al.) Theregion’s relatively low urbanization levels also result from the low urbanization of hugecountries, such as China and India, and other smaller ones, like Bangladesh.This applies even among EAP region. Table 2.1.1 shows the basic urbanization typology inthe EAP countries based on size of urban population and their growth rates. In Indonesiaand the Philippines with high urbanization level, urbanization is still under way. Cambodiaand Laos are, which are in the beginning stages of urbanization, have a low urbanizationlevel and a high growth rate.4

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTable 2.1.1UrbanizationSpeedHighScale and Speed of Urbanization of EAP CountriesMiddleUrbanization LevelLow Middle HighCambodiaLaosChinaVietnamMyanmarIndonesiaPhilippinesMalaysiaLow Thailand MongoliaNote: Urbanization level (share of urban population in 2000): High >40, 20

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportfrom 26.6% in 1987 to 15.3 % in 1998, as economies developed.Table 2.1.2Average Annual Growth rate of GDP and Urban Population,and Poverty Index by RegionEast Asia &PacificSouth AsiaEurope &Central AsiaLatin America& CaribbeanMiddle East &North AfricaSub-SaharanAfrica60-70 70-80 80-90 90-00Annual Growth GDP 4.6 6.6 7.3 7.7Rate (%/yr) Urban pop. 3.3 3.4 4.6 3.8Population below Poverty Line (%) - - 26.6 (’87) 15.3 (’98)Annual Growth GDP 4.2 3.1 5.7 5.2Rate (%/yr) Urban pop. 3.6 4.2 3.4 2.9Population below Poverty Line (%) - - 44.9 (’87) 40.0 (’98)Annual Growth GDP - - - -1.6Rate (%/yr) Urban pop. 2.8 2.2 1.7 0.1Population below Poverty Line (%) - - 0.2 (’87) 5.1 (’98)Annual Growth GDP 5.3 5.8 1.2 3.3Rate (%/yr) Urban pop. 4.3 3.7 2.9 2.2Population below Poverty Line (%) - - 15.3 (’87) 15.6 (’98)Annual Growth GDP - - 2.3 3.3Rate (%/yr) Urban pop. 4.9 4.4 4.3 2.9Population below Poverty Line (%) - - 4.3 (’87) 1.9 (’98)Annual Growth GDP 5.2 3.6 1.7 2.2Rate (%/yr) Urban pop. 5.1 5.3 5.1 4.8Population below Poverty Line (%) - - 46.6 (’87) 46.3 (’98)Low- & middle- Annual Growth GDP 5.3 5.4 2.9 3.3income Rate (%/yr) Urban pop. 3.6 3.5 3.5 2.8countries Population below Poverty Line (%) - - 28.3 (’87) 24.0 (’98)Source: GDP growth rate and urban population, WB. 2003cPoverty: WB. 2000bHistorical trend of urbanization in EAP regionUrbanization trends and their surrounding environments in the past are summarizedbelow; although there is a variety among countries;Pre-1960s: Urbanization without economic development. Urbanization proceeded incities, becoming the core of domestic industries and services, some of which were formercolonial capitals,1970s and 1980s: Urbanization with rapid industrialization and economicdevelopment. Industries and populations were concentrated in large cities and increasingin-migration from the rural areas was a common trend.Post-1990s: Urbanization in the era of globalization. Concentration in the metropolitanareas has accelerated furthermore with globalization, increasing trade, and foreign directinvestments (FDIs).Country-specific View of Economic Development and UrbanizationWhile some EAP countries have generally achieved economic development, themagnitude and speed of this development differ per country (Figure 2.1.3). Thailand has6

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportachieved significant economic development during the last three decades even with itsslow pace of urbanization. In the Philippines, the speed of urbanization has outpaced itseconomic development. In Cambodia and Vietnam, both economic and urbanization levelsare still low, and are expected to develop in the future. . Such differences are attributable tothe national urban policy of each country on regional development or the distribution ofcities as well as their historical or geographical background.Figure 2.1.3 Urbanization and GDP per Capita of Selected Countries (1960-2000)Urban Population Ratio (%)806040200ChinaVietnamPhilippinesIndonesiaCambodiaKoreaMalaysiaThailandJapan10 100 1000 10000 100000GDP per capita (US$, log)Note: Data is plotted every five years.Source: WB, 2003c., UN. 2002b.ChinaIndonesiaMalays iaPhilippinesThailandJapanKoreaVietnamCambodia2.2 Changes in National Land Structure along with Urbanization1) Concentration or Diversification of CitiesUrbanization levels in one country should be reviewed with various indices including: thedistribution of cities’ scale, primacy to total population and primacy to total urbanpopulation, and the nationwide share of urban populations. National land structures varydepending on the concentration, or diversification, of cities among countries with similarurbanization levels, because nationwide urbanization rates do not reflect their distribution.Primacy City of EAP Countries with Huge PopulationAlthough worldwide comparisons indicate that primacy, the share of primary cities to totalpopulation, is relatively low in the EAP region except for Mongolia, primary cities in EAPcountries have huge population compared to the second-largest and other major cities(except for those in China and Malaysia). (Figure 2.2.1)Figure 2.2.1 Population in Largest and Second-largest Cities, 20007

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report0 5,000 10,000 15,000CambodiaIndonesiaLaosMalaysiaMongoliaMyanmarPhilippinesThailandVietnamPrimarySecondarySource: UN. 2002b., World population gazette,Urbanization not Limited to Primary CitiesPrimacy does not necessarily correlate with nationwide urbanization levels, which vary bycountry. While Bangkok has a relatively high primacy (10.4% of the country’s totalpopulation), urbanization in Thailand is relatively low compared with other EAP countries.On the other hand, while urbanization rates in Malaysia have continuously increased sincethe 1950s, the primacy of Kuala Lumpur is not that high and has even decreased duringlast two decades. The Philippines experienced an extensive concentration of urbanizationin Metro Manila during the 1960s and the 1970s, reaching 13% of the country’s totalpopulation; urbanization of cities outside of Metro Manila is also currently progressing.China has consistently tracked low levels of primacy due to its vast population size andexistence of several metropolitan cities.It has been observed in some countries that primacy in the largest metropolitan areasincreases in the early stages of development then starts to decease. Since these datadoes not reflect actual expansion of the metropolitan areas beyond city boundaries,primacy may increase if this expansion in the urban areas is taken into account.Figure 2.2.2 Share of Primary Cities (agglomeration) and Urbanization Rate, 1950-2000Share of Primary (%)14.012.010.08.06.04.02.00.00.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0CambodiaChinaIndonesiaMalaysiaPhilippinesThailandVietnamShare of Urban Polulation (%)Note: Data is plotted by 10 year from 1950 to 2000Source: UN. 2003c.On the other hand, the share of primary cities to total urban populations has constantly or8

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportgradually been decreasing in most EAP countries except for Cambodia (Figure 2.2.3). Thisindicates that urbanization in the EAP countries is progressing, not only in the primarycities, but also throughout countries, or in secondary cities.While shares to total urban populations have decreased, the absolute scales of thesecities are still growing. As seen in Metro Manila, Philippines, and Jakarta, Indonesia, thesecities are growing into megacities with a population of more than 10 million as notedabove.Figure 2.2.3 Share of Primacy Cities (agglomeration) and Urban Populations, 1950-2000Share of Primary Agglomrerationto Total Urban Population (%)90807060504030201000 5,000 10,000 15,000CambodiaChinaIndonesiaMalaysiaPhilippinesThailandVietnamUrban Agglomeration Population (000)Note: Data is plotted by 10 year from 1950 to 2000Source: UN. 2003c.Distribution of Population in Secondary CitiesAs noted, secondary cities in the EAP region are relatively much smaller in their populationscales compared with the primary cites. However, secondary cities are considered regionalcores that will absorb the in-migration into the larger metropolitan areas and thus helpachieve a balanced national development (ADB. 1999). Multiple-core nationaldevelopment can provide multiple alternative choices for investors and migrants and thuspromote competition among cities. It is also indicated that interventions should be takenbefore urban problems become too serious in these cities.Figure 2.2.4 Population Distribution in the EAP Countries, 2000Share to Total Population (%)141210864201 2 3 4 5 6 7 8 9 10Ranking of the Largest CitiesSource: World population gazettePhilippinesThailandCambodiaMalaysiaIndonesiaVietnamChina9

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportChina’s urbanization policies promote nationwide urbanization and emphasize theimportance of developing small- to medium-size cities to form as regional cores, along withlarge cities. (Government of the People’s Republic of China. 2001, ADB. 1999)Urbanization levels are still low 3) due to policy regulations on migration 4) and partly due toits huge population size. Primacy, both to total population and total urban population, isalso at lower levels compared with the other EAP countries, which is ascribed to severalmetropolitan areas, including three cities with a population of more than 10 million, i.e.Shanghai, Beijing, and Tianjin.However, migration has been increasing since the 1990s due to expansions in regionalincome disparities and the easing of regulatory policies. Migration between provincesexceeded 32 million from 1995 to 2000, three times the rate in the early 1990s.Seventy-five percent (75%) of the inter-provincial migrations were movements to easterncoastal areas. On the other hand, most urban population increases were recorded insmall- to medium-size cities and towns 5) . The Chinese government has emphasizedstrategic development in such cities in its urbanization policies.2) Widening of DisparityAs noted, urbanization has changed the location and distribution of cities due to theirincreasing populations and expansion of sizes, thus leading to a significant change innational land structures. With cities acting as core agents for social and economicdevelopment in a region or a country, urbanization has restructured socio-economicconditions.Along with economic development, urbanization and reorganized national land structuresshall inevitably expand disparities in income levels and among regions. Experiences indeveloped countries show that regional disparities first increases and then decreases asthe country’s income rises following the pattern of so-called regional convergence(Williamson. 1965). However, it is questionable whether such convergence will beachieved in developing countries without an effective urban management policy to guide it.Urbanization vs. Income DisparitiesThe relationship between urbanization levels and the Gini index, as an indicator of incomedisparity, is shown in Figure 2.2.5. Although there are several factors affecting thecorrelation between urbanization and inequality, including cultural, historical andgeographical backgrounds, the characteristics of each region are described as follows;High-income Countries (HIC) have high urbanization levels and a low Gini index.Latin American & Caribbean countries have middle to high levels in urbanization andrelatively high Gini indices.Middle Eastern and North African countries have middle to high levels of urbanizationand middle levels of the Gini index, although the number of sample countries from this3) Share of urban population is 27.4% in 1990 and 35.8% in 2000.4) The residential registration, or Hukou, system was introduced in 1958 to enforce the separation of urban fromrural residents and is maintained, with varying degrees of enthusiasm by the different municipal administrations,to restrain rural to urban migration, (ADB. 1999a.)5) In 1997, the 81 cities with more than 500,000 people each accounted for less than 20% of urban growth, with40% accounted for by 587 smaller cities and 40% by 18,492 towns. (ADB. 1999a)10

egion is small.Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportSouth Asian countries have low levels of both urbanization and Gini indices.Sub-Saharan African countries have low levels of urbanization but high levels of Giniindices.Major countries in the EAP region are broadly classified into two groups: One group, withlower urbanization levels and Gini indices includes Cambodia, Thailand, Vietnam, Laos,China, and Indonesia; and the other, with higher urbanization levels and Gini indicesincludes the Philippines, Malaysia, and Mongolia. For the former group, the key issue lieson whether to lean toward the HIC group, or to accept expansion, to some extent, ofincome disparities and move toward the latter group, or the Latin American & Caribbeancountries, as urbanization proceeds. The issue for the latter group lies in how to narrowdisparities and move toward the HIC group.Figure 2.2.5 Urban Population Ratios and Gini Indices of Selected Countries, 2000GINI Index80604020CambodiaChinaIndonesiaLao PDRMalaysiaMongoliaPhilippinesThailandVietnamJapanHICLA & CME&NASASSA00 20 40 60 80 100Share of Urban Population (%)Note: LA&C: Latin America and Caribbean, ME & NA: Middle East and North Africa, SA: South Asia,SSA: Sub-Saharan Africa,Source: WB. 2003c. and UN. 2003c.Country- and Province-wide Disparities in the EAP CountriesRegional disparities are difficult to compare among nations because problems of availableindices on spatial concentration are not well suited for international comparisons. (Spiezia.2000) Nevertheless, the actual state of regional disparities in economic levels among theEAP countries can be identified through various indicators. One indicator is the ratio of thehighest GRDP to the lowest one, which gives the following results: 9.2 in the Philippines,10.3 in China, 12.0 in Indonesia, 4.9 in Malaysia, and 9.0 in Thailand 6) .6) The ratio is calculated with regional data. Using provincial data, it would be 25.1.11

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTable 2.2.1 Regional Disparities in the EAP Countries, 2000Share of Primary Metropolitan AreaRatio of GRDP 3)MetropolitanGRDP population (highest/lowest)AreaIndonesia DKI Jakarta 14.9 4.3 12.0Malaysia Kuala Lumpur 12.4 5.9 4.9Philippines NCR 1) 35.4 13.0 9.2Thailand 2) Bangkok 37.2 9.2 9.0Vietnam HCMC 15.3 4.3 25.2 3)Note: 1) National Capital Region or Metro Manila2) data as of 1999.3) The highest GRDP is in metropolitan area, except for Viet Nam (Bung Tao Province)Source Statistical Book of each countryThe GRDP-Gini, another index of regional disparity (which is calculated using the GRDPand population per province) has increased as urbanization proceeds in Thailand andMalaysia. Figure 2.2.6 shows that the levels of disparities in the two countries are muchhigher than that of Japan in the 1960s.Figure 2.2.6 Economic Development and Regional Disparities 1) ,Thailand, Malaysia, and JapanMalaysiaThailand100,0000.6100,0000.6GDP per capita (US$, log)10,0001,000GDP per capitaGRDP-Gini0.40.2GRDP-GiniGDP per capita (US$, log)10,0001,000GRDP-GiniGDP per capita0.40.2GRDP-Gini1001960 1970 1980 1990 20000.01001960 1970 1980 1990 20000.0100,000Japan0.6GDP per capitaGDP per capita (US$, log)10,0001,000GRDP-Gini0.40.2GRDP-Gini10001960 1970 1980 1990 2000Note: 1) GRDP-Gini is calculated using GRDP and population of each province / stateSource: Statistical book of each country12

2.3 Urbanization in Metropolitan Areas1) Emerging Huge MetropolisesStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAnother characteristic of urbanization in the EAP countries is the existence of hugemetropolitan areas. Table 2.3.1 shows the historical changes in the world’s metropolitanareas with more than 8 million people from the 1950s to 2000. In 1970, there were only twomegalopolis in the EAP region, Shanghai and Beijing. By 2000, among the world’s 25megalopolises, 13 were in Asia and 8 were in the EAP region, including Japan and Korea.(UN.2003.)While the growth rates of population in these megalopolises or megalopolis candidateshave recently decreased, their absolute number of population increases is still huge and isestimated to continue into the future. 7)Table 2.3.1 Cities with more than 8 Million Population, 1950-20001950 1970 1990 2000Developed CountriesTokyoTokyoNew York -Newark New York -NewarkOsaka-Kobe Osaka-KobeParisLos Angeles -LongLos Angeles -Long Beach -Santa AnaBeach -Santa Ana ParisNew York -NewarkTokyoLondonShanghaiMexico CityBuenos AiresBeijingNote: Bold face indicates cities in EAP region.Source: UN. 2003c.2) Densification of Core Urban AreasDeveloping CountriesMexico CitySao PauloShanghaiMumbaiBuenos AiresCalcuttaBeijingSeoulRio De JaneiroCairoMoscowTianjinDelhiTokyoNew York -NewarkLos Angeles -LongBeach -Santa AnaOsaka-KobeSeoulParisChicagoMexico CitySao PauloMumbaiCalcuttaShanghaiBuenos AiresDelhiJakartaBeijingRio De JaneiroCairoDhakaMoscowKarachiMetro ManilaTianjinIstanbulLagosThe megalopolises in the EAP region have densely populated urban areas, which isanother characteristic of the metropolitan area in the EAP. Comparisons of populationdensity in urbanized areas of the world’s major cities indicate that among the top 50 cities(except for Hong Kong) 24 are located in Asia and 10 are in the EAP region. (Demographia,2003)7) According to Kato. 2001, large cities in Asia with more than one million population will absorb 150% populationduring the period 2000-2015.13

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportMoreover, the core urban areas of these metropolises are extremely congested. In 2002,the population density in Ho Chi Minh City was 31 persons/ha for the whole city and 357 inthe core urban area. The highest population density by district accounted for 566persons/ha (in District 4 which has 353ha). The most congested district in Metro Manilahas 886 persons/ha (in Navotas which has 890ha), while the population density for thewhole metropolitan area is 156/ha.High density can enjoy efficient use of urban infrastructure, if well managed, as seen inpublic transport network in Tokyo metropolitan area with a population of more than 30million. However, it is observed in EAP urban area that lack of urban management hascaused densely populated area. These areas commonly have high shares of low-incomehouseholds. Navotas is one of the poorest districts in Metro Manila. As a result,infrastructure services have deteriorated and urban poor dwellers usually live in unhealthyand deteriorating conditions, as will be discussed later.3) Extension of Urban Areas beyond Jurisdictional BoundariesMetropolitan areas in the EAP region have expanded due to continuous in-migration, farbeyond traditional jurisdictional boundaries. This extension of metropolitan areas is knownas peri-urbanization, a commonly observed characteristic in the EAP metropolitan areas,even though its driving forces and mechanisms vary by city.The main driving force of peri-urbanization is the in-migration of the low-wage labor forcesfor private-sector industrial development, including FDIs into the peripheral areas orpublic-oriented industrial satellite development, as well as the in-migration into residentialarea development by high-income households 8) . Moreover the increasing populationpressure and deterioration of the urban environments in the core areas push the relocationof residential and industrial areas into peripheral areas, thus spurring the outwardextension of a metropolitan area. It is observed that the speed of expansion has beenstagnant in some metropolises, even though their peri-urbanizing trends still continue. Inanother facet of peri-urbanization, the renewal of land use, or redevelopment of existingbuilt-up areas in urban cores, has started in parallel with new industrial satellitedevelopment in peripheral areas.The detailed urbanization trend in Metro Manila is an example. A wide range ofurbanization progressed and exceeded beyond jurisdictional boundaries between 1980and 1996 (Figure 2.3.1).8) Extension of urban area is analyzed in its phenomenon and driving forces by several institutes, including the AsiaPacific Research Center of Stanford University, USA and Development Planning Unit at the University of London.Webster (2001) defines this trend as peri-urbanization and analyzes its driving forces as follows:1. FDI in the peri-urban area, property development and manufacturing investment (requiring large areas andeasy access to major cities) as seen in most EAP countries.2. Public policy supporting this type of regional development (Thailand Eastern Seaboard Development,Malaysia multi-media super corridor, Policy initiative in China), including public investment.3. Availability of relatively inexpensive labor.4.Residential development for middle and upper-middle class groups (as seen in Manila and Jakarta).14

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure 2.3.1 Expansion of Urban Areas in Metro ManilaNote: 2015 is estimated figureSource: JICA. 1999. MMUTISThe relationship between distance from urban center and population density is shown in(Figure 2.3.2). While, in general, population density decreases as the distance from thecenter increases, exceptionally dense areas emerge at about 10km and 20km from theurban center. These areas certainly show the trends of peri-urbanization driven byresidential development for high-income households and industrial developments by theprivate sector, respectively. It should be noted that relocation sites for infrastructuredevelopment or slum clearance projects in urban centers spread in peripheral areas, whichis another driving factor of peri-urbanization in Metro Manila.Historical trends show that population density in the urban core decreased during theperiod of 1990 to 1996, which was partly because of the outflow of population to peripheralareas. On the other hand, growing back of population density in the urban core shows thatredevelopment has started as commercial or residential center.Figure 2.3.2Urbanization Pattern, Metro ManilaUrban Redevelopmentof Existing Built-up Area700(person/ha)600500EDSA (Makati East)198019901996MM boundaryEDSA(Cubao West)400300200Residential SubdivisionDevelopmentMM boundaryIndustrial EstateDevelopment (FDI)100040 30 20 10 Makati 0 10 20 30 40 50NorthSouthNote: Population density along the North-South Corridor in Metro Manila.Source: Compiled from MMUTIS (JICA 1999) database.15

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportSuch peri-urbanization appears in some form or another in other metropolitan areas in theEAP region. In Bangkok, peri-urbanization is observed more extensively. The EasternSeaboard Development, located 190km away from the urban center, is regarded as amajor driving force of peri-urbanization in the Extended Bangkok Metropolitan Region(EBMR). It is classified as public-oriented peri-urbanization with large-scale economicinfrastructure development, such as industrial parks, ports, and road infrastructure(Webster. 2001).Urbanization in Ho Chi Minh City, the largest city in Vietnam, is rather small within a10-kilometer radius. Annual population growth rate from 1997 to 2001 recorded muchhigher in the peripheral areas of the existing urban center. Peri-urbanization has alsostarted in Ho Chi Minh City.Figure 2.3.3 Expansion of Urban Area in HCM Metropolitan AreaDensity, 2002 Growth Rate (1997-2001)N/ASource: Compiled from HOUTRANS (JICA 2004) database and statistical yearbooks of HCMC, BinhDuong, Dong Nai, and Long An.2.4 Changing Environments Surrounding UrbanizationThe environment surrounding urbanization is dramatically changing. Urban governance,as well as the roles and functions of the urban sector have been affected by trends indecentralization, private sector growth, globalization, and technical innovation. Thischapter describes urbanization trends under globalization and the innovative influencesbrought on by information technology (IT), which has changed the role of urbaninfrastructures and provided implications for urban policies.1) Globalization as a Dynamo for UrbanizationAccelerating Urbanization under GlobalizationThe environment surrounding urbanization has undergone tremendous changes in thewake of advances of globalization since the late 1980s. Urbanization and the physical,economic, and social restructuring of East Asian cities can be seen as consequences ofthe changing organizational structures of the global economy. (Douglas 2002) Morespecifically, it is seen that urbanization, under globalization, is closely related to the effectsof FDIs, foreign trade, and tourism. (Lo. and Yeung. 1996)16

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportIn light of economic developments in the EAP, trade, as a percentage of GDP, rapidlyincreased since the late 1980s, while FDIs, as a percentage of GDP, started growing sincethe 1990s. Such trends have also been observed in other regions with active globalexchanges, such as in Latin America and the Caribbean region. However, the EAP’sdistinct feature was the high growth rate of GDP for the same period in the region 9 . Thisfact shows that economic growth in the EAP region was considerably an offshoot ofglobalization, until the region’s economies became stagnant due to the 1997 economiccrisis.Recently FDIs have been stagnant and their share to the GDP has decreased since the1997 economic crisis. For example, in Malaysia, the FDI as a percentage of GDP was at itspeak in 1992, with 8.8%, and this decreased to 4.2% in 2000. For the Philippines, its peakwas seen in 1998, with 3.5%, and its FDI share decreased to 2.5% by 2000. Thus EAPcountries are promoting domestic demand rather than depending on FDI.Spatial Transformations under GlobalizationGlobalization has affected urbanization through the restructuring of industries by way ofdivision of labor, specialization, and the formulation of international linkages andnetworking of goods, peoples, and information. For example, global networking hasformulated the so-called “functional city system,” i.e. a network of economic, social, andpolitical functions linking regions or cities globally (Lo. and Yeung. 1996). Here, urbansystems are dictated by particular functions of a city rather than population scales orareas.Such emerging urban functional networks, under a growing trend of internationalspecialization, have also affected spatial networks in the EAP region. Spatialtransformations under globalization in the EAP region are discussed in the following sixtrends (Douglass. 1998):1) Special polarization focusing on a few coastal metropolitan regions: Such asspatial concentration of FDIs in the capital city and key international ports as seen inthe Philippines, Thailand, Indonesia, and more recently in Vietnam.2) Formation of mega urban regions: Accompanied with polarization, i.e. the extensivegrowth of core metropolitan regions well beyond traditional administrative boundaries,as seen in the Extended Bangkok Metropolitan Region, which is 200km away from theBangkok area.3) World-city formation and urban restructuring: The centralization of globalcommand functions in a few urban centers.4) Development of international development corridors: Formulated by linking worldcities with other mega urban regions, export processing zones, and high-technologyindustrial parks through major hub airports and high-speed trains.5) Formation of transborder regions (TBR): Regions that span two or more nations toselectively create deregulated international economic spaces as new types of spatial9 ) The annual growth rate of GDP during the period of 1985 - 1990 and 1990 - 1995 are 7.6 and 9.8 percent in EAPregion and 1.9 and 3.7 percent in Latin America and Caribbean region respectively.17

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportconstructs created by globalization. 10)6) Emerging international spatial network: Includes all of the above features.In sum, globalization tends to accelerate the concentration of industries into existing urbanagglomerations. This is due to international infrastructure accessibility as a trade channel,infrastructure development levels, and proximity to information sources in megalopolises,or capital cities. (Webster. 2001, Lee. 1996 and Medhi. 1996). It is also reported byHenderson (2000) that if a main international gateway, with port and airport, is located inthe largest city, globalization tends to lead to increases in urban concentration.Rationalization of LogisticsAs mentioned above, international gateway is an important urban function when it islocated in a city area. In the trends of globalization, some countries have strengthened itseffort to curtail logistics cost in order to effectively compete with other countries. This movehave a large impact on city functions and therefore on urbanization.The U.S. has reportedly decreased logistics costs from about 18% to 8% of GDP in thepast 20 years. Some advanced EAP countries including Hong Kong, Korea, Taiwan, andSingapore also have decreased cargo handling cost drastically partly by strengtheningport functions. However most of the EAP developing countries are still suffering from thehigh logistics cost resulting from their deficient trade and cargo handling systems. In thePhilippines, for example, the share of total logistics cost in the market price accounts for40% for maize, 20% for rice and 25% for vegetable transported from Mindanao to Manilamarket. The reason of the high cost is the inefficient coastal shipping, poor port serviceand the traffic congestion in Manila (WB. 2002). In the case of international transport ofcontainers from Inland China (Chongging) to U.S. west coast, 63% of the total logisticscost is for the inland access to port in China (Carruthers et al. 2002).Hence, there is a large room for EAP developing countries to rationalize the logisticssystem. Although the advanced EAP countries need further to keep their logistics systemcompetitive, the lesson is that their success can be attributed to the reduced transactionand time cost. More significantly, the cost reduction was made possible by efficientcustoms, strengthened freight forwarders, less congested road/rail access and smooth linkto outer transport network.2) Changing Urban Functions with Technical InnovationThe upsurge of technical innovation, particularly in IT, has advanced in developingcountries, as fast as (or even faster than) in the developed countries. Current innovationsin information technology (IT) have dramatically influenced traditional systems, whether inpolitics, economy, society, industry, and people’s basic way of existence. IT often leads tothe promotion of new industries and the provision of unprecedented services in the world.For instance, people can now enjoy new working styles (e.g. working at home) and neweducation opportunities (e.g. through distance learning). Thus, the emergence of newtechnology has changed the functions and roles of cities.10) Emerging / proposed transborder regions include Northeast Asia TBR (Tumen river basin, Russia, China, NorthKorea, South Korea, and Japan), Taiwan Fujian TBR, Mekong TBR (Vietnam, Laos, Cambodia, and Thailand),Northern Growth Triangle (Sumatra/Medan, Malaysia/Penang, and Southern Thailnad), Eastern Growth Triangle(Mindanao, North Sulawesi, Brunei, and Sabah), and Sijori Growth Triangle (Singapore, Johor Baru, and Riau).18

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportCities are expected to attract and generate new industries with the accumulation ofknowledge, culture, and people. For example, universities, research institutes andbusiness centers are the key to IT development rather than conventional infrastructure.High-standard quality of life, including amenity and cultural activity can encourageinnovation for new industriesExperiences in developed countries have shown that IT innovations lead toagglomerations of new industries and the centralization of economic power, in spite of thewide-ranging global network of information. The agglomeration of IT industries can befound in the developed countries, such as the Silicon Valley in the US and in majorJapanese cities, where IT industries tend to concentrate in specific areas, such as aroundterminal stations where agglomeration scales are rather small. In the EAP countries, theagglomeration of IT industries largely reflects industrial policies to generate synergisticeffects. Specifically, new industrial agglomerations have emerged in the Central SciencePark in Beijing and in the Multimedia Super Corridor (MSC) in Malaysia.19

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report3. Impact of Urbanization on Infrastructure in the EAP Region3.1 Increasing Needs for Urban InfrastructureThe most fundamental impact of urbanization due to pressures from population increasesis the direct increase in demands for all kinds of infrastructures, including basicinfrastructure (e.g. water supply, housing, etc.), economic infrastructure (e.g. roads,electricity, etc.), and public services (e.g. educational facilities, hospitals, etc.).Urbanization in the EAP region will continue on into the future. Its urban population willgrow to 670 million by 2030. Absorbing new urban residents will require furtherinfrastructure investments in housing, water and sanitation, transportation, power, andtelecommunications (WB. 2000b).In general, infrastructure development cannot catch up with rapid increases in populationand infrastructure demands, in many developing countries where urban management isinsufficient. This results in huge infrastructure gaps. Countries in the EAP especially haveintense economic development and urbanization paces coupled with rapid expansion ofinfrastructure gaps. Figure 3.1.1 shows the historical trends in the increase of carownership and road extension per one vehicle in major EAP cities. It indicates that roaddevelopment cannot catch up with rapid motorization brought about by urbanization andeconomic development.Figure 3.1.1 Historical Changes in Vehicle Ownership and Road LengthsSource: Metro Manila: Philippines Statistical Yearbook (excluding barangay roads)Jakarta: Jakarta dalmn Angka (excluding army and diplomatic vechicles)Bangkok: Bangkok Metropolitan Area (BMA) (excluding soi and trucks)Singapore: World Road Statistics and LTA (paved road only)Tokyo: Tokyo Metropolitan GovernmentIncreasing gaps are found in social infrastructure as well as in economic infrastructure.There is evidence that access to clean water has not kept apace with urbanization, even inareas where there have been substantial investments in water supply provision. During thelast decade, there was a growth of 30% (equivalent to 62 million people) in the number ofurban households without access to water (UN-Habitat. 2003). Water supply is one of themajor issues in Asian countries. An estimated 100 million urban residents in Asia have noaccess to clean water (ADB. 2000c)Another impact of urbanization is the increasing needs for the provision of infrastructure20

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportservices to meet basic human needs of urban poor dwellers in informal settlements. Asnoted earlier, urban poverty without access to basic infrastructure has been a seriousissue for many EAP cities.3.2 Implications of National Spatial Development1) Increasing Needs for Infrastructure to form efficient National Land StructuresAs urbanization has changed national land structures, it has created a need forinfrastructure to effectively form national spatial structures, as well as urban infrastructuresthat will support industries and urban activities in metropolitan areas. In other words, thenational structure is supported by infrastructure that provides physical and economiclinkage between cities and surrounding areas and between large metropolitan areas. Theformer infrastructure is required to expand economic benefits from the cities and to provideaccess to markets from the rural areas. The latter infrastructure aims to formulate regionalnetworks, including high-standard arterial highways, railways, as well as hard and softinformation networks. There is also an increasing need for base infrastructures, likeinternational airports and ports, to formulate wide area networks.These nationwide infrastructures should be tackled through national land policies, whichare still not well developed in the EAP countries. Inadequate infrastructure networks limiteconomic spillover effects into relatively narrow areas, resulting in regional disparities inboth economic and social service levels.2) Expansion of Disparities in Infrastructure Service LevelsPractical but huge investments in infrastructure in metropolitan areas have left hinterlandareas with inadequate infrastructure. Infrastructure gaps have emerged in various aspectsamong regions, between the urban and rural areas, and even within cities. The rural-urbangap in infrastructure accessibility, including water, power, and sanitation, in developingcountries has recently narrowed. (WB. 1994) The gap itself, however, is still huge, whereaccess to water is 93% in urban areas and 67% in rural areas in the EAP region (WB.2003c). Regional disparities are identified through comparisons in infrastructure and socialservice levels between the richest and the poorest regions even in Thailand and Malaysia,both with relatively high levels of income (Table 3.2.1). 11)In comparing the process of urbanization and economic development with regionaldisparity between Malaysia and Thailand, it clearly shows that national land structures (i.e.distribution of cities) have some implications for the impacts of urbanization on regionaldisparity. In Malaysia, the primacy of Kuala Lumpur is not as high as other EAP cities evenwhile its urbanization gradually increases. This is partly because Malaysia has developedseveral core cities including Melaka, Georgetown, and Johore Baru (which wasestablished during the colonial period). On the other hand, Thailand has experienced highconcentration in the Bangkok metropolitan area in the process of urbanization, while the11) Regional disparities in infrastructure service level are difficult to compare across ages due to lack of availabledata for the developing countries. Nevertheless, historical changes in road development by region in Malaysiashow that disparity decreases in road length per capita and increases in road length per area. This indicates thatinfrastructure in less developed areas have not been well developed in absolute terms, while disparity in relativeterms has decreased as service level in urban areas decreases with urbanization.21

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportcountry’s nationwide urbanization level is relatively low. 12) As a result, the two countriesface different levels of regional disparities in income and social service levels. Although it ismore extensive in Thailand, which has a monopolar national land structure, both haveachieved economic development in parallel with urbanization. 13)Table 3.2.1 Regional Disparities in Infrastructure and Social Service Levels, Thailand in 1999GRDP per capita(Baht mil.)No. of Tel. LineNumber of10,000 persons 1) personsdoctors per per 1,000Car ownership 2)per 1,000persons(a) Bangkok 228,921 22.2 31.6 348.3(b) Northeastern 25,367 0.9 2.16 34.9Ratio (A/B) 9.0 23.7 14.6 10.0Note: 1) data as of 19942) data as of 2000 including can, van and truckSource: JSAID, 2001, Thailand in Figures 2003Table 3.2.2 Regional Disparities in Infrastructure and Social Service Levels, Malaysia in 1999GRDP per capita(RM mil.) 1)No. of Tel. LineNumber of10,000 persons 3) persons 3)doctors per per 1,000Car and M/Cownership 2) per1,000 persons(a) Kuala Lumpur 30,727 12.7 258.2 985.7(b) Kelantan 6,241 5.2 114.6 211.9Ratio (A/B) 4.9 2.4 2.3 4.7Note: 1) data as of 20002) data as of 2000 including car and motorcycle3) data as of 1997Source: Malaysia Government 2001It also shows that infrastructure levels are closely related with economic levels whencompared by region (Figure 3.2.1). Infrastructure disparities expand the income- andeconomic-level disparities, as discussed in section 2.2.Figure 3.2.1 GRDP and Infrastructure Service Levels by Region, PhilippinesPaved Road DensityTelephone Line1.5Paved Road Density(National Av.=1.0)1.00.50.00.0 0.5 1.0 1.5GRDP per Capita (National Av.=1.0)Telephone Line per 1000 pax(National Av.=1.0)3.02.01.00.00.0 1.0 2.0 3.0GRDP per Capita (National Av.=1.0)Source: Statistical Yearbook of Philippines, 2000The existence of regional disparities is in itself a “pull factor” for the constant in-migration12) Low levels of urbanization rate are, to some extent, due to the difference in the definition of urban area.13) Average annual growth rate of GDP in 1985-90 and 1990-95 was 10.3% and 8.6% in Thailand, and 6.9% and9.5% in Malaysia, respectively.22

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportfrom the rural areas Migration into urban areas can narrow the disparity in income levelsper capita in the short run by involving more people in large economic activities. However,it brings about the deterioration of regional economies and de-population of rural societies,and results in the further expansion of regional disparities, forming a long-term viciousdisparity cycle. The narrowing of regional disparities to attain a balanced development hasemerged as a primary political issue in most EAP countries. Countries with variousethnicities, or political instability, especially faces potential risks, wherein regionalinequality can develop into volatile socio-political problems. Some of these countries in theEAP early on have placed balanced development as a top priority in their nationaldevelopment objectives, as seen in Malaysia.3.3 Impact on Infrastructure Development in Emerging Huge MetropolisesAnalysis of the impacts of urbanization has so far been on the national standpoint.However, impacts should be assessed at the city level, as well. Outward urbanization inthe peripheral areas of a city produces a number of infrastructure-poor areas inhigh-density urban areas. The living environments in these areas are worsening due to thelack of water supply facilities, traffic congestion, and so on. Coupled with the increasingnumber of poor populations, this has become a serious issue in relation to infrastructuredevelopment. This section discusses the impacts of urbanization on urban infrastructuresbased on actual situations in large cities in the EAP Region such as Metro Manila, Jakarta,and Ho Chi Minh City.1) Expansion of Urban AreasIn developing countries, urban metropolitan areas have expanded along trunk roadcorridors. Urban arterial roads promote urbanization as is seen in Metro Manila, Jakarta,and Ho Chi Minh, where housing areas spread along arterial roads.Figure 3.3.1 shows recent trends in population growth rates in the southern peripheries ofMetro Manila (Cavite and Laguna or CALA). The area had a good accessibility to anexpressway and urbanization started in the early 1980s.This urbanization was first lead by the relatively good connection with the expressway andthe availability of land with abundant water resources. FDI led industrial estates wereconstructed (as presented in Figure 3.3.2) and more people came into this area attractedby job opportunities and pushed out, to some extent from the densely inhabited areas incentral Metro Manila. In the peripheries of Metro Manila, the development of industrialestates was realized in tandem with urbanization along arterial roads. The observation isthat the existence of the arterial roads enabled this peri-urbanization. In these areas,however, traffic congestion is already a chronic problem due to the lack of expressway,primary and secondary roads, as well as other local roads. At present, the entire roadnetwork of the area is very weak with poor alignment, lack of maintenance and insufficienttraffic management.Like Metro Manila, peri-urbanization in Jakarta is likewise growing along with thedevelopment of arterial roads. Transport infrastructure is one of the major causes thatdetermine the direction of urbanization (Figure 3.3.3).23

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure 3.3.1 Population Growth Rates, South of Metro Manila, 1980-2000MetroManilaSouth LuzonExpresswayAnnual Population Growth(%/yr)101980 - 19901990 - 19951995 - 2000Population Density (2000)(person/ha)100 -75 to 10050 to 7525 to 50- 250 5 10kmSource: Statistical Yearbook of the PhilippinesFigure 3.3.2Industrial Areas in CALASource: WB. CALA Transport StudyFigure 3.3.3 Expansion of Urban Area in Jakarta Metropolitan Area, 2002Source: JICA. 2004a. SITRAMP24

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportActual urbanization often proceeds more rapidly than expected. A single arterial road canpromote urbanization along its length, then it stimulates secondary housing activities in thesurrounding areas where infrastructure is usually underdeveloped. This producesinfrastructure-poor areas where accessibility to public services becomes a crucial issue.(Figure 3.3.4Figure 3.3.4 Expansion of Urbanized Areas in Ho Chi Minh CityRibbon-type developmentSprawl in the backlands of trunk roadsSource: JICA. 2004b. HOUTRANS.2) Impact on Livability of CitiesQuality of Life of Urban ResidentsInfrastructure services, including water supply and sanitation, public transportationsystems, and social services, can be provided more efficiently in populated urban areaowing to its high economies of scale, than in rural area. However, the consequences ofexcessively dense urban and peripheral areas with poor management include lack ofurban services and overburdening of existing infrastructures, thus resulting in thedegradation of the quality of life for urban residents.Urban residents are exposed to various urban risks, including deterioration of urbanenvironments and rising crime rates. As cities modernize, environmental risks arise from awider range of sources from traditional risks to modern ones, thus complicating theirassessment and management. (WB. 2000a, ADB. 1999) 14)Deterioration of Urban EnvironmentsUrban environmental problems come in the form of a wide array of public health problemsincluding poor air quality, water-related diseases, lack of medical resources, and modernhealth risks that arise out of exposures to hazardous substances, industrial and vehicleemissions, noise, and stress-related illnesses, etc. (ADB. 1999)14) ADB.1999 and WB.2000 classified quality of life risks into “traditional risks” including high-poverty incidence,malnutrition, dysentery, skin and eye infections, and other water-borne diseases; and “modern risks” includingexposure to hazardous and toxic substances, water pollution from industries, pollution from industries andvehicles, noise, urban stress due to lack of space, lifestyles, etc. As the level of city income rises, traditional risksdecrease and modern risks trace inverted U-shaped.25

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportImpact of urban environment that is most immediate to urban residents’ life is great threatto health and safety from water and air pollution. Waterborne diseases are often caused byinadequate sanitation facilities and drainage networks, which are exacerbated by impropersolid waste collection services. These forms of urban environmental deterioration arecommonly found in infrastructure-poor areas, seriously affecting low-income householdsand vulnerable residents, especially children.A whole city environment can likewise be threatened by rapid urbanization through theproduction of increasing amounts of solid wastes, which is a major concern of many cities.Other concerns include the lack of an efficient collection system, disposal facilities, andlandfill site development. Hazardous industrial wastes are often left unmanaged in manycities. Such inadequacy of solid waste management can create serious impacts on urbanenvironments, like the blocking of drainage systems and serious groundwatercontamination at landfill sites.Air pollution due to rapid motorization, traffic congestion, and unmanaged vehicleemissions are also common problems in many EAP cities. 15) Negative environmentalimpacts also result from the conversion of agricultural and forest lands for urban uses andinfrastructure development that result in the widespread removal of vegetation to supporturban ecosystems, groundwater overdrafts, and the destruction of sensitive ecosystemsand the hydrology in coastal areas.In addition, urbanization not only creates local but also global environmental impacts likeexcessive extraction of energy resources and increasing emissions of carbon dioxide thatadds to the global tally. Urban population increases and industrial development in Chinaespecially has huge potential impacts because of its huge size.Escalation of Urban PovertyThere is a strong positive link between national level urbanization and poverty levelswherein population below the poverty line decreases as urbanization proceeds and theeconomy develops. In every country, poverty incidence is lesser in urban than in ruralareas. However, it is commonly assumed that poverty is a growing problem. Urban povertywill become the most significant and politically explosive problem in the coming years.(ADB. 1999b). Inequality tends to be higher in urban rather than in rural areas. And thesedays, this trend is growing. (WB.2000a)Urban poverty is not merely a simple problem brought on by low incomes: it is more of amatter of poor quality of life as characterized by very limited access to clean water andsanitation, health care, education, and economic activities.Urban Poverty in Infrastructure-poor AreasUrban poverty is usually found in slum areas in the urban core and in infrastructure-poorareas in peripheral locations. Thus, urban poverty is usually located in unhealthy anddeteriorating conditions.Table 3.3.1 shows comparisons by region between whole cities and informal urbansettlements in terms of their access to basic infrastructure, like water connection,15) The WHO (World Health Organization) calculated that in the early 1990s, 12 of the 15 cities in the world with thehighest levels of particulates and 6 with the highest levels of sulfur dioxide in the atmosphere were in Asia(ADB.1999b).26

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportsanitation, electricity, and telephone lines. Intra-urban disparities in infrastructure servicelevels are commonly found throughout the world. While the Asia and Pacific region hasachieved a relatively high level of infrastructure as a whole, it should be noted that informalurban settlements have extremely limited levels of sanitation services, the same as inSub-Saharan Africa, which have poor infrastructure level in all sectors. It was also foundthat they have a lower coverage of piped water connection compared to the level of accessto water.Table 3.3.1Access to Infrastructure (Citywide and Informal Settlements)(% of households with connection)Asia andPacificPiped WaterConnection 1) Sanitation Electricity Telephone Access toWater 2) 65.9 58.0 94.4 57.1 94.8Informalsettlements38.3 7.4 75.7 25.4 89.1 Informalsettlements19.1 7.4 20.3 2.9 40.0 79.1 65.9 91.8 42.0 88.0Informalsettlements 35.7 21.5 35.9 30.0 42.7 83.7 63.5 91.2 51.7 89.1Informalsettlements57.9 30.3 84.7 32.0 66.8 75.8 64.0 86.5 52.1 88.9Informalsettlements37.2 19.8 59.1 25.4 57.6Source: UN HABITAT 2003.Note: 1) Refers to percentage of households with piped water connection.2) Having potable water within 200 meters of the residence and includes water connections.3) Data on informal settlement may contain inaccuracies as sample sizes are small andmeasurement is uncertain.Sub-SaharanAfricaNorth Africaand MiddleEastLatin Americaand CaribbeanDevelopingCountries TotalFigure 3.3.5 shows the spatial distribution of population density, average householdincome, average length of stay of residents, and road density in Metro Manila. The shareof lower-income households are higher in the urban core (slums) 16) and in areas 20 to30km away from the urban center.Poverty in the urban core shows in areas with high population densities and low roaddensities. These areas have short-staying residents, meaning they are relatively recentmigrants into Metro Manila. Migrants coming from the East Visayan and Bicol regions, thepoorest in the Philippines, tend to dwell in Kalookan City and the municipality of Navotas,which are known as urban squatter areas. (Osaka City University, 2001) This shows thatthe in-migration of the rural poor expands urban poverty in Metro Manila. It should benoted that the existence of the informal sector has a large impact on the expansion ofurban poverty in the urban core. In other words, the informal sector provides employmentand acts as a pull factor for rural poor migrants.The distribution of low-income households 20km and 30km away from the city center aremainly driven by the expansion of industries in the peripheral area, as discussed in16) In Metro Manila (National Capital Region), urban squatters are not directly related to urban poverty. The share ofhouseholds in urban squatter areas increased to 13.9% in 1994 from 10.5% in 1988, while the rate of poorfamilies decreased from 21.6 to 8.0 during the same period. (ADB 1999. Urban Sector Review in Philippines).27

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportChapter 2. Industrial development absorbs factory laborers not only from surroundingareas but also from among rural migrants, thus preceding urbanization. These peripheralareas commonly lack infrastructure services.Figure 3.3.5 Relationships among Population Density, Road Density,Average Household Income, and Average Length of Stay in Metro ManilaPopulation DensityInfrastructure Service Level(road density)0 510 0 5kmLow-income Household Distribution10kmAverage Length of Stay0 5100 510kmkmSource: Compiled from MMUTIS (JICA 1999.) database3.4 Impact of Urbanization on Emerging Surrounding EnvironmentsThe advance of globalization has exposed cities to direct and borderless competitionamong cities rather than the traditional competition among countries. Cities need todevelop high-level infrastructures like energy, communication, water, etc. as well asimprove accessibility to international gateways like port and airport of internationalstandard to reduce cost for logistics, in order to attract industry from foreign countries. Theworld’s cities are required to strengthen their competitiveness through the provision of highlivability with comprehensive urban infrastructure services.28

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportThe IT industry not only creates new infrastructure needs in IT network development ofinformation and communication but also affects traditional infrastructure development in itsimpact and its institutional and administrative environment. In other words, existingmassive and heavy industrial and urban infrastructure might lessen its importance andeffectiveness.Another challenge for the IT industry is to provide a high quality of life (QOL) for intellectualworkers involved in this sector (Komori. 2004). Cities trying to become IT heavens need todevelop not only the industrial infrastructures, such as information networks, but also tothe comprehensive urban infrastructures that will support such QOL in order to attracthigh-level workers and enhance new innovations. These cover natural environment,convenient and comfortable living environments, and amenity as well as knowledgefacilities (e.g. university and research institutes) and social urban services (e.g. educationand hospitals).3.5 Summary of Urbanization Impacts on Infrastructure in EAP CountriesThe progress of urbanization has a number of impacts on societies, economies, andenvironments, including the development mechanisms of infrastructures. On the otherhand, infrastructure is the underpinning support of the various activities of peoples andcommunities, which promote urbanization. The impacts of urbanization on infrastructuredevelopment, though different per country, may be summarized as follows:On the quantity of required urban infrastructureThe extent of urbanization in the developing EAP countries is still low compared toother regions. So far, urbanization in these areas has been accompanied by rapideconomic growth, coupled with certain levels of infrastructure development.Urbanization in these areas is expected to continue into the future, and the number ofhuge metropolises will increase. This will result in huge demands for urbaninfrastructures, and their designs should change accordingly.On nationwide national land developmentChanges in national land structures caused by rapid urbanization has brought aboutexpanding income disparities and gaps in the levels of infrastructure services. This maybe inevitable in urbanization and economic growth processes. This effect has beenseen in the developing EAP countries and there is worry that this effect could becomemore serious in the future. Under these circumstances, infrastructure is regarded as acounter-balance to rectify interregional gaps by supporting rural or localsocio-economic activities.On urban infrastructures in megacities The EAP region is characterized by the existence of a number of giant metropoliseswith populations of more than 8 million people, and their number and size are expectedto further increase. The spatial expansion of peri-urbanization in these cities tended tobe led by spinal infrastructures, and paradoxically, infrastructure-poor areas are spreadbehind these spinal infrastructures. In some areas near the metropolitan center, population density often becomesextremely high, producing high demands for urban infrastructures. The lack of29

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportinfrastructure is one of the major reasons for the worsening of environments. The urban poor mainly occupy these infrastructure-poor areas. Accessibility to basicinfrastructure services, such as water supply and sanitation facilities, are regarded asessential services in these areas.30

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report4. Key Issues and Strategies for Infrastructure Development andService ProvisionUrbanization has created wide-ranging impacts on infrastructure development and itsservice provision, thus resulting in challenges and problems. Fundamentally, infrastructureis expected to provide high-standard services that support economic activities which, inturn, strengthen the competitiveness of cities, improve living environments, and ensuresustainable environments.Development issues in infrastructure development relative to urbanization are discussed indiverse ways that can be mostly classified into: competitiveness (contribution for economicdevelopment), livability, equity, and balanced development (including poverty reduction),governance, and financing. (ADB.1999b. WB.2000a, Douglass. 1998. etc.)This chapter describes the financial development issues in response to the overallincrease in infrastructure needs. Development issues are categorized into national or citylevel, based on the recognition that urbanization impacts and issues differ per policy level.Issues in response to new emerging environment are also reviewed.4.1 Financial Resources for Sustainable Infrastructure Development1) Infrastructure Investment in the EAP CountriesIn order to address development issues and cope with the increasing demands for urbaninfrastructures, the largest looming problem is how to secure funds that are required tosustain infrastructure investments.Both Eastern and Southeastern Asia will need enough funds to invest in urbaninfrastructures for their increasing urban populations, which will reach 670 million by 2030.In addition, existing urban populations, whose accessibility to infrastructure services ispoor should be provided with better infrastructure services. The cost of universallyproviding water supply to urban populations in the developing countries is estimated to be5% of the GDP, according to the WB’s World Development Report 1999/2000.The huge fund requirement is exacerbated by difficulties in securing stable fund sourcesfor the developing countries. Public sector expenditures on infrastructure is 5.7% inIndonesia, 4.3% in Malaysia, 1.9% in the Philippines, 8.6% in Thailand, and 6.6% inVietnam, in terms of percentages to their GDPs. (WB, 2003c) In the Philippines, inparticular, public investment is insufficient. In addition, infrastructure development throughthe ODA is on a declining trend and private sector investments have significantlydecreased after its 1997 peak. (WB/ADB/JBIC, 2004, Flagship Study Issue Paper) Thus,securing investment funds has become an urgent issue.In this context, the agenda in developing urban infrastructures should be to maximize theireconomic efficiencies, profitability, the expansion of existing funding sources, and theestablishment of new ones. Huge development values in urban infrastructures can bedevoted to investment resources through the formulation of value-capturing mechanisms.Institutional arrangements are also required to promote private sector participation andeffective cross-subsidy mechanisms.31

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report2) Financial Resource DevelopmentFund sources for infrastructure are, basically, two-fold: Taxes collected from the public,and revenues from user charges (including private sector financing). These includerepayment of loans used for infrastructure development. The former is usually used forinfrastructure such as local roads, parks, and disaster prevention facilities for which userscannot readily be determined. The latter is for such infrastructures whose users can easilybe identified and wherein tariffs can be charged in proportion to the magnitude of userbenefits. This includes water supply, expressways, railways, communication facilities,energy, ports, and airports. Since these infrastructure services entail revenues, the role ofthe private sector becomes important. Due, however, to their public nature, direct andindirect assistance, or incentives, are often given by the public sector.In any case, the beneficiaries of infrastructure services should reasonably shoulder coststo ensure an efficient, effective, and impartial use of limited financial resources. Based onthis “beneficiaries pay” principle, financial resources should be developed and designed.(1) Securing of Tax ResourcesThe most basic and stable fund source for infrastructure development is tax revenues.Since urbanization increases the value of fixed properties, particularly when equippedwith infrastructure, the strengthening of taxation systems contribute in absorbing,even partially, the development benefits of infrastructure development. The adoptedtax instruments are as follows:Fixed Property Tax: This tax is related with the public cost of providing infrastructureand other public services aimed at absorbing, at a certain rate, the benefits enjoyed byfixed property owners. This tax is regarded as the main tool to recover the cost ofpublic services because their effect is continuous. This tax is usually institutionalizedas a local tax and is one of the major financial resources of local governments.However, in the developing countries its efficiency has been extremely low. The mainfactors are deficient institutional mechanisms, such as tax rates, property evaluationcriteria, and the scope of taxable articles, as well as low administrative capacities.(WB.1991.)Land Transaction Tax (one-time tax on capital gains, registration charges, etc.):The major function of this tax is to control land speculation by absorbing capital gains,at a certain rate, when land transaction has materialized. However, this tax has noeffects on potential benefits for landowners when transaction is nonexistent. Thecombined application with the fixed property tax is needed.Development Costs Borne by Beneficiaries: In infrastructure development projectsby the public sector wherein influence areas can be fairly specified, project costs arepartially shared by beneficiaries according to the “beneficiaries pay” principle. Thiscontributes in curtailing financial burden on the public sector. Its actual application hasbeen seen on land readjustment and infrastructure development projects in Japan,Germany, and Taiwan in the form of land contributions from landowners. (Kukakuseiri)The Impact Fee system, applied in the US, is based on the same principle.The Japanese ExperienceIn Japan, the fixed property and city planning taxes are assigned to the local32

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportgovernments, constituting major financial sources for local administrations. Duringperiods of rapid population increase, a major policy tactic resorted to by mostJapanese cities was to increase revenues from the fixed property tax by expandingurban areas and changing land use from agricultural to residential/commercial lands.However, financial situations still worsened because demands for public services,including education and social welfare, continued to increase, and became larger thanthe tax revenue. Tax rates from the city planning tax remained low and insufficient tosupport infrastructure development, suppressed mainly by political considerations. Asa result, local governments were forced to rely heavily on transfers and subsidies fromthe central government. In conclusion, local governments in Japan failed to createeffective taxation mechanisms that fully recovered expenditures by absorbingdevelopment benefits.(2) Value-CaptureFund requirements for urban infrastructure are often large, usually surpassing thefinancial capacity of a government’s general budget. New fund sources, therefore,become necessary. On urban infrastructures, how to make beneficiaries pay is a keyissue for securing financial resources through the absorption of development benefits.Possible measures in attaining this include:Creation of Special Tax Revenues:Creation of earmarked fund sources based on the “users pay” principle can be aneffective tool for stable infrastructure development. However, this mechanism seldomworks in the developing countries due to various factors, such as insufficientinstitutional frameworks, poor tax collection, and political intervention. Recently, RoadFunds, or Road Maintenance Fund, which is earmarked for road maintenance, hasbeen established in many developing countries under the initiative of the World Bank.Japan established its Special Road Fund in 1958 to sustain road development andrecover costs through users’ payments. The fund is collected mainly from taxes onfuel and road vehicles, and is separated either into national or local budget. This fundhas been effective in road development, although criticism has recently been raised,citing that the mechanism incurs overinvestment in roads.In some megacities in the developing EAP countries, TDM, including road pricing, isproposed to regulate traffic as well as secure funds for investing in transportinfrastructure, as discussed in detail in Chapter 4.3. Increasing the rates of fuel andvehicle ownership taxes is also an effective measure that is worthy of consideration.Most infrastructure projects proposed for urban areas in the developing EAP countrieshave huge economic benefits. Although economic benefits decrease when a usercharge is strengthened, it is essential to convert as much as possible this benefit intofinancial profit within a reasonable range of economic internal rate of return (EIRR).The TDM, which controls traffic demand while producing investment funds, is one ofthe most promising policy measures that enhances sustainability in a city andmaterializes growth management. The volume of funds that can be generated throughthe TDM can be large, and it significantly strengthens the implementing capacities ofgovernments.33

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportValue-Capture through Integrated Development:When user charges are hard to collect, or insufficient to cover infrastructure costs,external benefits that arise out of increased prices of lands adjacent to infrastructurescan be used to fund their development. In Japan, infrastructure developments, suchas railways and roads, have been conducted in combination withresidential/commercial developments. This method assumes a simultaneousdevelopment of infrastructure and property, and allows cross-subsidy from the latter tothe former. More specifically:Land readjustment (Kukakuseiri): Combined development of residential areasand infrastructures (roads, parks, etc.). Spaces necessary for infrastructuredevelopment, such as roads and parks, are provided by landowners in return forincreased property value owing to a better living environment and sufficientinfrastructure. Some of these lands are sold to raise funds for infrastructuredevelopment.Combined development of railways and residential/commercial areas bythe private sector: Railway enhances property values, and railway developmentcosts are shouldered partially by this profit. Property development, in turn,provides the source of passengers. 17)(3) Users Pay Principle for Cost RecoveryFor infrastructures whose users can be determined, it is natural to financedevelopment and operation/maintenance costs through the collection of user charges.This type of infrastructure needs tariff setting with consideration of financialsustainability in order to provide stable services. Tariffs must be consistent with levelsof service, elasticity of demand, and the users’ willingness to pay.Appropriate PricingOn the other hand, basic public services, including water supply and sanitation, aretraditionally provided at a lower price by the public sector in order to secure basichuman needs. Subsidy has been justified as necessary when tariffs exceed thepaying capacities of the poor. In developing countries, however, a number of problemsarise such as tariffs advertently suppressed too low by political intervention and theprovision of subsidies irrespective of needs. While the poor can be exempted fromwater fees from a piped system, those who benefit from subsidies are the people whoalready have access to water, while the subsidies have no real effects on the life of theactual poor (WB, 1994). In Asian megacities in particular, the urban poor’saccessibility to drinking water is generally low. There are countless cases wherein theurban poor pays water vendors much higher prices than those who pay for pipedwater (ADB, 1997 and McIntosh. 2003). In addition, subsidized water tariffs (i.e.exemption of initial fixed rates, low rates up to a certain amount of consumption, etc.)tend to result in negative economic benefits and encourage corruption in the course ofmoney flows in government.It is currently recognized that a clear objective and target are necessary for the17) See Appendix C for details34

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reporteffective use of subsidies. In Chile, for example, subsidy is given directly to the poorcoupled with other measures such as lowered connection charges and small-scale,low-interest loans.Cross-subsidy MechanismFor network-type infrastructure, stable fund source is particularly important toconstruct entire networks. If economic and financial aspects are assessed on aper-project basis, projects located in areas where demand is relatively small will havea low priority, and consequently the entire network will not materialize. The internalcross-subsidy mechanism can generate a stable fund source by shifting financialbenefits from very profitable projects to less profitable ones, i.e. from advanced areasto less developed areas.This mechanism is effective in developing nationwide, or regionwide, infrastructurenetworks such as railways and expressways. In other words, it is a transfer of financialresources from large cities to local cities. This is also applicable for urban expresswaynetworks where operating bodies are different per route. If an internal cross-subsidysystem can be transparently developed as a toll revenue allocation system, userconvenience will be highly enhanced (i.e. single toll, single gate, etc.), and new privateoperators can easily participate in the market. In addition, this mechanism can beused as an intersectoral cross-subsidy system from one sector to another in anintegrated development project. As mentioned earlier, the combined development ofrailways and property development were made possible in Japan throughintersectoral cross-subsidies.However, cross-subsidization has its critics who say that the system spoils theeconomic efficiency of investment and hampers the optimum allocation of resources.In Japan, during the course of national land development and economic growth, thismechanism certainly enabled the securing of stable financial resources for developinglocal infrastructure in attaining a balanced national development. The current problemis the too rigid institutional mechanism, which failed to flexibly respond to the actualdemand and led to over-investment in infrastructure. Tradeoffs between economicefficiency and impartiality should always be taken into account vis-à-vis the goals ofnational development.(4) Loan Financing for Infrastructure Development:Infrastructure development requires huge amounts of initial investments, and theirbenefits can be enjoyed by generations of people. In order to equalize financialburdens between generations, loan financing can be a reasonable fund source forinfrastructure development. The issuance of bonds is widely practiced forinfrastructure investment in the developed countries. Due to their long repaymentperiods, however, markets are often unable to accept various inherent risks in thedeveloping countries. The use of municipal bonds, in particular, is practically verydifficult due to insufficient information disclosures, deficient legal frameworks, politicalinstability, and other factors. (WB 2000b)Another method is loan financing under a government guarantee. This enables thesecuring of fund sources, particularly for local governments, for infrastructuredevelopment that is hardly financed by the private sector.35

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportIn Japan, the Fiscal Loan and Investment Program (FLIP) played an important role asa financial source of loan financing guaranteed by the government. The FLIP isbased on postal savings, funds from the Fund Trust Bureau (a welfare pension fund)and postal insurance funds (postal life insurance premiums) that enabled investmentsin infrastructure development outside the general government budget. The FLIP isbelieved to have worked well during Japan’s high economic growth period. Again,however, it is criticized at present for overinvestment and fiscal hardship.(5) Private Sector ParticipationIn the recent lack of public sector funds, private sector participation has become oneof the effective and efficient methods of infrastructure development. Yet, a number ofissues still remain, such as improper tariff setting, poor levels of services, politicalintervention, etc. To improve the situation in establishing public-private partnerships,vigorous efforts are currently being made toward the establishment of firm regulatoryframeworks, enhancement of credibility and predictability, etc.In addition, the private sector does not invest in demand-scarce areas, andinfrastructure development in less developed areas is mainly implemented throughpublic investment. Therefore, the allocation of public investments should have astrategy for regional development and the alleviation of regional disparities.4.2 Balanced National Land Development1) Impact of Infrastructure on Regional Spatial StructureFor existing regional disparities, “infrastructure” is seen as playing an important role insupporting less developed areas and allowing them to develop through their ownresources, thus achieving balanced development. (RIDA. 1997) The improvement ofinfrastructures shall facilitate industrial activities in the regions concerned and supporturban activities, thus improving economic levels and urban environments.According to Tsunokawa (2000), the balanced development of economic infrastructure,such as roads, has taken the leading role in reducing regional disparities in income levelsduring Japan’s reconstruction after World War II. In other words, infrastructure stimulatesindustries in regional cities and contributes in increasing income levels.Japan was able to narrow regional disparities in tandem with the rise of urbanization andeconomic development while expanding during its early stages of development. Theeffects of infrastructure development on the revitalization of industries in the regional corecities have been also emphasized as a major objective of infrastructure development in thenational development plans of the EAP countries. However, they are still facingexpansions in regional disparities. Infrastructure is expected to play a considerable role inthe quest for a “balanced national land development“ in the face of ongoing urbanization.Where and how to implement infrastructure development are critical issues.2) Roles of National Urban Policy(1) Implications of Urbanization on National Urban PoliciesThere is a strong correlation between urbanization and levels of development acrosscountries. Urbanization and growth of cities are essential elements of development36

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportstrategies that rely on the transformation of an agriculture-based economy into anindustry- or service-based economy. In the early stages of development, urbanconcentration in one, or few, large cities generate much needed agglomerationbenefits through the concentration of capital and labor, and this helps raise the overalleconomic efficiency. Growing cities, in fact, experience both external economies anddiseconomies (such as congestion) implying an inverted U pattern in the relationshipsbetween city size and net external economic benefits (Mills 1967). However,considering that there is no effective national land development market worked out inEAP countries, if these cities are left to run their own course (as self-organizingsystems), they are sure to reinforce the vicious cycle of overconcentration andcongestion. Since all the largest cities in the EAP countries are also functioning asinternational gateways, the increasing trend of globalization in this region is likely toincrease urban concentration in these cities, incurring additional costs due tocongestion, which will be far more than the additional benefits.Thus, there is an important implication for devising urbanization and infrastructurepolicies in the EAP countries. Rapid growth of mega cities in the EAP countries shouldnot be viewed as just a problem of urban management: increasing urban primacymight have significant economic costs nationwide. Therefore, what is important is todevise effective policy measures that will influence urban growth patterns towarddesirable ends.(2) National Land Development StrategyBased on the above ideas, urban policies taken in the EAP countries, along witheconomic development and urbanization are summarized in Table 4.2.1. Nationalurbanization policies include “Urbanization Policy” to promote industrial developmentin urban areas and thus achieve national economic development, and “RegionalDevelopment Policy” to distribute cities for balanced development. The key issue fornational urbanization policy lies in how to strike a balance among large cities, regionalcore cities, and rural cities. In response to this issue, most countries have indicatedeither a regional core city, or development corridor, in their regional developmentstrategy. For example, the Chinese regional development policy, “Three-dimensionaldevelopment,” is composed of three metropolitan areas, seven metropolitan corridors,and each regional core. Emphasis, however, depends per country.Table 4.2.1National Urbanization Policies in the EAP CountriesCountry Overall Urbanization Policy Regional DevelopmentChina Tenth Five-year Plan for NationalEconomic and Social Developmentproposed promotion of urbanization asan engine for national economicdevelopment.Urban Development Report 2002-2003, pointedthree metropolitan areas as growth centers fornational economy and proposed coordinatedsystems of large, medium and small cities.National urban system is proposed asThree-dimensional development, including threemetropolitan area, Seven Metropolitan corridor,and each regional core.37

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportCountry Overall Urbanization Policy Regional DevelopmentMalaysiaPhilippinesThailandVietnamUrbanization policy originated fromethnic policy rather than economicdevelopment to integrate or reducedisparity between Malay (rural area)and Chinese (in urban).Wawasan was formulated in 1991aiming to develop the country by 2020.More efficient and productivity-orientedeconomic development is proposed.National Physical Plan is now beingformulated (as of 2000) for sustainableand balanced regional developmentPhilippine Medium-term DevelopmentPlan was formulated by NEDA and theNational Framework for Physical Planwas updated for 2000 to 2030.There is no national land or regionaldevelopment plan except for BangkokMetropolitan Area.National Economic Social DevelopmentPlan identified government role as toprovide infrastructure and supportprivate sector investment.Ten-year Strategy for Socio-economicDevelopment and five-year SocioeconomicDevelopment Plan areestablished by Communist Party.National Urban Development Strategyset urban industry as core of nationalindustry and proposes a comprehensiveurban management strategy.Systematic urban planning and management isnecessary with increasing urbanization, whereLocal Agenda 21 programs was launched in 1999,to strengthen local level involvement indevelopment activities.Diversifying economic structure of the lessdeveloped states, e.g. resource-based industries.Multimedia Super Corridor Plan was formulated in1997 to shift from manufacturing toknowledge-intensive industries, with 15 km * 50km area located between Kuala Lumpur and thenew international airport.Four-pronged approach to balancing thedevelopment of regions across the country,including development of urban centers outside ofMetro Manila and decongestion of MM towardSubic-Clark and Calabarzon with capacity buildingof LGUs and capital market development.Regional core city was identified in the 5th Plan(1982-), followed by additional 19 cities in the 6thPlan (1986-). Four new economic zones wereformulated in the 7th Plan (1992-)Eighth Plan proposed regional development planto reduce regional disparity and overconcentrationin Bangkok area.“Three regional core developments and onecorridor development, i.e. National Highway No.1.Regional development plan of northern (Hanoi,Hai Phong), central (Danang), and southern(HCMC) regions.Source: Compiled from MRI. 2003. Study on National land policy coordination in Asian countries (inJapanese), Philippine Medium-term Development Plan 2001-2004 in Philippines, Eighth MalaysiaPlanIf a country is to achieve a more dispersed and balanced urban settlement to attain abalanced development, it is required (especially for less developed regions) todevelop resources of each region, and receive the spillover benefits of economicdevelopment from the developed to less developed regions, or to get transfer ofincome. The spillover effect, known as the “trickle down effect”, is currently beingquestioned about its effectiveness and impacts. Especially in countries withmonopolar structures, and where urbanization proceeds through high primacy, thespillover effect might be low. Since the benefits of economic development in citiesspread into peripheral areas, countries with several growth cores can enjoywidespread spillover effects and thus achieve a balanced development. Countrieswith economic development heavily dependent on one pole face more difficulties inachieving this.Japan’s experiences in national land development and regional developmentstrategies show a historical change from a monopolar to a multipolar structure. Duringthe 1960s, a high economic growth period, Japan placed priority on industrialdevelopment in three metropolitan areas and Pacific belt zones, which resulted in the38

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportexpansion of regional disparities. Faced with growing regional disparities due tooverconcentration in the metropolitan areas and the depopulation of rural areas, focusshifted to a regional core development in order to decentralize industries. Variouspolicies were established, and they included the New Industrial City (1962), theSpecial Area for Industrial Consolidation (1964), and the Technopolis development(1980). These regional development strategies narrowed down regional disparities.Comparisons between regional and intra-regional disparities revealed that regionaldisparities decreased first, followed by the narrowing of intra-regional disparities(Figure 4.2.1). In other words, regional core development improved regionwideeconomic levels which then produced extensive spillover effects into ruralhinterlands 18) .In this context, balanced development requires the establishment of regional growthcores then their development through their own resources. Since most governmentsin the EAP countries have limited investment resources, regional core citydevelopment strategies should be carried out incrementally, starting with cities withthe greatest growth potential.Figure 4.2.1 Economic Development and Regional Disparity, JapanTheil's inequality index0.030.020.010Inter-regionalIntra-regionalInter-prefectureGDP per capita1955 1960 1965 1970 1975 1980 1985 1990 1995 2000Note: Theill’s inequality index is composed with intra-regional disparity and inter-regional disparity, ofwhich detail is explained in Appendix ASource: Japan Statistical Year Book, Statistics Bureau, Japan (Various Years)3) Infrastructure Development in Compliance with National Land DevelopmentStrategies(1) Infrastructure Development for Regional Core DevelopmentAs regional cores secondary cities often need to: (a) extend basic social services andmunicipal facilities that support productive activities and develop human resources,(b) improve their physical infrastructure to make them more efficient and conducive toproductive economic activities, (c) diversify their economic bases and employmentstructures or strengthen existing or potential comparative advantage; and (d) build upthe planning, administrative and financial capacities of their local governments.40003000200010000GDP per capita ('000 yen 1995 price)18)As seen in Figure 4.2.2, regional disparity has re-expanded since 1980s, mostly in intra-regional disparity.These experiences have policy implications on how to enhance regional development after regional disparitieshave been narrowed, including decentralization to promote autonomous development within each region.39

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportJapan took a regional development approach wherein infrastructure development bythe public sector served as an incentive for the private sector to invest in an area. It isalso observed in the EAP countries, based on their national economic plan, that thegovernment is in charge of comprehensive infrastructure development to supportindustries and improve urban quality of life including social infrastructure, whileeconomic activities are left to the private sector. 19) The national economic plan ofMalaysia stated that the government will give greater emphasis on the provision andupgrading of infrastructure facilities, such as roads, piped water, and electricity supply,to promote growth and investments in less developed regions (Government ofMalaysia).There are some successful cases in regional core development in the EAP countries,where location was selected in consideration of the region’s potentials and where aseries of projects was well coordinated by the central government in accordance withnational policy.The Eastern Seaboard Development (ESD) project in Thailand is one of the mostfamous cases of industrial core development led by the central government. The Thaigovernment coordinated a series of projects, including large-scale infrastructure,through ODA funding, and prepared the institutional environment for private sectorinvolvement. It also implemented economic and social infrastructures using its ownresources. The ESD project showed that ODA can be utilized effectively for regionalcore development, if well coordinated with the national urban policy and if recipientcountries have strong ownership of projects.The development of Metro Cebu in the Philippines has showed the urbandevelopment cycle of a regional core city, i.e. from growth core in the first stage ofdevelopment, through sustainable urban development as a regional core city, and tothe spread of economic growth in the entire region (JBIC. 2003). It was found thatinfrastructure development has been well coordinated with the overall developmentplan by development stage and this has contributed to economic development andpoverty reduction in the region. More specifically, infrastructure development startedwith export processing zone development in the first stage, through urbaninfrastructure development for livability, and recently shifting to transport corridordevelopment to distribute its economic benefits to the whole region. ODA financinghas also been utilized as was seen in the ESD project in Thailand. Another lessonfrom Metro Cebu’s development is that local governments have a leading role inregional development, provided central governments prop them with institutional,financial, and technical support.It is, however, evaluated that the growth pole strategy is not likely to slow down thegrowth of large metropolitan areas. Another key issue in national land development isto develop linkages among metropolises, regional core cities with growth potential,selected smaller cities, and market towns. Effective physical linkage withtransportation as well as economic, marketing and administrative support creates the19) As for regional core development policy, institutional arrangement and infrastructure development have alsobeen introduced. In Thailand, the Investment Planning Zone was introduced in 1987 as an industrial locationpolicy, which provides incentives when investing in rural areas such as preferential treatment in financialservices and tax breaks.40

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportpotential for mutual interaction among different levels of cities. They also establish ahierarchy of services, facilities and productive activities to effectively use limitedresources.The issue that remains is how to expand infrastructure development in othersecondary cities and less developed areas.(2) Allocation of Public Investment and supporting institutional arrangementThe most fundamental issues for national land development are investment in andimplementation of infrastructure closely coordinated with the national urban policy.Wherever infrastructure investment comes from -- whether public sector or privatesector, central government or local government, general tax revenues or loans -- thenational government has an important role to play. As for public investment, keyissues for national government are how to secure stable financing resources and howthese would be allocated. As for private investment, the national government shoulddevelop institutional arrangements, such as regulation of service provision, andimprove its credibility and political stability to provide incentives to the private sector.There have been criticisms that centrally determined spending might produceinefficient allocations influenced by political interventions and which tend to lackcoordination among investment, operation, and maintenance (WB. 2000b). However,central government’s public investment still has much to contribute to infrastructuredevelopment in close coordination with national urban policy, especially in the earlystages of development. It has been observed that the central government’s share inpublic investment spending is generally over 50 percent in countries with a GDP percapita of less than US$ 5,000. EAP countries have a high share of central governmentshare in general public expenditures, 20) which may be as well for public investment.Moreover, infrastructure development in less developed areas or for new regionalcore development has difficulty inviting private investment, which still depends largelyon public investment. Key issue is how to allocate public investment to infrastructuredevelopment.Lessons Learned from Japan’s ExperiencesThe key factor contributing to Japan’s balanced infrastructure development and thereduction in regional disparity is the harmonization among the national vision, thenational land development plan, and the implementation of infrastructure development(OECD. 1996). In other words, the hierarchy of macro- and micro-level planning andpolicies and their implementation is carefully coordinated through the collaborativeeffort not only of the central and local government bodies but also that of the privatesector.The national economic plan sets the overall economic growth target, and the nationalland development plan aims to achieve this target without widening regionaldisparities. Such macro-level strategic objectives set in upper-level plans are thensupported by various laws, institutional setups, sectoral and local level plans, and,most importantly, adequate investment resources to implement the plan components.20) The share of central government expenditure in total expenditure is 85% in Malaysia, 91% in Thailand, 86% inPhilippines, and 28.4% in Indonesia.41

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportThe institutional mechanism supporting infrastructure development in Japan includesthe clarification of the organizational setup of government agencies and publiccorporations, the establishment of a system of periodic revision of sector plans, theenactment of supporting legislations, and, most importantly, the establishment ofinnovative financing schemes. 21)The coordination between the plan objectives and implementation is best seen in theinvestment allocation patterns for public infrastructure. The investment patternsshould exactly follow the policy guidelines provided in the national plan.In Japan, the Comprehensive National Development Plan utilized infrastructureinvestment as the key instrument to reduce regional disparities. The basic assumptionbehind this approach is that public infrastructure provision acts as an importantincentive for private sector investors. Increased infrastructure investment in thelagging regions not only helps in stimulating local economies through short-termdemand effects but also in generating long-term growth potentials through attractingprivate sector investment. Therefore, the lagging regions received high investment inindustrial development-oriented investment (Figure 4.2.2). While this strategy seemsto have worked well in the neighboring areas of metropolitan areas, it delivered onlylimited impacts in some peripheral areas, especially in the face of increasingglobalization. The problem of regional disparity is now on the quality of life rather thanon income levels.The Japanese experience provides the important lesson that infrastructureinvestments should not focus only on industrial growth, but also on the aspect ofquality of life early on to retain populations in secondary and tertiary cities inperipheral areas and enable them to maintain the minimum threshold of populationrequired for urban-like services.21) The strongly coordinated planning approach in Japan seems to have worked well until the early 1980s. Sincethe late 1980s, the system could not respond very well to the changing domestic and global economicenvironments. The public investment approach also could not foresee the impending changes in the pattern ofservice demand. As a result, there are now cases, particularly in lagging areas, where infrastructure facilitieswith huge investments are serving only a fraction of the predicted demand. On the other hand, big citiesexperience severe congestion due to an undersupply of infrastructure.42

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure 4.2.2 Public Investment Distribution among Regions, JapanTotal administrative investment per capitaRatio of national average1.510.51965 1970 1975 1980 1985 1990 1995 2000Livelihood infrastructure investmentper capita1.51.51290Metropolitan Areas (MA)Neighbouring ares of MAPeripheral areasIndustry infrastructure investmentper capitaRatio of national average1Ratio of national average10.51965 1970 1975 1980 1985 1990 1995 20000.51965 1970 1975 1980 1985 1990 1995 2000Source: Administrative Investment, Ministry of Home Affairs, Posts and Telecommunication (various years)Experiences and Issues in EAP countriesSome EAP countries have faced infrastructure development constraints in theirnational development policies, while emphasizing balanced development as a majorobjective along with economic development. This is partly because EAP countrieshave been forced to concentrate their resources in the metropolitan areas in the faceof the growing global competitiveness from other countries. This has resulted in lesserpriorities on infrastructure investments in the regional cities other than majormetropolitan areas. Seta.2002, JASID. 2001)Private sector investment is seen as an important source for more efficientinfrastructure development compared with the limited financial resources ofgovernments. Since the private sector places priority on profitable projects,infrastructure development in less developed areas tend to have little progress.A review of Malaysia’s National Economic Plan shows a conflict between economicdevelopment and balanced development in urbanization policies. During its economicstagnation in the 1980s, the Malaysian government introduced a policy promoting43

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportconcentration in its metropolitan areas. There was a clear policy shift from“Place-Prosperity strategy” to “People-Prosperity Strategy,” which aimed at reducingregional disparities in income levels per capita by concentrating populations andindustries into more efficient urbanized areas. (The Fifth Malaysia Plan, 1986-1990)Malaysia reformed its economy after the policy shift, gaining growth of as much as 9.5percent annual GDP growth rate, which fell to 5.1 percent in the early 1980s. On theother hand, this shift accelerated concentration in metropolitan areas, while industrialdevelopment outside of metropolitan area made little progress. Regional disparitiesexpanded where its GRDP-Gini index increased to 0.22 in 1995, from 0.19 in 1980.Malaysia’s privatization policies have continuously decreased its government’s sharein public investments, lowering its percentage to the GDP to 6.2 percent in theSeventh Malaysia Plan. This was 12.2 percent in the Fourth Malaysia Plan. Sectoralallocations in public investments show a government tendency to move away fromeconomic infrastructures, following a peak in the early 1980s (Figure 4.2.3). As noted,private sector participation has raised concerns that it makes little progress ininfrastructure development for regional cities other than metropolitan area, since theprivate sector places priority on profitability and efficiency. The central government isrequired to develop institutional environments and legal frameworks to provideincentives that would secure infrastructure development in these areas whenpromoting private sector participation.100%Figure 4.2.3 Public Investment Allocation by Sector80%60%40%AdministrationSecuritySocialEconomic20%0%1st 2nd 3rd 4th 5th 6th 7th 8th66-70 71-75 76-80 81-85 86-90 91-95 96-00 01-05Source: Malaysia PlanOn the other hand, the share of public investment in Thailand has recently beenincreasing compared to the Malaysian experience. Thailand’s share of publicinvestment in the GDP increased to 5.2 percent in its Eighth National Economic andSocial Development Plan (1997-2001), which was 3.1 percent in its Fifth Plan(1982-1986). 22) This is also seen in its public expenditures, which remain at a constantlevel of the GDP. This fact shows that the Thai government has continuously played acentral role in infrastructure development. However, public investments have not beenwell allocated into less developed regions since the 1980s under an era of22 ) The share of government budget as percentage of GDP accounted for 17.2 percent, 19.3 percent, 15.7 percent,17.4 percent, and 18.1 percent in the Fourth to the Eighth Plan, respectively.44

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportglobalization, although there is no clear numerical evidence.The Thai government has emphasized social development as well as economicdevelopment early on since the early 1970s. Social equity and regional equity weremajor issues tackled in its social development strategy. Specifically, a policy ondispersion of industries was introduced in its government’s Third Plan (1971-1975),and a regional dispersion policy in its Fourth Plan (1976-1980). Both of these plansselected regional core cities and proposed comprehensive infrastructure developmentin these cities. The Fifth Plan, which came out in the early 1980s, focused the most onbalanced development, which advocated the importance of narrowing regional andincome disparities.However, such regional development policies that narrow regional disparities wereundermined following the prioritization of economic efficiency over national economicdevelopment in the wake of the world economic recession in the 1980s. As a result,infrastructure development in regional core cities was not carried out as expected. Inthe Thai government’s evaluation, there was an urgent need for infrastructuredevelopment such as those for the Bangkok Metropolitan Area. Likewise the EasternSeaboard Development Plan was given more priority for economic development(Seta.2002).The policy shift to economic efficiency contributed in increasing trade and invitingFDIs in the wake of the progress of globalization, thus achieving extremely rapideconomic development. Its average annual GDP growth rate recorded 10.3 percent,in the late 1980s and 8.6 percent in the early 1990s. However, as in the cases ofMalaysia and most EAP countries, rapid economic development has caused seriousproblems in urban environments due to overconcentration metropolitan areas (as inthe case of Bangkok metropolitan area), increasing social inequities due to theexpansion of regional disparities. In response to these problems, the Thai governmentemphasized reducing regional disparities with the introduction of its regionaldevelopment strategy in the Seventh Plan in 1990 and the Eighth Plan in 1995.Following the Asian economic crisis in 1997, the government modified its policies inreforming its economy, where balanced development was placed in the back burner.45

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report4.3 Growth Management of Urbanization in Metropolitan AreasExcessive concentration of populations in large cities brings about densification of built-upareas and urban sprawls in peripheral areas. This results in a number of problems such asdeterioration of living environments, expansion of urban disparities, and increase in thenumber of urban poor. Urban infrastructures are expected to play a vital role in alleviatingthese situations, enabling cities to provide spaces for business activities and maintainsustainable and comfortable urban environments to enhance their competitiveness. In thiscontext, the largest issue lies in the growth management of large cities in relation to urbaninfrastructures. The discussion here covers the role of spinal infrastructures in theformation of urban areas, the implication between land use and infrastructure,infrastructure development in poor areas, and so on.1) Interaction of the Expansion of Urban Area with Trunk InfrastructuresInfrastructure determines the basic form of a city in the long term. Spinal urbaninfrastructures, arterial roads in particular, lead the progress in urbanization. Thus, thetiming of infrastructure development, vis-à-vis the progress of urbanization, has asignificant impact on the form and functions a city would have which then inducesperi-urbanization.For instance, Tokyo developed its urbanized areas mainly along public transport corridorsas shown in Figure 4.3.1. This is due to the development of urban railways radiating fromthe center of Tokyo and which kept pace with the progress of urbanization. In some cases,as will be shown later, urban railways were developed prior to urbanization using internalcross-subsidies from residential/commercial developments of preempted lands.Figure 4.3.1 Expansion of Urbanized Area, 1952-19851952 196019701985Source: CPIJ. 1992.DevelopedAreaRailway Line46

Urban TransportLevels of ServiceStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report2) Long-term Perspective and Comprehensive ApproachesInfrastructures, or trunk infrastructures, designate urban frameworks through a longprocess of urbanization, and this includes structures of urban areas and the distribution ofurban functions. In other words, the timing of infrastructure development has a significantimpact on the quality and range of urban areas. While there are a lot of factors concerningthe timing of infrastructure investments, 23) the most fundamental issue is in how toformulate and implement a practical plan with a long-term vision.On the other hand, the speed of urbanization in the EAP cities has exceeded the functionof infrastructure to designate urban structures. Consequently, transport infrastructures, liketypical urban trunk infrastructures, induce expansion of urban areas and aggravatesprawling in the hinterlands, thus resulting in areas where infrastructures are poor.Urbanization prior to infrastructure development makes it more difficult to improveinfrastructure levels due to huge costs of land acquisition and resettlement conflicts.Critical Point in Urban Infrastructure DevelopmentFor instance, if new investments are not made, urban transport service levels tend to decrease withincreases in population and traffic demand. The assumption is that, if no investments will be made, a“critical point” will be reached wherein previous service levels will be hard to recover even if largeinvestments are eventually made. This “critical point” is practically interpreted as a situation thatentails far larger costs to develop new infrastructure due to uncontrolled urbanization withoutsufficient infrastructure provision.Desirable pathLikely TrendPossibleDifficultCritical PointIn the figure above, Singapore seems to be on the “Desirable Path,” while other megacities, such asBangkok, Jakarta, and Manila are on the “Likely Trend,” judging from the decreasing service levels inurban transport. Lessons from the Singapore’s experience are as follows:A. Transport demand management (TDM) is important for controlling traffic volumes while generatingfunds for the development of transport infrastructures.B. Public transport development should have priorities. Bus services should be improved in the initialstage, while railway (guideway transit) should be developed next when investment funds havebeen secured.However, for the practical use of these lessons, it should be noted that the capacity of the Singaporegovernment was high enough to attain ideal planning, coordination, and implementation.23 Determination of timing of investment of transport infrastructure is discussed in Appendix B.47

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFormulation of long-term development plans is essential to realize growth managementthrough infrastructure and improve living conditions in a city. Its objectives are thefollowing:1) To secure in advance public space necessary for infrastructure, such as roads, railways,parks, and schools, before uncontrolled urbanization progresses.2) To control land use in consistency with infrastructure development.3) To establish basis for public authority in relation to planned actions.However, in many developing EAP countries land-use controls often fail due to insufficientlegal frameworks, deficient applications of existing restrictions, political intervention, andso on. To improve this situation, it is important to have implementable infrastructuredevelopment plans that are consistent with planned land use, and then to legally authorizethese plans. This is particularly true in large-scale projects that require considerable landspace like arterial road development. More specifically, the necessary actions are theestablishment of clear city plans, the provision of effective tools for land-use management,the imposition of development restrictions on infrastructure-planned sites, preemption ofnecessary land space, etc.This task requires a vast amount of effort for governments in these developing countries. Itshould be emphasized that good governance plays an important role in materializingobjectives.3) Land-use ManagementThe most fundamental issue of growth management is land-use control. This is closelyrelated to the mechanism that ensures efficient and effective development ofinfrastructures in each area, and which should be determined in city master plans inconjunction with development restrictions and investment schedules.The basic strategies of land-use management are two-fold: incentives and restrictions.Incentives include the combined development of infrastructure and residential areas (usinginternal cross-subsidies from area development to infrastructure) and various bonuses forspecific types of development. Restrictions are, basically, legal constraints that determinetype, scale, and form of development. In relation to infrastructure development, therestrictions imposed in the planned, or proposed, site are the key factors that determinethe reality of implementation. In general, these measures are used in combination topromote infrastructure development. In addition, land-use restrictions can be changeddepending on the level of infrastructure and the contributions from landowners. This is anexample of using land-use restriction as an incentive.In most large cities in the developing countries, however, rapid urbanization has resulted inserious urban disparities in terms of infrastructure service levels due to urbanizationwithout enough infrastructure provision in the center and peripheries.Land-use management also covers institutional aspects with regard to registration systemof land ownership and tenancy, land transactions, and so on. The deficiency in theselegal/institutional mechanisms, often seen in developing countries in the EAP region,hinders the serious acquisition of lands needed for infrastructure development. For48

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportinstance, the discrepancy in land prices between market and declared prices causesconflicts between the government and residents. In addition, informal settlers, as seen insome EAP cities, are one of the major roadblocks in infrastructure development. Theseinformal settlers often illegally occupy unused public lands that usually act as the “seeds”for infrastructure space. The concept of land-use management is hardly applicable inthese areas. This problem should be addressed not only from an infrastructure point ofview but also from a comprehensive socio-economic viewpoint.4) Efficient Operation of Existing InfrastructuresThe demand-supply gap of infrastructure in EAP cities is expanding as rapid urbanizationcontinues. It is almost impossible for the supply to catch up with demand in the short term.Therefore, it has become one of the key strategies to maximize the use of existinginfrastructures. From this standpoint, the importance of maintenance and demandmanagement should be stressed.Transport Demand Management (TDM)Traffic congestion is a common problem shared by many EAP cities and is regarded asone of the major causes of the low efficiency of urban activities, worsening livingenvironments, and poor traffic safety. While many cities have tackled this problem as apriority issue, drastic improvements are hardly seen since the development of newtransport infrastructures generates new demand. Thus, controlling traffic demand iscurrently eyed to as an efficiently use of existing transport infrastructures. TDM is alsoregarded as a promising measure to generate new fund sources. (This aspect is explainedin chapter 4.1). TDM measures have already been tested in some EAP cities. Thefollowing are the preceding practices:ARoad Pricing in Seoul CityRoad pricing started in Seoul city aiming to reduce the number of private vehicles (i.e.low-occupancy vehicles) as well as raise revenues for transport-related projects. Thisexperience in Seoul shows that road pricing can improve the traffic situation of a wholenetwork, if locations are adequately selected.This scheme was introduced in 1996 at the Namsan Tunnels #1 and #3, which are twomajor arteries linking downtown Seoul to the southern parts of the city, through acongestion fee of 2,000 won. 24) These two corridors had high private vehicle use, with a 90percent share of total traffic, the highest of all corridors linking the central business district.The results of the five-year implementation of the road pricing showed significantimprovements in the traffic situation in both corridors. Traffic speed improved from 21.6km/h before commencement to 43.5 km/h by 2001. The share of passenger vehiclesdecreased from 78.4 percent to 58.0 percent in 2001.On alternative routes, traffic volumes increased up to 15 percent but average speeds alsoincreased. It was evaluated that this impact was a network effect caused by improvedflows at signalized intersections linked to the Namsan corridors.24) Exchange rate is: US1$ = 1,150 won as of August 2004.49

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTable 4.3.1Traffic Situation Changes in Namsan Tunnel CorridorsTraffic Speed 1)(km/h, % of increase)1996 Nov(before pricing)21.61997 Nov. 1999. Nov. 2001 Nov29.8(+38.1)30.6(+42.0)43.5(+101.4)Traffic Volumes(vehicles, % of increase)Modal share (% to total)90,40478,078(-13.6)94,494(+4.5)81,549(-9.8)Passenger car 78.4 59.5 47.8 58.0Bus 3.3 5.2 6.4 5.3Taxi 7.8 19.0 26.7 21.5Note: 1) Average speed of two corridors.Source: Yamaya. 2002. Five-year evaluation of Road Pricing in Seoul CityAnother important implication from the Seoul case is to raise funds from TDM scheme. Theannual revenue from this scheme, about 14.1 billion won per year, is invested in a specialaccount for transportation aid and is spent exclusively for public transport improvementprojects, including bus vehicle improvement and transport system management measures.B. Jakarta 3 in 1 policyA 3-in-1 scheme was applied on the Jl. Thamrin, Jl. Sudirman and a part of Jl. GatotSubroto, from 6:30 a.m. to 10:00 a.m. Mondays through Fridays in Jakarta. During therestricted time, only vehicles with three or more passengers are allowed to enter therestricted road sections. The scheme was generally effective in reducing the number ofvehicles entering the restricted zone resulting in smoother traffic flows during the restrictedperiods.However, this scheme had several problems. First, unlike in the case of Seoul, it increasedtraffic demand on parallel streets, which grew during the restricted hours and significantlydecreased travel speeds. This puts into question whether traffic restrictions on one roadcan achieve efficiency for an entire network. Besides, there was no revenue collected forthe local government, while costs were incurred for traffic police enforcement.Another problem that resulted was the practice of picking up temporary passengers called“jockeys,” at a thousand rupiah per head along the way, which reduced the effectiveness ofthe traffic restraint policy through interference into one of the objectives, to reducevehicular traffic on restricted roads.C. Transport Demand Management in Chinese CitiesIn China, motorization started in the early 1990s. The number of private passenger carsincreased to 240,700, in 1990 from about 19,300 in 1985 or an annual growth rate of 65percent. The rapid increases in passenger car and motorcycle usage since the 1990sseriously alarmed Chinese cities, prompting the regulation on both usage and ownershipof vehicles mainly in major coastal cities. Since the responsibility fell under each provincialgovernment, various policies were enforced by city governments.In Beijing, a ban on the new registrations of motorcycles was introduced in 1984, theearliest in China. At that moment, passenger car ownership per 1,000 persons was only7.0 and 0.25 for private-owned.50

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportIn Shanghai, the largest commercial center in China, regulation was applied both onpassenger cars and motorcycles. A registration ban for motorcycles was done in the early1990s, while replacement was allowed for those who already had registrations. Regulationon motorcycle usage was only introduced in 2002. Car licensing quotas and auctions wereintroduced for passenger cars. Each year, Shanghai sets a quota for vehicle registrationand auctions off the corresponding number of license plates on the market. Since 2000,the city increased this quota to 50,000 a year. The 2002 average bidding price of a licenseplate went as high as US$ 3,700. 25) This generates millions of dollars from auctions withthe money going back to the city’s transportation development projects.Other regulations on motorcycles enforced in China includes the limitation of motorcycleaccess into the city center of Kunming through the issuance of permits; the limitation onthe usage of ageing motorcycles in Guangzhou or Nanning; and the ban on two-strokemotorcycles in many cities.Comparison among cities in China shows that measures on control policies has effects ontransport performance in each city, depending on the timing of enforcements. Table 4.3.2shows motorcycle and passenger car ownerships with GDP per capita of the three majorcities of Beijing, Shanghai, and Tienjin.CityTable 4.3.2 Motorcycle and Car Ownership and GDP per capita, 2002GDP percapita(USD)Passenger CarOwnership(number/1000)Private-TotalownedMotorcycleownership(number/1000)Yearintroduced ofRegulationLength of Highway/ vehicle (km/000)1990 1995 2000Shanghai 3,572 27.8 8.8 32.1 1990 8.6 10.5 12.0Beijing 2,487 79.3 51.2 24.0 1984 6.8 8.4 9.6Tianjin 2,220 32.2 20.2 44.7 1994 12.4 13.1 27.6Source: Statistical Book of China, 2002In Shanghai, passenger car ownership is lower than that in Beijing and Tianjin, which isespecially true for private vehicles, while the city’s GDP per capita is the highest amongthe three cities. This is partly due to strict regulations on car ownership through licensingquotas and auctions. On the other hand, Beijing is a passenger-car-dominated city withlower levels of motorcycle ownership, which is due to earlier enforcements on motorcycleusage inside city areas.D. Transport Demand Management Policies of SingaporeAlthough Singapore’s experience may not be deemed a good model to apply to other citiesdue to it being a small city-state, its remarkable performance supported by institutional andorganizational capabilities, and its combined approaches on infrastructure developmentand TDM measures should be highlighted. The levels of service for road traffic have beenconstantly maintained for more than 20 years. 26)25 Over time, the bidding of license plates has evolved into an activity of car dealers instead of car owners. Dealersacquire plates through auction and then immediately sells them together with cars.26) See Appendix B for details51

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportDemand Management by Tariff LevelsDemand management is possible by adjusting tariff levels in the sectors where tariff iscollected from the user (electricity, water, etc). A dynamic tariff structure can inducedemand management if adjusted on consumption levels for all types of consumers. On theother hand, inadequate tariff structures might cause wasteful water usage and decreasetariff revenues.For example, in Sri Lanka, very high nondomestic tariffs have forced some businesses todrill their own water wells. ADB. 2003. Asian Water Supplies There is a need, therefore,to acquire and manage information on consumer needs and historical changes in waterusage, and monitor the effect of tariff adjustments.5) Comprehensive Infrastructure DevelopmentAs noted before, rapid expansion of urban areas and the formulation of densely built-upareas result in deteriorating urban environments and intra-urban disparities in levels ofpublic services. To improve quality of life in high-density areas, it is reported thatsector-wise approaches (e.g. road, water supply, housing, etc.) is not effective. Integratedmultisectoral approaches should instead be pursued (ADB. 1999). Such sector-wideimplementation requires institutional coordination among various stakeholders, includinggovernment departments, agencies concerned with environmental management, theprivate sector, and communities.Another aspect of intra-urban disparity is the urban poor. The increase in the urban poorbrings about a number of implications for infrastructure development. The magnitude ofthis problem is forecast to further grow and have a serious effect on large EAP cities. Theurban poor are distributed mainly in overcrowded areas in and around city centers, and inthe peri-urbanized areas where infrastructure is poorly provided and difficult to improve. Toimprove these areas, a multisectoral and integrated approach should be taken, includinginfrastructure development and socio-economic countermeasures, such as the creation ofjob opportunities, education, and anti-criminality campaigns.As mentioned earlier, poor areas often spread along and inside public land spaces likerivers, canals, and railways (mainly informal settlements). When infrastructure is plannedacross these areas, residents have to move out and face a number of difficulties.Compensation is sometimes insufficient and livelihoods are often lost. In addition to fairresettlement compensation, a multisectoral and integrated set of countermeasures shouldbe similarly provided.In practice, experiences in the EAP countries have shown difficulties in institutionalcoordination and comprehensive approaches especially in large urban areas due to thelack of political commitment, sectoral coordination, and intergovernmental coordination (tobe discussed later). Integrated approaches should be conducted in parallel with asustained process of institutional development and policy dialogues with participatingagencies and local government units. (ADB. 1999)The Kampung Improvement Program (KIP) in Indonesia is one of the best practices of anintegrated approach. This program is characterized by the active participation of localcommunities.52

Kampung Improvement Program In IndonesiaStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportThe Kampung Improvement Project (KIP) was conducted by the World Bank in major citiesin Indonesia from 1980 to 1988. The program aimed to alleviate poverty by supportingefforts to improve housing services and basic infrastructures in low-income and highlydense areas known as kampung, brought on by the rapid increase in urban poverty due tocontinuous urbanization with in-migration from rural areas.The KIP components included housing and environmental improvements for low-incomeurban households. 27) The most positive impact of KIP was it upgraded the quality of life ofkampung residents through the provision of improved footpaths, access to water, privatetoilet/septic tanks, improved drainage facilities, lighting, education, and health facilities,living spaces, and reduction of housing density. (WB. 1995. Enhancing the Quality of Lifein Urban Indonesia: Legacy of Kampung Improvement Program).This program shows that a compressive approach, including the provision of socialfacilities as well as public infrastructure facilities, can efficiently improve low-income areas,which are a common feature of EAP cities. Spillover effects outside project sites were alsoobserved where the KIP experience served as a prototype for investments andimprovements, while the urban environment continues to deteriorate, exacerbated by rapidpopulation growth.The study evaluated that although most kampung residents did gain some benefits, theywould have gotten more if their property rights were more secure, showing that institutionalarrangements are also required in integrated approaches. Another lesson identified in thisprogram is community participation in the planning and implementation phases.6) Infrastructure Provision for Urban PoorThe urban poor are obliged to work in an informal sector because they do not haveeducation or skills required for employment in a formal sector. They have very limitedaccess to financing for starting small business since they do not have property which canbe used as collateral. They cannot enjoy social security benefits because they are notlegally registered as citizen.The Urban poor in illegal settlements are not equipped with infrastructure services i.e.,power, water and sanitation, telecommunication, and transport (see page 27). Legallyregistered land and residences (publicly or privately owned) are expensive for themwhether purchasing or leasing, and cannot be accessed by the poor. Lack ofinfrastructure services deprive them of opportunities to get out of poverty. In peri-urbanareas, lack of transportation services prevents them from accessing to employmentopportunities and increasing their income. Without infrastructure services, they cannotrun small businesses at their residences (such as manufacturing and petty trading), typicalinformal livelihood activities. Therefore, improvement of the urban poor’s access toinfrastructure services contributes to upgrade their living conditions and livelihood.One of the most serious constraints on their access to infrastructure services is that theydo not have secure tenure status (UN-HABITAT. 2003). The public sector and utilityservice providers are constrained to formally construct infrastructure facilities for people27 One of the characteristics of the KIP is the low cost of investment (ranging from US$ 118 per person in Jakartato US$ 23 in smaller cities, 1993 US dollars).53

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportwho live illegally. In addition, without collateral, the poor have very limited access tocredit services. Hence, it is considered that the provision of secure tenure status to theurban poor is one of the effective means to assist the urban poor. In reality, however, it isnot often realized so far due to various reasons, for example: (i) limited access ofindividuals/small developers to urban land usually owned by governments; (ii) lack of lawsand/or registration system of property ownership; (iii) lack of efficient property market; (iv)government’s low cost housing scheme which are not affordable to the poor; (v) privateland owners resistance; (vI) political difficulties; (vii) lack of capacity of governments; etc.In spite of these difficulties, secure tenure status, even limited, need to be publicly grantedone way or another in order to improve the urban poor’s access to infrastructure. Forexample, Brazil has a law granting “adverse possession;” and in the Philippines, squatters’rights are recognized in its constitution. Once the secure tenure is granted, infrastructurecould be provided in the following guidelines: Infrastructure provision in urban poor areas should not be separated from the otherurban area. It is essential to physically and functionally integrate the poor areas intoother urbanized area. Infrastructure in the poor area should be connected with wholenetwork of the urbanized area. This policy will prevent the isolation of poor areas, andformally integrate the areas into urban economy. When drawing up a plan of infrastructure provision in urban poor areas, it is necessaryto ensure their participation in order to reflect their needs. In particular, content/levelof infrastructure services, location of facilities, and cost recovery mechanism should bedecided with the participation of the poor people. Affordability to pay and willingnessto pay need to be carefully studied. Cost recovery is one of important issues in providing infrastructure services to the poor.It would be difficult to expect poor individual households to pay the charges due to theirinstable economic situation. Therefore, it would be an option to provide land tenureand services user rights with “communities”, rather than to individual households.Another option is to consider targeted subsidy scheme for them. If the urban poor can purchase or rent a property equipped with basic infrastructureservices, it is the best option for them. Governments should consider low-costhousing development affordable to the poor, development of efficient property market,rationalization of registration fees, creation of socialized housing loan/subsidy scheme,etc. to the extent that these do not cause serious market distortions. In order for them to generate more income through utilizing infrastructure services,other policy measures need to be adopted as well. They would include: creation ofmicro-credit scheme, rationalization of land use restrictions to prohibit small business attheir residences, fast processing of business permits, etc. It is very often that the urban poor, who illegally live in infrastructure project areas, areobliged to be involuntarily relocated. In addition, it is increasingly difficult to providerelocation near places where they live. In such cases, due consideration should begiven to provision of infrastructure services in the relocation sites. For example, JBICODA loans assist constructing infrastructure (electricity, water, roads, etc.) in squatterresettlement area in the Philippines.54

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report7) Governance Improvement and Capacity DevelopmentAs urbanization progresses in diversified societies, good governance and capacitydevelopment become key issues in infrastructure development in urban areas. This isbecause problems, such as increasing urban poor and worsening environments, need tobe tackled through multisectoral approaches, even while consensus building is gettingmore difficult to achieve among diverse stakeholders.The ADB has pointed out the importance of improving governance in urban developmentin four aspects: (i) Accountability of public sector staff and organizations; (ii) Greaterparticipation of community and interest groups in decision making on the delivery ofservices and demand management; (iii) Predictability of markets, regulations, and legalframeworks; (iv) Transparency in dealings between the private sector and government.(ADB. 1999 Urban Sector Strategy).Beyond Administrative BoundariesIn large EAP cities where urbanization spreads beyond administrative boundaries, urbanactivities naturally occur across boundaries. This requires a wider administrative orcooperative mechanism to provide infrastructure services to the citizens. In water supply,waste management, transport and other infrastructure services that need networks, thisrequirement is essential.In the Philippines, for example, the Metropolitan Manila Development Authority (MMDA) isin charge of coordinating urban development for the entire Metro Manila area, whichconsists of 17 cities and municipalities. However, its legal authority is not firmly established,and its power is limited to actual coordination and enforcement of land-use managementand infrastructure development. Furthermore in Metro Manila, urbanization is currentlyexpanding to the adjoining provinces, such as Cavite and Laguna, where the lack ofinfrastructures is a serious concern. Webster. 2001 However, the MMDA is notresponsible for issues outside Metro Manila, thus a strong coordinating framework isurgently needed for the entire urban area in and around Metro Manila.For this type of wider-area, or regional approach, in infrastructure development, thedecentralization of government functions and authorities has a significant impact. InIndonesia, where decentralization has been ongoing since 1999, development andmanagement authorities for basic infrastructure were transferred to local governments inthe lowest level. For this, and partially for the confusion typically seen in the time ofinstitutional reforms, the Jakarta Metropolitan Area (JABODETABEK) is currently sufferingfrom a number of problems, such as lack of planning capacities of the local governments,lack of coordination, and overlapping responsibilities among central ministries and localgovernments. For example, similar local governments proposed the same arterial roadwith different alignments. Due to these problems, the establishment of a city-widecoordinating body which is responsible for major transport policies and projects, like theJabodetabek Transport Authority, is proposed. (JICA, 2004, SITRAMP)Sectoral CoordinationFor solving complex urban problems, a single-sector approach is not effective and anintegrated multisectoral approach is essential. In many developing countries (even insome developed countries) however, good coordination is seldom seen among55

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportgovernment units, which is mainly due to sector-wise allocation of administrativeresponsibilities. To improve and manage a city comprehensively, consensus amongvarious stakeholders should be attained to determine priority of policies and projects. Also,strong coordinative mechanisms across sectors need to be developed.Community ParticipationOne of the important governance-related issues is community participation. For developinglocal infrastructures including water supply, sanitation, and local roads, the importance ofcommunity participation from the planning stage is widely accepted. By determining thelocation and size of the planned infrastructure, after accurately understanding theresidents’ needs, the infrastructure can be made effective. Community participation alsocontributes in enhancing ownership by the local people. And the accumulated knowledgeand intimacy of the project facilitates the efficient and sustainable maintenance of localinfrastructures.The initiative of local residents in infrastructure development has recently becomesignificant in developing countries partially owing to the efforts of NGOs and CBOs.However, there are some cases where community participation does not work well,negatively impacting infrastructure development. More sophisticated and collaborativeprocesses are needed where interest groups with radically different agendas work togetherpro-actively rather than blocking initiatives.As mentioned earlier, the KIP in Indonesia adopted the participatory approach with goodresults. This is one of the examples why an international donor organization (WB)supported this approach. The impact study of the KIP showed that consultation from theearly stage expands participation and, thus, results in higher level of satisfaction, evenwhile levels of community consultation vary per project sites. Therefore, it was proposedthat community participation and consultation should be promoted to ensure that theywould be responsive to O&M requirements in their respective kampungs. Consultations inthe early stages of project preparation and design should be conducted, such as on thelocation of roads and footpaths, or water standpipes and sanitary facilities, in order to instilla sense of project ownership by the community and ensure commitment to the projects’O&M.On the other hand, the study also noted that, while some aspects of infrastructure andenvironment, such as housing, footpath maintenance, and solid waste collection, can bemanaged by communities, other aspects, such as illegal dumping of solid waste andintegration of kampung infrastructure with citywide infrastructure, are beyond the control ofthe communities. Local governments should manage them with the assistance of centralgovernment authorities.4.4 Infrastructure Development Strategy in response to Globalization and ITInnovation1) Balanced Development under GlobalizationRegional Strategy beyond CountriesGlobalization will further accelerate concentration in metropolitan areas. Likewise,56

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportinfrastructure development is emphasized in these areas in order to attract FDIs. Aspointed by Henderson (2000), if existing metropolitan areas assume the role of aninternational gateway with ports and airports, globalization might lead to an increase inurban concentration.As is the experience in EAP countries, the progress of globalization makes it difficult fordeveloping countries to put priority on equity and tackle balanced development, eventhough they have described it in their national development plans. There is an increasingconcern for urbanization risks including the deterioration of urban environments andimpoverishment of rural communities. Key issues include how to tackle balanceddevelopment globally. In other words, international cooperation is expected to alleviatehuge concentrations and environmental deterioration in large cities and prevent thecontinuing decline of industries and depopulation in the rural areas.For example, the European Union has introduced one regional policy to reduce (andprevent further expansion of) economic and social disparities between developed andundeveloped regions and promote economic integration. This is based on a concern thatlow-income regions might fall further behind with the intensifying global competition andthus further expand regional disparities in the region. 28) More specifically, this policyconsists of the Structural Funds and the Cohesion Fund. Total amount of allocatedresources for each fund is 195 billion and 180 billion euros, respectively, in a seven-yearperiod from 2000 and 2006, accounting for a third of the total EU budget. 29) This policy isevaluated favorably for its effectiveness, although it varies per country.Since the EAP region has a different historical and geographical background withEuropean countries, the introduction of such a mechanism in the EAP region needs moreconsideration. Nevertheless, EAP countries can learn much from the model’s objectivesand policies.Cross-border Infrastructure DevelopmentAs noted, globalization exposes cities to direct international competition and theformulation of new spatial urban formation, outside national capitals and metropolitanareas. Key issues for infrastructure development include the development of cross-borderinfrastructure that support trans-border economic activities among cities in response tonew emerging economic zones.There is a recent a global effort on cross-border infrastructure development as seen in theGreater Mekong Subregion (GMS) initiative. This can encourage development in lessdeveloped countries, such as Cambodia, Laos, and Myanmar, and allow new economicblocs in rural areas, such as in the hinterlands of Thailand and Vietnam.28) Considering an average GDP per capita in 15 EU countries as 100, the highest GDP per capita is 242 in InnerLondon, which is five times of the lowest of 51 in Ipeiros (Greek). (Purchasing Power standards, 1997), EU29)Seventy percent (70 percent) of Structural Funds is allocated to the development of low-income regions of whichthe GDP per capita is less than 75 percent of the EU average, while 11.5 percent is for economic and socialsupport for regions facing structural difficulties (France is the largest recipient country), and 12.3 percent is tosupport modernization and structural changes in the education and employment sectors (Germany and UnitedKingdome are the highest recipient countries). On the other hand, Cohesion Fund is an assistance tool targetingspecific countries, with GNP per capita of less than 90 percent of the EU average and with economicimprovement program, while Structural Fund is allocated for specific issues. Specifically, the coverage includesfour countries, Greece, Spain, Ireland, and Portugal and the usage is limited to transport network development(TEN: Trans-European Networks) that have regional benefit, and environmental protection.57

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportKey issues include the formulation of global coalitions to enable cross-border infrastructuredevelopment. It is expected that donor agencies will provide initiatives for regionalcooperation.2) Strategic Infrastructure Development Targeting IT IndustryExpansion of the IT industry has affected the functions of cities and has changedtraditional industrial promotion with heavy and large Infrastructures. In order to promotethe IT industry, it is necessary to provide high-standard urban living environments forintellectual workers, as well as comprehensive urban infrastructures, includinginfrastructures that support the IT industry like communication and information networks.In practice, agglomeration of new industries is found in urban areas with comprehensiveurban infrastructures. In other words, strategic improvement of livability including greenenvironments, basic utilities, and social services such as education and hospitals, canattract high-standard intellectual workers and thus invite the IT companies, as seen inBangalore in India and in Cyberjaya in MSC 30) of Malaysia.Bangalore has successfully induced its IT industry after the Software Technology ParkIndia (STPI) was established in 1986, which has grown to be India’s “Silicon Valley.”Bangalore has been evaluated as a success story that has attracted high-level gold-collarworkers in developing countries by developing basic infrastructure to improve convenienceand comfort for residents as well as economic infrastructures, including communicationsand electricity.Cyberjaya is a planned major information city in the MSC with a population of 240,000.The integrated infrastructure development has proposed comprehensive urbaninfrastructure services for high-standard city living and cutting-edge soft infrastructure (e.g.MSC status for preferential treatment, institutional framework, and multimedia universityfor high-level human resources) including a world-class IT network. Cyberjaya’sinfrastructure development has not been well developed yet, but it is expected tocontribute to the national development target by 2020.30)The MSC plan was introduced in 1996 as a main project on national industrial policy for internet andcommunication technology. MSC is a central government-led project located in the peripheral area of KualaLumpur metropolitan area. The major projects in MSC include Kuala Lumpur International Airport, Putrajaya as anew administrative city, Cyberjaya as a new information city, and Kuala Lumpur City Center.58

5. Summary of RecommendationsStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFunding Strategy• Absorption of Development Benefits: Benefits resulting from the development ofurban infrastructures appear as increased prices of fixed properties such as landsadjacent to infrastructures. The government collects a part of this benefit in the form offixed property tax. In developing EAP countries, however, this has not been aneffective fund source due to deficiencies in land registry, nontransparent evaluation ofland prices, political intervention, etc. The collection of fixed property taxes should bestrengthened in the long run. The following measures are further recommended: Imposition of adevelopment tax when specific beneficiaries are identifiable (e.g.enterprises near railway stations). Obligatory infrastructure provision by private developers for large-scaledevelopment, or imposition of a special tax corresponding to the cost ofinfrastructure development.• Widened Application of the “Users Pay” Principle: The TDM, such as the roadpricing method mentioned above, is typical of this. Other possible candidates includethe polluted water discharge tax, surcharge on large-scale electricity consumption, etc.Although this is applicable also to railways, water supply, and other infrastructureservices where tariff is collected, consideration should be given to the poor and thebusiness sector.• Use of Internal Cross-subsidy Mechanisms: Economic and financial feasibilitydiffers per area even for similar infrastructures. In the case of nationwide road network,for instance, the economic viability or financial profitability (if toll road) becomes low inthe rural area where demand is scarce, and its development priority, therefore,becomes low. If, however, the entire network is authorized by national developmentplans, and if the feasibility is judged as a whole network allowing internalcross-subsidy from highly feasible projects to less feasible ones, the development ofroads in the rural areas becomes possible. Internal cross-subsidy works effectively inthis case to maintain the consistency of national policies. The same mechanism isapplicable to an expressway network in a city where operators are different by route. Ifan internal cross-subsidy mechanism (or toll revenue allocation system) is establishedin an open and transparent manner, participation of new private operators becomeseasy, and the convenience of expressway users is highly improved (unified toll, lesstoll gates, etc). In addition, internal cross-subsidy is also applicable between differentprojects of the same operator (In Japan, there are examples showing profit fromproperty developments being used to construct urban railways).Roles of Comprehensive National Urban Policy• Establishment of National Urban Policies: Urbanization is an inevitable trend. Theurban population in the developing EAP countries will increase from the present 800million to 1,470 million by 2030. The increment of about 670 million, in addition to theexisting urban poor, of about 300 million who are not receiving enough benefits of59

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportinfrastructure services at present, means that the development of new urbaninfrastructure should be met by 2030. This is a difficult task, which requires an entirereview and dynamic restructuring of infrastructure development with regard to itsquantity, quality, and distribution. In the developing EAP countries, however,comprehensive urban policies to determine these parameters are generally eithernon-existent or not functioning well. It is urgent for these countries to establishnational urban policies based on firm legal, institutional, social, and economicgrounds.• Formulation of National Development Plans Linked with Urban Policies: Thoughthe level differs per country, urbanization has been one of the engines of economicgrowth of the developing EAP countries. Urbanization, however, tends to expandincome disparities amongst peoples. Thus, it is important to formulate a nationaldevelopment plan to strategically determine how to allocate national wealth amongregions and ensure legal and institutional authorities. This is one of the prerequisitesof the private sectors’ participation in infrastructure development. In other words, it isthe soft infrastructure that will guarantee both transparency and predictability for majorplayers to enter the market. In national development plans, impartiality among regionsand economic efficiency of concentrated investment are seemingly on anon-admissible tradeoff with each other. Yet, this conflict can be dissolved to a certainextent in time axis by shifting emphasis of action. In the early economic growth periodof Japan, initial emphasis was placed on the development of infrastructure in a limitednumber of strategic cores, followed by the combination of local cores and networks,then to the less developed areas. Due to this policy, regional disparity, which wasonce wide, was narrowed after a few years of spreading economic benefits nationwide.China seems to be pursuing the same policy at present.• Formulation of Development Strategies in Local Core Cities: In the developingEAP countries, the development of secondary cities has not been effective enough toalleviate the population concentration in the megacities. The development of selectlocal core cities is recommended taking into account the development potential of acity. More specifically, the economic, social, and transport/communication linkageswith megacities and the cooperative and interdependent linkages with adjoining areasshould be considered in the development strategies of local core cities.Urban Infrastructure Development Policies• Strengthening of Development Mechanism of Urban Infrastructure: The rapidincrease in populations in the EAP megacities has brought about uncontrolledurbanization with large poor areas and expanded disparities in the service levels ofinfrastructures. An integrated multisectoral approach is needed to solve theseproblems. However, the most fundamental countermeasure is to establish a land-useplan and enforce it. This plan should have a legal authority and be effective to timelyconduct infrastructure development. Although this entails a number of difficultiesconsidering the current levels of institutional/organizational capacities andgovernance in the EAP developing countries, it is urgent to at least establish aneffective coordinating mechanism between local autonomies of a metropolis and theirrelated sectors. Establishment of an organization responsible for the development of60

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportnetwork-type infrastructures will be effective if its authority is legally guaranteed.• Introduction of Demand Management: In response to the increasing demand forurban infrastructures, the need for control is getting more and more important. In theurban transport sector, it is now common knowledge that in the developing countriesinfrastructure supply can never catch up with the increasing traffic demand. In somecountries, transport demand management (TDM), such as road pricing, has proven tobe effective. This is quite practical because it suppresses traffic demand by chargingusers (thus indirectly mitigating urbanization) and at the same time produces fund forinfrastructure investment. Although excessive charging hampers economic viability,the adoption of TDM measures is recommended when applicable.• Provision of Infrastructure for Urban Poor in a formal way: In order to provideinfrastructure services for the urban poor, it is essential to develop infrastructure in thepoor area physically and functionally integrated to the other areas in order to formallyinvolve urban poor into urban economy, as well as to provide low-income householdsand implement slum-upgrading program separately. The participation of the urbanpoor in planning of infrastructure design and location is essential to enhance theirownership. Cost recovery mechanism should consider affordability and willingness topay of the poor. More fundamentally, it is necessary to provide formal tenure status forthe poor to ensure sustainable access of infrastructure service, where there areseveral constraints including poor institutional arrangement and economic instabilityof the poor. One solution is to provide land tenure and infrastructure service rights to“community” rather than to “household” individually.Strategic Development of Urban Infrastructure targeting New IT Industry• Conditions surrounding urbanization are changing. It has become possible to attaineconomic development by strategically developing urban infrastructures.Development of large-scale infrastructures and industrial estates in response toglobalization may fall in this category. Recently, however, examples of targeting theaccumulation of information technology and knowledge industries by enhancing livingenvironments, as a whole, have emerged. The role of urban infrastructure is essentialhere to attract quality workers as seen in Bangalore of India, MSC of Malaysia, BeijingScience Park of China, etc).61

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportMAIN REFERENCESADB 1997. Second Water Utilities Data BookADB 1999a Urban Sector Review in People's Republic of ChinaADB 1999b Urban Sector StrategyADB 2000a Urban Sector Profile in PhilippinesADB 2000b Water for AllAlonso, W. 1980. Five bell shapes in development. Papers of the Regional Science Association. Vol.45, 5-16Alpha Research Co., ltd. 2003. Thailand in FiguresBlack, D. and Henderson, J.V. 1999. A theory of urban growth, Journal of Political Economy, Vol. 107,252-284Carruthers, Robin Bajpai, N. Jitendra and Hummels, David 2002. Trade and Logistics: an East AsianPerspectiveCity Planning Institute of Japan 1992. Tokyo Metropolitan Area, Regional Structure, Planning History,and Future Vision (Tokyo Daitoshi-ken, Chiiki Kozo, Keikaku no Ayumi, Shourai Tenbou, inJapanese), Shokoku-shaDouglass, C.Michael 1998. East Asian Urbanization: Patterns, Problems, and Prospects, APARCFay, Marianne and Opal, Charlotte 2000. Urbanization without Growth: A not so uncommonPhenomenon, World BankFujita, M., P. Krugman, and A. Venables 1999. The Spatial Economy, Cambridge: MIT Press.Government of Malaysia 2000. Eighth Malaysia Plan and Other versions.Government of the People's Republic of China 2001. Tenth Five-year Plan for National Economic andSocial DevelopmentGovernment of Republic of Philippines 2000. Statistical Yearbook of PhilippinesGovernment of Thailand 1992. The Seventh National Economic and Social Development Plan andother versions, NESDBHenderson, J.V. 1982. Impact of government policy on urban concentration. Journal of UrbanEconomics 12: 280-303Henderson, J.V. 1988. Theory, Fact and Illusion, Oxford University Press, New YorkHenderson, Vernon 2000. How Urban Concentration Affects Economic Growth, Policy ResearchWorking Papers, 2456, The World BankJBIC 2003. Impact Study on Contribution of ODA Yen-Loan Projects in Development of MetroCebu region.JICA 1999 Metro Manila Urban Transportation Integration Study (MMUTIS)JICA 2004a The Study on Integrated Transportation Master Plan for Jabodetabek, (SITRAMP)JICA 2004b The Study on Urban Transport Master Plan and Feasibility Study in Ho Chi MinhMetropolitan Area (HOUTRANS)Japan Society for International Development (JASID) 2001. Reduction of Regional Disparitybetween Metropolitan Area and Rural Area in Thailand (Shuto-ken to Chihou tono ChiikiKakusa Zesei, in Japanese) Japan Society for International DevelopmentKATO, Hisakazu, et. al, 2001. General statement and issues on population problems, JICALee, Boon Thong 1996. Emerging urban trends and the globalizing economy in Malaysia, chapter 10,Emerging World Cities in Pacific Asia, United nations University PressLee, Boon Thong 2000. Urbanization in Malaysia and Kuala Lumpur Metropolitan Area (Malaysia noToshika to Kuala Lumpur Toshiken, in Japanese), Asian Megalopolis [3], Nihon Hyoron Sha62

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportLo, Fu-Chen and Yeung. Yue-man. 1996. Emerging World Cities in Pacific Asia, United nationsUniversity PressMcIntosh C. Arthur 2003. Asian Water Supplies, ADBMedhi Krongkaew 1996. The changing urban system in a fast growing city and economy: The case ofBangkok and Thailand, chapter 9, Emerging World Cities in Pacific Asia, United nationsUniversity PressMills, E. S. 1967. An aggregative model of resource allocation in metropolitan area. AmericanEconomic Review 57: 197-210Ministry of Finance, Malaysia, 2002/2003.Economic Report 2003/2004Ministry of Home Affairs, Posts and Telecommunication, Japan, Administrative InvestmentMitra, A. 1999. Agglomeration economies as manifested in technical efficiency at the firm level.Journal of Urban Economics 45:490-500MRI 2003. Study on Coordination Mechanism of National Land Development Policy in Asian Countries,(Asia Chiiki no Kokudo Seisaku no Renkei ni Kansuru Chousa, in Japanese), MRIOsaka City University, The Institute for Economic Research 2000, Asian Megapolis [4] Metro Manlia(Asia no Dai Toshi, in Japanese), Nihon Hyoron ShaResearch Institute of Development Assistance, 1997. Current conditions and Issues of RegionalDisparity in Indonesia. (Indonesia no Chiiki-Kakusa no Genjyo to Kadai, in Japanese). theOverseas Economic Cooperation FundSETA, Fumihiko 2002, Study about the strategies for the correction of regional disparity and theinfluence of globalization of economy - Case study of Japan and Thailand and Malaysia- (ChiikiKakusa Zesei Seisaku to Global-ka ni Tomonau sono Henyou Kate - Nihon, Thailand, Malaysiani okeru Hikaku Knkyu, in Japanese), University of TokyoStatistics Bureau, Japan, Japan Statistical Year BookTASAKA, Toshio (ed) 1998. Asian Metropolis [1] (Asia no Dai-Toshi, in Japanese), Nihon Hyoron ShaTSUNOKAWA, Koji 2002, Infrastructure Development with Economic Development and ReducingRegional Disparity (infra Kaihatsu to Keizai Seityou, oyobi Chiiki Kakusa no Zesei, inJapanese)UN Habitat 1998. Global Urban IndicatorsUN Habitat 2003. The Challenge of Slums – Global Report on Hunan SettlementsUnited Nations 2002a. Human Development ReportUnited Nations 2002b. World Population Prospects (The 2002 Revision) (http://esa.un.org/unpp/)United Nations 2003a.Spatial Inequality in Asia, UNU/WIDER conferenceUnited Nations 2003b. Urban AgglomerationUnited Nations 2003c. World Urbanization Prospects, The 2003 RevisionWebster, R. Dougras 2000. Financing City-Building: The Bangkok Case, APARCWebster, R. Dougras 2001. On the Edge: Shaping the Future of Peri-Urban East Asia. World BankWebster, R. Douglas et al. 2003. Peri-Urbanization in Chengdu, Western China: From "Third Line" toMarket Dynamics, APARCWENDELL COX CONSULTANCY, Demographia(http://www.demographia.com/db-intlua-cover.htm)William Dellinger 1991. Urban Property Tax Reform Guidelines and Recommendations, World BankWilliamson, J. 1965, “Regional Inequality and the Process of National Development. EconomicDevelopment and Cultural Change, June, 3-45.World Bank 1991.Urban Property Tax Reform Guidelines and RecommendationsWorld Bank 2000a. Cities in Transition63

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportWorld Bank 2000b. World Development Report1999/2000World Bank 2001. World Development Report 2000/2001World Bank 2002. Philippines Logistics StudyWorld Bank 2003a. Getting the Best from Cities (chapter 6 of World Development Report 2003)World Bank 2003b. Investing in Infrastructure: What is needed from 2000 to 2010?, Marianne Fay andTito YepesWorld Bank 2003c. World Development IndicatorsWorld Bank 2003d. World Development ReportWorld Bank EAPR 2003. Cities in Transition: Urban Sector Review In an Era of Decentralization inIndonesia64

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAppendix-A: National Development Policy on Urbanization (Case of Japan)1. Historical Development Trends.................................................................... A-22. Urbanization and Regional Disparity............................................................ A-63. Role of Infrastructure in Decreasing Regional Disparities.......................... A-104. Key Factors to Achieve Infrastructure Developmentbased on the National Development Policy ............................................... A-175. Institutional Mechanism Supporting Infrastructure Development............... A-196. Lessons for the EAP Region...................................................................... A-2065

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report1. Historical Development TrendsJapan recorded an impressive economic growth in the postwar period. Until 1970, itsaverage annual GDP growth rate attained as much as 10%. Such a high growth rapidlyraised its level of GDP per capita including other indices of economic development andbringing about sustained economic prosperity.Japan’s pattern of economic development in the postwar period showed distinct phases:economic recovery (1945-1960), high economic growth (1960-1973), stable economicgrowth (1975-1985), and industrial restructuring (1985 onwards). The economic recoveryphase highly emphasized the restoration of Japan’s industrial base. The key strategyadopted in this phase was to centralize industrial development in few large cities in coreregions 31) (viz Kanto, Chubu, and Kinki) so that the cities’ existing industrial infrastructuresthen could be utilized. With the increasing levels of industrialization in the core regions,additional infrastructure facilities were developed to meet growing demands.Figure A1.1Regions in JapanHOKKAIDO REGIONTOHOKU REGIONCHUBU REGIONKINKI REGIONCHUGOKU REGIONTokyo MANagoya MAKANTO REGIONOsaka MAKYUSHU REGIONSHIKOKU REGIONAs a result, new employment opportunities were created in the core regions and hugemigration flowed from backward regions to large cities in the core regions. The combinedeffects of rapidly growing population and industrialization gradually became visible in thesecities as evidenced by congestion and environmental pollution. As a response to thegrowing problem of urban pollution, policy measures were initiated in the late 1950s torestrict factory location in major urban centers.The period of high economic growth (1960-1973) started with the implementation of the“National Income Doubling Plan” in 1960. As the high-growth strategy was likely to worsen31) Figure 1 illustrates Japan’s regional division under three metropolitan areas (MA), namely: (1) TokyoMA: Tokyo, Kanagawa, Chiba, and Saitama; (2) Osaka MA: Osaka, Hyogo, Kyoto, and Nara; and (3)Nagoya MA: Aichi, Gifu, and Mie. In this report, core regions or advanced regions refer to Kanto,Chubu, and Kinki, while the rest are termed as lagging regions. Neighboring areas of metropolitanareas include non-metropolitan prefectures in the core regions.66

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportthe already high regional disparities, the Japanese government decided to implementpolicy measures to reverse the trend. Restrictions on the construction and the expansionof large factories in controlled districts in the four large industrial areas (Tokyo, Osaka,Nagoya, and Yokohama) was one of the early policy measures to control concentration inthe core areas along with the promotion of industrialization in the “Pacific Coastal Belt.” By1962, an urgent need for balanced and coordinated national land development wasrecognized. This resulted in the formulation and approval of the Comprehensive NationalDevelopment Plan (CNDP). The main purpose of the CNDP was to promote balanceddevelopment in regional economies through various policy measures, such as the controlof industrialization in the core regions, the promotion of economic activities in laggingregions, the adoption of growth pole development strategies, etc. To help the plan meet itsobjective, the Japan Regional Development Corporation was established to to helpdisperse populations and industries from advanced regions to lagging regions. Continuedhigh economic growth coupled with overcrowding and environmental pollution due tooverconcentration of economic activities in the core regions compelled the government toformulate, in 1969, the Second Comprehensive National Land Development Plan. The keyfeature of this plan was the construction of large-scale industrial infrastructures outsidelarge urban areas. To further supplement these efforts, the Industrial Relocation PromotionLaw was passed in 1972, which included various control measures and incentives forrelocating companies from developed to developing regions.In the phase of stable economic growth (1975-85), Japan shifted from high growth tostable growth. The 1973 oil crisis, the appreciation of the Japanese yen (due to its shift to aflexible exchange rate regime), and increasing globalization created significant impacts onJapan’s industrial structure. Japanese manufacturers started relocating their firms tolow-wage economies in rapidly developing Asian countries. This action created directimplications on the industrialization of lagging areas: new factory development declined,and consequently, the dispersion of industrialization to lagging regions retarded.Maintaining regional balance remained a big challenge for the Japanese government.Toward the late 1970s, the idea of focusing on technological industries was discussed inregional policy formulation processes. A concept of de-concentrating the growingtechnology industries within integrated residential and industrial localities was developed.As these localities could provide pleasant living and working environments, the conceptwas expected to facilitate industrial dispersion to underdeveloped regions. This conceptwas formalized by making it a key feature of the Third National Land Development Plan,which was approved in 1977. “Technopolis” was the name adopted for the new citiescreated under this scheme. To further support the scheme, the “Technopolis Law” wasenacted in 1983. It aimed at accelerating the development of high-technology industrialcomplexes in designated areas. It was expected that the “technopolis” scheme would beinstrumental in stimulating economic growth in environmentally attractive regions withrelatively low concentration of industrial activities.During the industrial restructuring phase (1985 onwards), government policy measuresfocused on industrial restructuring as concentration continued to increase especially in theTokyo region due to deteriorating employment situations in the lagging regions. In 1987,the Fourth National Development Plan was enacted. It addressed the overconcentration ofpopulation and economic activities in the Tokyo area. The multipolar national land67

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportdevelopment policy was promoted together with the policy on infrastructure investment.During this period, the “Brain-of-Industry Location Law” was enacted to support the“technopolis” strategy. This law promoted the agglomeration of supporting industries suchas software, information processing and design, as well as other knowledge and serviceindustries. This approach was expected to result in a more sophisticated type of industrialstructure within the “technopolis.” In addition to these measures, efforts were made toencourage the relocation of administrative facilities from the Tokyo metropolitan area.However, although the objective of promoting rapid industrialization in the Pacific belt,through planning and coordinated public and private investment was successfullyachieved, the objective of dispersing industrial development saw limited success. Despitesustained policy efforts along with increased public investments in the lagging regions,industrial growth in these areas were not quite impressive. As shown in Figure A1.2, untilthe 1970s, although the share of the secondary sector in the gross regional productincreased rapidly in core regions (both metropolitan and neighboring areas), they declinedin the metropolitan areas, indicating a structural shift to the service sector. But thesecondary sector’s share in the neighboring prefectures of the metropolitan areascontinued to increase until 1990. On the other hand, the secondary sector in the laggingregions did not record such high growths and they underwent a structural shift to theservice sector without having strong industrial bases.Figure A1.2Composition of GRP100%Metropolitan Areas (MA)100%Neighboring areas of MA80%Primary Secondary Tertiary80%Primary Secondary Tertiary60%60%40%40%20%20%0%1955 1960 1965 1970 1980 1990 20000%1955 1960 1965 1970 1980 1990 2000Peripheral areas100%80%Primary Secondary Tertiary60%40%20%0%1955 1960 1965 1970 1980 1990 2000In 1997, in response to internal and external changes in both demographic and economiclandscapes, as well as the stagnant economic conditions in the lagging areas, the Fifth68

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportNational Land Development Plan was adopted to institute radical reforms on the regionalstructures. The plan put forward the concept of shifting from a monopolar system (withTokyo as the core) to a multipolar system, by allowing each region to develop into aneconomic entity with facets much like a country. In addition, public policy directly focusedin the provision of better services to the people, a contradiction to the past policy whereinbetter services were expected to be spillover effects of economic activities brought aboutby increased public investments. There are also ongoing discussions about therearrangement of local administrative units to redefine, or merge, municipal leveljurisdictions to enable the efficient provision of all urban-like services even in the peripheralareas.Table A1.1Trend of Key Statistics ’ 0.030 0.020 0.0135 0.0230 0.0144 0.010 0.009 0.0028 0.0053 0.0024 0.019 0.011 0.0107 0.0177 0.01202. Urbanization and Regional DisparityThe early stages of high economic growth in Japan were basically driven by an aggressivestrategy of rapid industrialization wherein major cities in the core regions acted as thegrowth engines. Rapid urbanization was a natural consequence as cities offeredhigh-income jobs for surplus labor force from the peripheral areas, and which saw a largeportion of rural populations migrate to the big cities. The trend of rapid industrialization andhigh economic growth thus resulted in excessive concentration of population andeconomic activities in the big cities which in turn brought an agglomeration of benefits tobig cities but worsened regional differences in gross regional product (GRP) per capita.Figure A2.1 illustrates the trends in GDP per capita and disparities in gross prefectural69

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportoutputs, measured as Theil’s inequality index. The interprefectural disparities are furtherde-composed into two components: intraregional disparity and interregional disparity. Withrapid economic growth, regional inequality increased until the early 1960s. Till themid-1970s, regional inequalities decreased. The pattern seemed to fit well with theinverted “U” curve as predicted by Kuznet (1955) and Williamson (1965). However, in thelate 1970s, disparity was again on the rise, showing a second inverted “U” cycle. This wasprobably due to structural shifts in the Japanese economy brought on in the face of internaland external changes in the economic environment.Figure A2.1Trends in GDP per Capita and Disparities in GRPTheil's inequality index0.030.020.010Inter-regionalIntra-regionalInter-prefectureGDP per capita1955 1960 1965 1970 1975 1980 1985 1990 1995 2000Theil’s Inequality Index=46∑n=1ynylogpnn=G∑g = 1yRg∑i∈Rysilogypsisi40003000200010000+G∑g = 1GDP per capita ('000 yen 1995 price)yRglogypRgRgInter-prefectureIntra-regionalInter-regionalTrends in intra and interregional disparities are similar. However, there are periods withdistinct differences in terms of the direction, or slope, of the curves. Intraregional disparitystarted declining earlier than interregional disparity. This implies that the dispersal effectfirst occurred within the regions rather than across regions. Likewise, when the secondcycle of disparity started in the late 1970s, the intraregional disparity was steeper while theincrease in interregional disparity remained modest. The second cycle of regional disparityappears to be basically driven by the increasing disparity between the regional poles andthe peripheral areas.Regional disparity and urban concentration in major metropolitan areas seemed to fueleach other. Figure A2.2 shows a closely related trend between regional disparity and netmigration to major metropolitan areas. It appears that the disparity in regional per capitaoutput across prefectures is the key driving force for the huge population outflows fromagriculture-dependent peripheral areas to rapidly industrializing metropolitan areas (MA).During the 20-year period from 1954 to 1973, Tokyo alone received about 6 millionmigrants from other regions. The net migration trend in Osaka and Nagoya reversedstarting mid-1970s, but for the Tokyo MA it continued.70

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure A2.2Trend in Net Migration to MAs and Disparities in GRP Across PrefecturesNet-migration ('000)4003002001000Tokyo MANagoya MAOsaka MATheil's Index of Reg Inequality0.030.020.01Theil regional inequality index1954 1959 1964 1969 1974 1979 1984 1989 1994 1999-1000As a result, the population in the three metropolitan areas of Japan expanded very rapidly(Figure A2.3). In particular, Tokyo emerged as the premier metropolitan area with over26% share of the national population as against 7.4% share of the country’s habitable area.Such overconcentration in Tokyo has caused various socio-economic problems includingsevere congestion. Since the mid-1970s, the population of Osaka and Nagoya has moreor less stabilized. The population trend in other regional cities suggests that even whenJapan experienced rapid industrialization and urbanization, they did not experiencesignificant surges in population.Figure A2.3Population Trends in Major CitiesPopulation ('000)40,00030,00020,00010,000Fukuoka-KitakyushuHiroshimaKyotoNagoyaOsaka-KobeSapporoSendai01950 1960 1970 1980 1990 2000TokyoSource: UN 2003. World Urbanization Prospect, 2003 revisionAlthough, the increasing trend in urban concentration was considered a problem at thelater stage of urbanization, they were expected at the early stage of rapid urbanization in71

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportthe core regions. That is why at the early stage the emphasis was not so much oncontrolling urbanization in the MAs as on managing it through the provision of basic urbanservices, including waterworks and housing. For example, public housing units perthousand people in the metropolitan areas increased from 7 in 1958 to 27 in 1978. As aresult, the increasing concentration of population and economic activities in themetropolitan areas were driven by both pull (better services in metropolitan areas) andpush (lack of opportunities in peripheral areas) factors.As only selected population groups (usually young or educated) migrate from rural tourban areas, this inflicts more lasting impacts on the socio-economic potentials of thelagging regions. One such impact now clearly visible in the lagging areas of Japan is thehigh proportion of its aging population (Figure A2.4). In the face of declining nationalpopulation and ongoing economic restructuring, the increasing ratio of the elderlypopulation in lagging areas is placing a serious burden on the task of regenerating theeconomic potentials of these areas. An elderly population demands more specializedpublic services such as barrier-free public transport and high quality health services.However, the sparse population in these areas makes it extremely difficult, if notimpossible, to provide such services in financially viable terms.70Figure A2.4Trend in the Aging Population25Ratio of 65+ age population (%)6050403020100Population- Metro AreasPopulation- PeripheralRatio of 65+ age- Metro areasRatio of 65+ age- Peripheral1955 1965 1975 1985 199520151050Total population (million)72

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report3. Role of Infrastructure in Decreasing Regional DisparitiesAs mentioned earlier, regional disparity trends in Japan showed a pattern similar to theprediction of Kuznet’s inverted U hypothesis. The question, however, remains as to howthis reversal from divergence to convergence occurred. Was it through the sole action ofmarket forces as predicted in the neoclassical growth model or has the government policy,especially in the form of public investment, played any visible role?In fact, infrastructure investment in Japan served as an important policy instrument tosupport various objectives such as supporting national economic growth, promotingindustrialization in designated areas, managing urbanization through the provision of basicservices, and promoting regional development. The rate of public investment (% of GDP),a large portion of which is allocated for infrastructure investment, is one of the highest inthe world (in the 1980s, over 10% of GDP). In addition, there is also significant privatesector investment in infrastructure facilities such as urban railways. Due to such high levelof public and private investment in infrastructure, adequate infrastructure could beprovided nationwide in a relatively short span of time.Figure A3.1 shows the trend (1965 to 2000) in annual total administrative investments 32 asa percentage of GDP and the share of the different sectors in Japan. The totaladministrative investment was maintained at a very high percentage of the GDP,fluctuating between 8 to 12% ─ an exceptionally high rate by any measure. Thelivelihood-oriented infrastructure, which can also be considered as social infrastructure,accounted for a big share in the total administrative investment. In fact, the trend indicatesthat the share of livelihood and industry-oriented infrastructure investment moved inopposite directions during the 1965-1980 period. This might be because of the shift fromindustrial infrastructure, before 1965, to social infrastructure, since the early 1960s, inorder to achieve a better quality of life. As a result, spending on livelihood-orientedinfrastructure significantly increased its share, reaching about 50% in the mid-1990s.32 The Japanese statistical system classifies various infrastructure spending under the heading ofadministrative investment with the following major divisions: Livelihood-oriented investment (city, town,and village roads and streets; city planning and parks; housing; environmental sanitation; welfarefacilities; educational facilities; water supplies; public sewerage); Industrial development-orientedinvestment (national highways, prefectural roads, harbors, airports, industrial water supply); Agricultureinfrastructure investment; Land conservation investment; and Others (railway, subway, electricity, gas,residential facilities, restoration, and others).73

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure A3.1Administrative Investment and Share of Different Infrastructures by Type0.614Livelihoodshare in total administrative investment0.512100.480.360.240.12001965 1970 1975 1980 1985 1990 1995 2000Total admin. investment (% of GDP)IndustryAgricultureLandOthersTotal infrastructureinvestment (% ofGDP)To illustrate the impact of such heavy investment in the infrastructure sector, Figure A3.2shows the trend in road investments and the road network lengths. The total investment inthe road sector fluctuates between 2 and 3% of the GDP, which is quite an impressivefigure. Even though the increase in highway lengths seems modest, there is significantimprovement in the road quality as illustrated by the steep slope of the graph for pavedroad lengths. In fact, the problem in the road sector of Japan was more of quality ratherthan of quantity. The trend since the early 1980s suggests that the size of the overallhighway network (national highway and prefectural roads) is heading toward a saturationlevel, while the expressway network is expanding rapidly.Figure A3.2Road Investment and Total Length200180160Highways, TotalHighways, PavedRoad investment (% GDP)3.53Highway length ('000 km)14012010080604020Km8,0004,00001965 1975 1985 19952.521.510.5Road investment (% of GDP)01960 1965 1970 1975 1980 1985 1990 1995 2000074

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAs stated earlier, at the early stage of development, rapid industrialization and urbanizationwere mainly concentrated in the core regions, creating a huge demand for infrastructurefacilities in these regions. A disproportionately high level of infrastructure investment wastherefore allocated for the core regions in order to provide adequate industrial and basicurban infrastructure. The core regions were in fact already endowed with betterinfrastructure facilities even before the war. And one of the reasons for their selection asindustrial sites was to maximize the existing infrastructure. However, these infrastructurefacilities were far inadequate to support the rapid pace of industrialization and urbanization.As a result, they required further concentration of infrastructure facilities. This furtherworsened the disparities in both industrial and basic infrastructure services acrossprefectures.Figure A3.3 illustrates the different measures of total public capital stock in themetropolitan areas (MAs) along with their neighbors and peripheries. Each panel of chartalso shows the trend coefficient of variation for the given indicator of public capital stock.The first panel shows public capital stock per capita (million yen in 1990 prices). Until theearly 1970s, metropolitan areas had higher stocks of public capital per capita. But thetrend has reversed since then: peripheral areas have recorded the highest public stock percapita, followed by their neighboring areas. The metropolitan areas have had the lowestlevel. Because of such reversal, the coefficient of variation (CV), which gradually declineduntil the early 1970s and then converged across regions, began to rise, showing anincreasing divergence. But this divergence was not due to a higher stock per capita in thecore regions, rather, they were due to a higher stock per capita in the peripheral regions.Figure A3.3Distribution of Total Public Capital StockPublic Capital per CapitaMillion yen (1990 price)654321Metropolitan areas (MA)Neighboring areas of MAPeripheral areasCV across prefectures0.40.350.30.250.20.150.10.05CV across prefecture01955 1960 1965 1970 1975 1980 1985 1990 1995075

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportMillion yen (1990 price)120100806040200Public Capital per Habitable Unit Area (ha)Metropolitan areas (MA)Neighboring areas of MAPeripheral areasCV across prefecture1955 1960 1965 1970 1975 1980 1985 1990 199521.81.61.41.210.80.60.40.20CV across prefectureMillion yen (1990 price)Public Capital per Composite Unit of Population and Area2.521.510.5Metropolitan areas (MA)Neighboring areas of MAPeripheral areasCV across prefecture0.80.70.60.50.40.30.20.1CV across prefecture01955 1960 1965 1970 1975 1980 1985 1990 19950In the second panel of Figure A3.3, the distribution of infrastructure across regions ismeasured in stock per unit area (ha) of habitable land. In this case, for obvious reasons,the metropolitan areas increasingly maintained their dominance due to high concentrationin population and economic activities. However, the public capital stock in other regionsalso increased rapidly. As a result, the coefficient of variation showed a continuous decline.Finally, the third panel shows the trends measuring the public capital stock per compositeunit of population and area (geometric average) and its normalization against the nationalaverage (see Box 1). As expected, it gives a combined pattern of the first and secondpanel and shows a convergence among regions.Similar trends of disparity are also visible in the provision of different types ofinfrastructures. The top panel in Figure A3.4 shows the trend in the provision of pavednational highways (as % of the total length). While the percentage of paved length ofnational highways in 1950 was very low for the lagging areas, the metropolitan areas werefar better off. As the trend shows, the figure for the metropolitan areas steadily rose whilethe lagging areas relatively had to wait much longer for the improvement of the condition oftheir highways. Likewise, the right panel shows the trend in population coverage of pipedwater supply. Also in this case, there was a clear disparity between the metropolitan areas76

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportand the other regions. Only in 2000 did the figure for peripheral areas crossed 90%. Boththe trends in paved highway and piped water supply illustrate high gaps in infrastructureprovision between the metropolitan areas and the other regions. This lasted until aroundthe early 1970s, after which the gap gradually narrowed. Finally, in the bottom panel, thetrend shows the coefficient of variation for the different road densities and water supplycoverage along with the population densities.Figure A3.4Disparities in Basic Infrastructure across Prefectures100Paved Length of National Highways(% to total length)Metropolitan areas (MA)Peripheral 120 areasNeighbouring areas of MAPopulation Coverage of Piped Water SupplyMetropolitan areas (MA) Neighbouring areas of MAPeripheral 120 areas100Percentage806040Percentage806040202001950 1957 1960 1970 1980 1990 200001952 1955 1966 1970 1980 1990 2000Coefficient of Variation of Infrastructure and PopulationCoefficient of variation for Infrastructure0.50.40.30.20.101960 1970 1980 1990 20001.41.210.80.60.40.20CV for population densityHighway densityPref Road densityWater supply coverage(% of total population)Public housing per capita(unit)Population density(inhabitable area)In a nutshell, the trend discussed above demonstrates a significant disparity in thedistribution of public infrastructure facilities across regions in the early stages ofurbanization. Basically, this might be due to two factors: First, the core regions hadhistorically high infrastructure endowment; and second, the high economic growth strategysupported industrialization and managed rapid urbanization in the core regions throughincreased infrastructure investment in the core regions. Thus, concentrating infrastructureinvestments in the core regions is, to some extent, responsible for the wide gap ininfrastructure between the core and the lagging regions. This gap might have been acontributing, if not the leading, factor for the flow of migration from the peripheral to the77

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportmetropolitan areas.However, as discussed in the above paragraphs, the disparities in infrastructure facilitiesacross regions continuously declined since the early 1970s. In fact, all comprehensivenational development plans utilized infrastructure investment as the key instrument toreduce regional disparities. The basic assumption behind this approach is that publicinfrastructure provision acts as an important incentive for private sector investors. So,increased infrastructure investment in the lagging regions not only helped stimulate localeconomies through short-term demand effects but also generated long-term growthpotential by attracting private sector investments.The top panel of Figure A3.5 gives the trends in total administrative investment per capitain different areas from 1965 to 2000, measured as ratios of the national average. Thepatterns, which match the trends in public capital stock discussed above, show that themetropolitan areas received higher investment per capita until the early 1970s. Since then,more administrative investment has been allocated to the neighboring areas of themetropolitan and peripheral areas. However, the trends in investment allocation per capitafor different infrastructures show quite different patterns from those for total investments.The second panel of Figure A3.5 shows an investment per capita for livelihoodinfrastructure. In 1965, metropolitan areas accounted for almost 150% of the nationalaverage, which was on a decline, but was still higher than that in the other regions until thelate 1990s. Although emphasis was placed on higher allocation for livelihood-orientedinvestments in the non-metropolitan areas since the late 1970s, the neighboring areas ofthe metropolitan areas received more than the peripheral regions which got higherallocations only in the 1990s. On the other hand, the bottom panel of Figure A3.5, whichreflects the trends in investment per capita for industry-oriented infrastructure, shows avery different pattern. Investment allocation for industry-oriented infrastructure in themetropolitan areas witnessed a sharp decline since the late 1960s, and by 1980 it felldown to a little over 60% of the national average in per capita terms. On the other hand,the allocation of investments to other regions gained. In this case, the lagging regionsreceived higher priority than the neighboring areas of the metropolitan areas.78

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure A3.5Public Investment Distribution among Regions, JapanTotal Administrative Investment per CapitaRatio of national average1.510.51965 1970 1975 1980 1985 1990 1995 2000Livelihood Infrastructure Investmentper Capita1.51.51290Metropolitan Areas (MA)Neighbouring ares of MAPeripheral areasIndustrial Infrastructure Investmentper CapitaRatio of national average1Ratio of national average10.51965 1970 1975 1980 1985 1990 1995 20000.51965 1970 1975 1980 1985 1990 1995 2000Infrastructure investment seems to have major implications for regional development. Asstated earlier, at the early stage of development, infrastructure investments were gearedtoward industrial development and economic growth in the core regions, while at the latterstages, the strategy shifted toward stimulating economic growth in the lagging regions andnarrowing regional income disparities. Overall, infrastructure investment policies haveremained mostly successful in achieving their intended objectives. Without highinvestments for infrastructure, high economic growth rates could not have been maintained.Likewise, without shifting infrastructure investment priority to the lagging areas, thedisparity in regional income levels could not have been narrowed down in a relatively shortspan of time.Infrastructure development in the lagging areas were, in fact, intended to attract privatesector investment (mainly manufacturing) which, in turn, was expected to stimulate overalleconomic activities in the targeted regions. Better infrastructure facilities were expected toimprove the quality of life, resulting from the spillover effects from economic growth.Because of this underlying premise, the lagging regions received high industrialdevelopment-oriented investments. While this strategy seemed to have worked well in thecase of the neighboring sites of the metropolitan areas, it delivered only a limited impact for79

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportsome peripheral areas. For these areas, the improvement in infrastructure developmentcame too late to become effective in stimulating local economies, mainly because of smallpopulation sizes with high percentages of elderly people. Another contributing factor is thestructural change in the Japanese industrial system in the face of increasing globalization,forcing Japanese manufacturing firms to relocate their operations to developing countrieswith cheaper labor.Another important aspect observed in the context of regional development andinfrastructure development in Japan is the effectiveness of different types of infrastructurein achieving underlying objectives of balanced development. In fact, any kind of publicworks or public spending can bring short-term benefits to a region in the form of thedemand-stimulating Keynesian effects. Although such effects have their own values, theyalone may not be enough to bring about sustained improvements in terms of building aneconomic base for a region. What is important is to match the type of investment with theneeds of a region, particularly giving importance to the right timing and the changinginternal and external economic environments. As mentioned earlier, industrialinfrastructure remained instrumental for the industrial transformation of the core regions,and the same strategy was attempted to stimulate industrial growth in the lagging regions.However, in the face of increasing globalization and industrial restructuring in Japan, theincreased investment for industry-related infrastructure in some peripheral areas could notbring about the expected changes. Despite huge public investment in these areas, peoplehave continued to migrate and most of the infrastructure facilities have remained grosslyunderutilized.Because of the low population densities in the peripheral areas, providing services inan efficient manner has been extremely challenging, and the people have continued tomigrate to big cities to access various services not available in the peripheral areas.So, the most important issue is how to retain the population of the peripheral areas sothat the minimum threshold-size population that is required for many urban-likeservices can be maintained. In hindsight, it can be seen that if more emphasis weregiven to livelihood-oriented infrastructure investments in the lagging areas (instead ofindustry-oriented infrastructure investments), the demographic scenario could havebeen different, as livelihood-oriented infrastructures would have been more effective inimproving the quality of life in the peripheral areas, thereby reducing migration fromthese areas.80

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report4. Key Factors to Achieve Infrastructure Development Based onthe National Development PolicyThe key factor that contributed to the balanced infrastructure development and reducedregional disparity is the central role played by the Japanese regional policy as observed bythe OECD (1996). The hierarchy of macro-level and micro-level planning and policies andtheir implementation were carefully coordinated through a collaborative effort involving notonly the central and local government bodies but also the private sector.When the Japanese government started formulating ambitious economic developmentplans in the 1950s, infrastructure development remained the central supporting element toachieve the plan’s objectives. The national economic plan set the overall economic growthtargets, to which the national land development plans responded in order to achieve thegrowth targets with minimum impacts on regional disparities. In this sense, the landdevelopment plan aimed at guiding the country’s physical development to geographicallydistribute the benefits of economic growth. Such macro-level strategic objectives set inupper-level plans are then supported by various laws, institutional setups, sectoral andlocal level plans, and most importantly, adequate investment resources to implement theplan components. The coordination between plan objectives and implementation was bestmade visible by the investment allocation patterns for public infrastructure. As discussed inthe earlier sections, investment patterns exactly followed policy guidelines provided in thenational plans.Each infrastructure sector, such as roads, ports, airports, water supply and so on,formulated its own sectoral plan in close coordination with the economic development planmaking adequate provision for investment resources. For example, a five-year plan forroad construction began in 1954 with a total budget of 260 billion yen. Before enacting thisplan, the Road Act of 1952 made a provision to finance general road construction throughthe Special Account on Roads (fuel and vehicle-related tax) and Expressways, through thenationally pooled expressway toll. In 1956, the Japan Highway Public Corporation wasestablished to take sole responsibility over the construction and management ofexpressways. Twelve five-year plans for road development have so far been completedand the 13th is under implementation. Under these plans, a large network of generalhighways and expressways has been developed.There was an innovative approach of burden sharing for infrastructure investment betweenthe local and central governments. The subsidies from the central government oftenworked as an incentive for local governments to improve public infrastructure provisionand maintain better economic potential or quality of life. The share of the centralgovernment burden for different prefectures is different, reflecting policy prioritization bythe government. However, due to worsening public finance, the burden share of the centralgovernment has declined in recent years (Figure A4.1).81

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure A4.1Burden for Infrastructure InvestmentMetropolitan areas (MA)Peripheral 60 areasNeighbouring areas of MAPercentage504030201001980 1990 20005. Institutional Mechanism Supporting InfrastructureDevelopmentAs the central role of infrastructure to achieve rapid industrialization and high economicgrowth was well recognized, the government emphasized the putting up of acomprehensive institutional mechanism to support the development of an efficientinfrastructure system. This included the setting up of organizations, government agencies,and public corporations; the establishment of a system of periodic sector plans; theenactment of supporting legislations; and most importantly, the establishment of innovativefinancing schemes.It was also accepted, in broad terms, that to maintain high infrastructure service levels in asustainable way, users, who are the main beneficiaries, should take due financial burden.Hence, the “users’ pay” principle became a rule in planning and operating infrastructures.Most infrastructure investment projects were financed on a cost-recovery basis. In casesof infrastructure with more public characteristics, such as general roads, special accountswere set up to generate investment resources from vehicle and fuel taxes, indirectlyapplying the users’ pay principle.The Fiscal Investment Loan Program (FILP) is another unique feature of infrastructurefinancing in Japan. The FILP is a financing facility (for loans and bonds) made from publicfunds with funding coming from postal savings, funds of the Fund Trust Bureau (welfarepension fund), postal insurance funds (postal life insurance premium), and proceeds fromgovernment-guaranteed bond issues and others. This is one of the major sources offinancing for infrastructure investment. For example, in 2004, out of the JP¥ 4.6 trillion totalbudget of the road sector, the FILP scheme will be financing JP¥ 1.8 trillion of the amount.The cost recovery principle, in fact, makes it possible to repay infrastructure investments.Due to traditionally longer repayment periods, private capital markets may not supply therequired capital. The FILP was designed to bridge this gap. And it made it possible tomaintain significantly high levels of infrastructure investments without putting morepressure on the government’s budgetary system. Most importantly, the FILP acts as an82

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reporteffective vehicle to mobilize domestic financial resources, which are in the form of privatesavings and other long-term funds, which would otherwise not be available forinfrastructure financing.In Japan, the private sector has played an important role in building an operating publicinfrastructure that can be run commercially such as urban railways. The most importantfeature of the private-sector-run urban railways in Japan is the concept of value-capturethat the private sectors have successfully implemented. A large part of investments inurban transport projects are capitalized through real estate value. Private railway operatorscapture the real estate value by combining real estate development with railwaydevelopment. This way the private sector is able to run this important urban infrastructuremore efficiently with less financial burden on public finances.In order to achieve the ideal utilization of the private sector’s management skills and gainefficiency in infrastructure investment, the concept of public-private partnership, in the formof the so-called third sector, has recently been introduced in some big projects, such as theTokyo Aqua Line.83

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report6. Lessons for the EAP RegionBy international comparison, disparities in regional incomes in Japan are very small. Thecoordinated efforts by all government levels along with the private sector made it possibleto achieve this despite the unfavorable structural changes in both domestic and globaleconomies. Infrastructure remained a key policy instrument, first to promoteindustrialization in core regions at the early stage, then to decentralize industrialization tothe peripheral regions, at the later stages.Although infrastructure investment aimed at reducing disparities brought about significantimprovements in some areas ─ particularly those surrounding big metropolitan areas ─ itsimpact on the economies of more remotely located peripheral areas is still questionable. InJapan, the problem of regional disparity is now not so much about the income level asabout the quality of life. The declining population with high percentage of elderly peoplehas made the task of local authorities increasingly challenging to maintain levels of idealservices.So, the prevailing notion in developing countries that the regional disparity is an issuerelated to inadequate investment resources, which can be managed once the countryreaches certain levels of economic development, can be misleading. The Japanese caseshows that the implications of regional issues go beyond simple notions of resourceshortages: they demand a long-term perspective based on a balanced distribution ofpopulation and economic activities.What is clearly seen from Japan’s experience is that the endowment of infrastructurecapital among regions does not guarantee higher economic potential. Also important is thetiming and sequence of the infrastructure. This is particularly important for thenetwork-type infrastructure, such as highways, which tends to create a virtual reinforcingcycle in favor of locations that are candidates for early investments. This is also one of thereasons for the increased concentration in the Tokyo metropolitan area: networkdevelopment was initiated not as a complete nationwide network, but rather as anextension that kept Tokyo as its center. This created a strong reinforcing cycle with Tokyoas the core. This is probably the reason why the economic activities could not bedecentralized despite significant investments for network infrastructure in the peripheralareas.Another important lesson from the Japanese case is that infrastructure investment shouldnot target industrial growth only. Rather, from the early stage, it should also target theaspect of quality of life. What is most challenging, which is now being experienced inJapan, is to retain populations in the peripheral areas so that they can maintain theminimum population threshold required for urban-like services. So, not onlyindustry-promoting infrastructure but also livelihood-enhancing social infrastructure shouldbe emphasized from the early stages.The strongly coordinated planning approach in Japan seems to have worked so well untilthe early 1980s. But the system could not respond very well to the changing domestic andglobal economic environments since the 1980s. The public investment approach alsocould not foresee the impending changes in the patterns of service demand. As a result,there now are cases, particularly in the lagging areas, where infrastructure facilities with84

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reporthuge investments are serving only a fraction of their predicted demands. On the otherhand, big cities experience severe congestion due to the undersupply of infrastructure.Given the high domestic savings ratio in the EAP countries, the Japanese experience inthe FILP scheme provides useful lessons on the importance of mobilizing domesticresources for infrastructure investments. For this, first, a principle of cost recovery shouldbe established and the appropriate institutional arrangements need to be made so that thepossibility of inefficiently using such financing facilities could be greatly minimized. Equallyimportant is devising mechanisms for value-capture, particularly in urban transport projects,as in the case of Japan’s private railways.In the face of increasing globalization, regional policies should aim to support individualregions in a country to be part of a global economy on its own (not through the capitalregion). This again emphasizes the vital the role of infrastructure. So, the new challenge isto provide infrastructure not only for industrial development and other livelihood servicesbut also for international economic exchanges.Box 1: Measuring Regional Distribution of InfrastructureTo assess the distribution of infrastructure across regions, infrastructure stock needs to bestandardized with some size-related variables in the region. Some candidate variables arepopulation, land area, or outputs. The strong correlation of population and outputs easily bringto mind population and land area. If population is equally distributed across regions (i.e. allregions have equal population densities), normalizing the infrastructure stock against either ofthese variables yields similar results. However, if population distribution is not uniform, as in thereal world, normalization against population and land area produces two contrasting indices.The region with a high population density will have a higher infrastructure per unit area but alower per unit population, and vice versa for the region with a low population density. Forpractical purposes, it may be sensible to compute infrastructure capital per composite unit(geometric average of population and land area) then normalize this against the nationalaverage. This measure assigns equal weight to both population and land area. If the country’spolitical or geographical situation demands the assigning of different weights to population andland area, this can be done as follows:Composite normalized Index =IαP AIP1−αRα 1−αRARWhere, I Infrastructure stockAPLand areaPopulationVariable with R subscript is of region and that without subscript is of national.Exponent alpha represents the weight assigned to the population. If infrastructure shouldbe measured only in per capita terms, alpha takes a value 1. This index could provide asimple but valuable guidance for policy makers to make judgments on regional distributionof infrastructure facilities for a given weight relative to population and land.85

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAppendix-B: Urban Transport Development Strategy in the Urbanizationof EAP Megacities1. Urban Transport Infrastructure as Determinant of Urbanization........ B-12. Insufficiency of Urban Transport Infrastructure and Deteriorationof Levels in Services ............................................................................ B-43. Disparity in Interurban Transport Service Levels ................................ B-64. Timing of Investment.............................................................................. B-95. Funding on Urban Transport Infrastructure in Selected EAP Megacities............................................................................................................... A-111. Urban Transport Infrastructure as Determinant of Urbanization Growth in urban populations is largely influenced by the expansion of urban transportinfrastructure. With road development, population influx grows and the demand for publicservices, such as public transport, also increases. Areas with relatively low road densities despite high population densities are mostly inthe poor areas, as explained later.Figure B1.1Actual Urbanization in Suburban Area of Ho Chi Minh CitySource: JICA. 2004. HOUTRANS86

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure B1.2 Population Density and Road Density, 1995,Metro Manila and Extended Urbanized Regions010 20km010 20kmSource: Compiled from MMUTIS database87

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure B1.3 Population Increase and Road Construction,Metro Manila and Extended Urbanized Regions0 10 20kmPopulation Growth Rate’85-95, (%/year)7.5 -5.0 - 7.52.5 - 5.00 - 2.5- 0Major Projects Completedduring ’84-‘96RoadLRTSource: Compiled from MMUTIS database2. Insufficiency of Urban Transport Infrastructure and Deterioration ofLevels of ServicesIn the past decades, urban transport infrastructure has been absolutely lacking in somemegacities in the EAP. For instance, in the case of road, while motorization hasprogressed significantly, the levels of service (road length per vehicle) has constantly beendecreasing (except Singapore) as shown in Figure B2.1.88

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure B2.1Road Length and Vehicle Ownership in Selected Asian CitiesSource: Metro Manila: Philippines Statistical Yearbook (excluding barangay roads)Jakarta: Jakarta dalmn Angka (excluding army and diplomatic vehicles)Bangkok: BMA (excluding soi and trucks)Singapore: World Road Statistics and LTA (paved roads only)Tokyo: Tokyo Metropolitan GovernmentThis means that road development has never quite caught up with increasing trafficdemand. As a result, levels of road services have deteriorated, as shown in Figure B2.2.Figure B2.2Average Travel Speed on Roads in Selected EAP Megacities40km/h3020100SingaporeKualaLumpurTokyoHoChiMinhCityJakartaBeijingManilaTaipeiBangkokSource: UITP. 2001. Millennium Cities DatabaseAmong the cities studied, only Singapore has maintained an urban transport service at arelatively high level. This is due to the constant effort in planning and implementation doneby the Government of Singapore. Table B2.1 summarizes the transport policies adopted inSingapore during the last three decades. They are on transport demand management(TDM), use of private cars (Road Pricing), and ownership of private cars (Vehicle Quota89

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportSystem), which aim to control private traffic demand as well as strengthen the publictransport system.Table B2.1Major Transport Policies in Singapore1970s1980s1990sTransport Demand Management (TDM)Public Transport DevelopmentCar Usage Car Ownership Bus Transport MRT / LRTIntroduction of Introduction of Operation ofArea Licensing AdditionalSingapore BusScheme (ALS) Registration Fee Service (SBS)(1975)(ARF) (1972) (1973)Expansion ofALS (1986,1989)Expansion ofALS (1994)Introduction ofElectronic RoadPricing (EPR)(1998)Expansion ofEPR (1999)Increase of ARF(1974, 1975)Introduction ofPreferentialAdditionalRegistration Fee(PARF) (1975)Increase of ARF(1980, 1983)Introduction ofVehicle QuotaScheme (VQS)(1990)Increase of ARF(1990, 1991)Introduction ofOff-peak Car(OPC) Scheme(1994)2000s Modification ofVQS (2002)Introduction of BusLane (Scheme B)(1974)Introduction of CityShuttle Service(1975)Operation ofTrans-Island BusServices (Tibs)(1982)Rationalization ofRouting (ad libitum)Integration of buscompanies to Tibs(1995)Construction ofUnderground BusInterchange (1996)Rationalization ofRouting (ad libitum)Introduction ofmidnight service(2000)Integration of buscompanies toSMRT (2001,2004)Introduction ofez-link Card (2002)Rationalization ofRouting (ad libitum)Development ofNorth-South Line(1987)Development ofEast-West Line(1990)Expansion of NorthSouth Line (1990)Introduction of Park& Ride System(1993)Expansion of North-South Line (1996)Development ofBukit Panjang LRT(1999)Development ofNorth-East Line(2002)Development ofChangi AirportExtension Line(2002)Development ofSengkang LRT(2002)Development ofPunggol LRT (2004)Source: LTA webpage (http://www.lta.gov.sg/), SMRT Bus webpage (http://www.smrtbuses.com.sg/), Chin(1999)90

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report3. Disparity in Interurban Transport Service LevelsUrban transport service levels largely differ by city area due to differences in: (1)household characteristics (specifically income levels), and (2) local conditions (particularlyaccessibility to arterial infrastructure). Low-income households seldom use cars andlargely depend on non-motorized transport for shorter travel distances.Figure B3.1 Modal Share by Household Income (HCMC, 2002)Household Income (million VND/month)10.0>

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report(Metro Manila and Surrounding Provinces, 1996)010 20kmSource: Compiled from MMUTIS database92

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report4. Timing of InvestmentThere are no established theories on the timing of investment in urban transportinfrastructure. This is because project determination, which includes economic, social, andenvironmental conditions differ by country and period, and this brings about differences inthe form of implementation, operation, and management. In megacities in the EAP, forexample, subway construction is influenced by population size rather than economiclevels.Figure B4.1Comparison between Opening Year of the First Subway and GDP per capitaTaipeiParisLondonSeoulBudapestTokyoBeijingBangkokTeharanCalcutta Source: UN. 2004, http://osamuabe.id.infoseek.co.jpFigure B4.2Comparison between Opening Year of the First Subway and City PopulationLondonParisBudapestTokyoBeijingSeoulCalcuttaTeharanBangkok TaipeiSource: UN. 2004, http://osamuabe.id.infoseek.co.jp93

Urban TransportLevels of ServiceStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportIn general, if new investments are not made, urban transport service levels tend todecrease with increases in population and traffic demand. The assumption is that, if noinvestments will be made, a “critical point” will be reached wherein previous service levelswill be hard to recover even if large investments are eventually made. This “critical point” ispractically interpreted as a situation that entails far larger costs to develop newinfrastructure due to uncontrolled urbanization without sufficient infrastructure provision. Toillustrate, the World Development Report 2003 stated that costs for sewage developmentwent up three times higher in built-up areas than in new settlements in Bogota, Colombia.Figure B4.3 Schematic Illustration of the “Critical Point”in Urban Infrastructure DevelopmentDesirable pathLikely TrendPossibleDifficultCritical PointIn the figure above, Singapore seems to be on the “Desirable Path,” while other megacities,such as Bangkok, Jakarta, and Manila are on the “Likely Trend,” judging from thedecreasing service levels in urban transport. Lessons from the Singapore’s experience areas follows:A. Transport demand management (TDM) is important for controlling traffic volumes whilegenerating funds for the development of transport infrastructures.B. Public transport development should have priorities. Bus services should be improvedin the initial stage, while railway (guideway transit) should be developed next wheninvestment funds have been secured.However, for the practical use of these lessons, it should be noted that the capacity of theSingapore government was high enough to attain ideal planning, coordination, andimplementation.What should be done to improve, or at least maintain, the current transport situation in theEAP megacities? In the past few years, JICA has formulated an urban transport masterplan for Manila, Jakarta, and Ho Chi Minh. The target year has either been 2015 (Manila)or 2020 (Jakarta and Ho Chi Minh). Emphasis has been placed on the TDM method andpublic transport similar to the lessons obtained from the experiences in Singapore. Thesemaster plans aim to shift the megacities that are, at present, on the “Likely Trend” onto the“Possible”, or “Difficult,” line, as shown in Figure B4.3.94

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportThe targeted service levels of urban transport, as expressed in average on-road travelspeed is not so ambitious; either slight increases (Manila, HCM) or slight decreases(Jakarta). Although the cost for implementing these master plans is quite huge, they arenot unrealistic considering future economic growth and various fund-generating policiesincorporated therein. The timing of investment should be as early as possible, as long aseconomic, financial, social, and environmental conditions are cleared. Scale and continuityof investments should be more important rather than timing. The most critical restraintwould be the fund for investment itself.TableB4.1Required Investment and Target Levels of Road Travel Speeds in JICA’s UrbanTransport Master Plans in Selected Megacities in the EAP RegionTargetYearPopulation(Million)Investment RequiredPer Capita($)Road NetworkAverage Speed (km/h)BaseYearTargetYear 1)(w/ M/P)BaseYearTargetYear($ million)Manila 2015 14.4 25.7 23,500 1,630 18.0 20.0Jakarta 2020 21.0 26.0 10,300 490 34.5 30.0HCMC 2020 7.6 13.5 14,100 1,855 23.8 28.4Sources: JICA (2004), The Study on Integrated Transportation Master Plan for Jabodetabek,(SITRAMP)JICA (2004), The Study on Urban Transport Master Plan and Feasibility Study in Ho Chi MinhMetropolitan Area (HOUTRANS)JICA (1999), Metro Manila Urban Transportation Integration Study (MMUTIS)1) with Master Plan5. Funding on Urban Transport Infrastructure in Selected EAP MegacitiesAs stated previously, urban transport service levels have decreased for more than 20years in the EAP megacities, including Bangkok, Jakarta, and Manila. One of the mostcritical reasons for the decreasing trend has been the lack of funds.It is quite difficult to accurately grasp the amount of past infrastructure investment for eachof these cities. According to the aforementioned JICA master plans, Manila, Jakarta and,Ho Chi Minh have recently invested about 0.4-1.5% of their GRDP on transportinfrastructure. This scale of investment is evidently too small if the decreasing servicelevels of their urban transport services are taken into account. The basic problem here ishow much investment is needed and how funds are produced. The JICA master planproposals are summarized in Table B5.1. The fund requirement is US$ 23.5 billion for Manila by 2015, US$ 10.3 billion forJakarta by 2020 and US$ 14.0 billion for Ho Chi Minh by 2020 (excluding maintenance ofexisting infrastructure). Respectively, this is equivalent to 2.6%, 0.7%, and 2.5% of theirrespective GRDPs. The low requirement for Jakarta is mainly due to the existingaccumulation of infrastructures (railway, expressway, etc). Although largely different by city,if 1-3% of the GRDP is continuously invested in urban transport infrastructure (includingmaintenance of existing infrastructure), urban transport systems can be sustainable.95

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTable B5.1Required Investment and Proposed Fund Sources in JICA’s Urban TransportMaster Plans in Selected Megacities in the EAP RegionGDP Per CapitaFund (%)YearShare(US$/year)M/Pof M/PCost inPublic BudgetCostBase TargetTotalBase Target($ million)Con-PFINewYear YearGRDPven-(%)tional Fuel Tax TDM 1) Others 2)Manila 1996 2015 1,700 3,000 23,500 2.6 17 48 35Jakarta 2002 2020 1,900 5,500 10,300 0.7 46 13 14 4 23HCMC 2002 2020 1,400 4,700 14,000 2.5 14 9 29 38 10Source: JICA (2004), The Study on Integrated Transportation Master Plan for JabodetabekJICA (2004), The Study on Urban Transport Master Plan and Feasibility Study in Ho Chi MinhMetropolitan Area (HOUTRANS)JICA (1999), Metro Manila Urban Transportation Integration Study (MMUTIS)1) Area licensing, parking charge, etc.2) Urban development tax (Jakarta), vehicle registration fee (HCM). In the funding sources assumed in the master plans, conventional public fund(including ODA) shares 17% in Manila, 46% in Jakarta, and 14% in Ho Chi Minh. It iscommonly recognized that the master plan is not realized solely on conventional publicbudgets. Covering budget deficiencies differ by city: Manila covers 35% by PFI and 48%by new public fund; Jakarta covers 23% by PFI and 31% by new public fund; and Ho ChiMinh covers 10% by PFI and 76% by new public fund. For Manila, and Jakarta, instead ofBOT projects, which mostly failed after the late 1990s, new PFI schemes, such aspublic-private partnerships (PPP), are proposed. As for the new public fund, three citiespropose to raise fuel taxes as well as adopt the TDM approach including road pricing.Jakarta is proposing the introduction of an urban development tax to recover cost.The following are the major lessons from this analysis:A. To sustain the service levels of urban transport in EAP megacities, investment intransport infrastructure should be sustained for a long period. Although the requiredinvestment size differs largely by city, in general 1-3% of GRDP will be needed.B. Conventional public budget (including ODA) is not sufficient to achieve theabove-mentioned investments. Private sector participation is definitely important.However, BOT projects should better be replaced by new PPP schemes. Newmechanisms to generate public fund should be developed based on the “users pay”principle (e.g. TDM, etc).96

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAppendix-C: Financial Strategy for Urban Transport Development1. Characteristics of Urban Transport Infrastructure ..................................... C-12. Financial Schemes for Urban Railway Investment ................................... C-23. Value-Capture to Finance Transportation Infrastructure ........................... C-34. Examples of Value-Capturing: Railway and Subway Projects in Japan.... C-51. Characteristics of Urban Transport InfrastructureIn general, urban areas with high population densities require mass transportation systemsthat can transport a large number of people and goods in order to satisfy high demands ofconsumers for travel and transport. In addition, as the physical scale of urban areasgradually grows larger, the average travel length increases and requires higher transportservice speeds.In reality, however, many urban areas all over the world suffer from lack of transportinfrastructure capacities because of quick increases in transport demand due to rapidurbanization. Chronic traffic congestion specifically increases travel time within urbanareas which impact not only local/global environment but also local economic activities. Inthis sense, using public transport, such as urban railways and light rail transits, is desirablein order to reduce urban travel time. Meanwhile, transit-oriented development (TOD) hasrecently gained popularity as a means of redressing a number of urban problems,including traffic congestion, affordable housing shortages, air pollution, and continuoussprawling. Although TOD has various definitions by many researchers, in a broad context itcan be defined as a mixed-use strategy that encourages people to live near transit systemservices and to decrease their dependence on driving. The concept of TOD highly regardsthe necessity and the role of public transport. When looking at urban areas in the EAPcountries, public transport introduction is one of the most critical approaches in solvingvarious urban problems.However, it is has been reported that financial viability of urban public transport is quite lownot only in the developing countries but in developed countries as well. The background forthis low viability can generally be explained as follows:- Construction cost: Huge construction costs worsen project viability. This is caused byexcessive personnel costs; increase in material costs and land acquisition costs due toprice increases; technical difficulties, due to the existence of undergroundinfrastructure; and need for countermeasures to reduce environmental impacts. Insome cases, inefficiency in planning and investment also causes the increase inconstruction costs.- Construction period: Longer construction periods increase construction costs. Thisstems either from difficulties in consensus building among stakeholders, the slowprogress of land acquisition, or technical errors due to unexpected problems. Thesemakes the period longer before the start of services and increases debt interest97

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportpayments.- Demand for services: Low transport service demand leads to lack of revenues fortransport operators and investors. This comes from tough competition from othertransport modes (e.g. cars), other transport operators, and from low levels of transportservices provided by transport operators.This section mainly discusses issues related to construction costs. It is essential to reduceconstruction costs by making an appropriate investment plan that corresponds to demand,reduces construction period, and introduces innovative construction technologies.However, these have actual limitations. In projects managed by the public sector, such asby the local or national governments, it may be useful to utilize a private financing initiativescheme, like the BOT, BTO, or BOO in order to reduce construction costs through theeffort of the private sector. However, due to the fact that construction costs of urbantransport infrastructure cannot be changed, achieving financial resource for constructioncosts for urban transport is therefore one of the most important issues.On the other hand, many developing countries, including EAP countries, do not haveenough financial resource to cover for the construction costs of public transport investment.There are several factors for this. First, most developing countries have not developed awell-organized taxation system wherein taxes can be efficiently collected from the public.Second, both domestic and international investors often face difficulties in investing inlarge-scale projects in developing countries because they involve many types of risks likeunstable exchange rates, unreliable management systems, and low technological skills.Third, the low level of services, including tariffs, frequency and corresponding servicesprovided by transport operators reduces the number of public transport users, resulting inthe lack of revenues that could come from tariffs. Therefore, it is critical to find stablefinancial resources for the promotion of public transport investments.Financial systems for public transport investment already have various schemes proposedand introduced in many developed countries. The following sections show the varioustypes of financial scheme for urban railway projects. The value-capture scheme will bediscussed later.2. Financial Schemes for Urban Railway InvestmentThere are various ways of securing urban railway investments. Although the reduction intax payments is also another measure to decrease costs, it is not considered a desirablemeasure for poor local or central governments. Methodologies in securing financialresources can be categorized into the five types shown below.- Users’ Payment: The most fundamental resource is to reserve profits achieved fromconsumers by providing railway services and assigning them to construction costs. It isusually impossible to raise tariffs just for a specific transport investment. However,there is a scheme in Japan that could achieve this. This is the Specific Urban RailwayStorage Fund scheme (SURSF) introduced in the 1980s and which successfullyimproved the existing railway service through upgrading investments. The schemeallowed private railway operators to raise fares before the start of investment. The98

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportrailway company was able to store excess profit caused by additional fares in advanceof new investments and then utilize them for the construction. The governmentexempted the excess profit of the railway company from taxes. The SURSF schemewas applied to many capacity buildup projects in urban commuter rail in metropolitanareas including those in Tokyo, from the 1980s to the 1990s, and contributed in solvingin-vehicle congestion problems.- Capital Investment and Loan: In the case of railway projects based on the BOTscheme or railway investments by private companies, the companies can issue stocksor the central/local government can sometimes provide the capital for the project. Onthe other hand, for public projects, governments or public corporations can issuebonds to collect the needed resources.- Subsidy: The central or local government can support the project by providing theresources. There are various examples of subsidy schemes in many countries.- Loan: Private companies can get loans for the construction from the nationalgovernment, commercial banks, etc. The loan schemes can be divided into two types:loans with interest and loans without interest. For example, in Japan, many urban railprojects and subway projects were given loans without interests from the RailwayConstruction Fund, which was set up with resources coming from the lease chargesfor the Shinkansen infrastructure by private Japanese railway companies (privateoperators) following the privatization of the former Japan National Railway in 1987.Before, there were also loans with low interest provided by the former JapanDevelopment Bank.- Beneficiaries’ Payment: The start of a new rail service or the improvement of servicelevels of existing rail networks enhances accessibility as well as increases theattractiveness of real estate, both of which increases population, economic activities,and real estate prices around the railway stations. Such external effects could berecaptured by imposing property taxes on areas around the stations. In some countries,schemes for capturing values have been introduced. The types of value-capturepolicies and examples will be shown in the following sections.3. Value-Capture to Finance Transportation Infrastructure(1) Value-Capture BackgroundSome literatures point out that value-capture is one of the best financing methods inproviding for local public goods including urban transportation services. Two main reasonshave been cited. One, it makes tariff and the local tax lower by using captured value as theresource for projects. If the value-capture cannot be realized, the demand for the servicecould be very low because of high tariffs or local tax which worsens operators’ profits. Theother reason is that the introduction of the value-capture scheme allows policy makers toproperly judge as to how much specific local public service should be provided. If investmentcosts can be covered through tariff revenues and the captured value, this will mean that thebenefit stemming from this project is larger than the investment cost. The amount ofresources equal to the created value by investments is recoverable through the general tax99

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportbudget of governments. However, in practice, it is often quite difficult for a government tojudge as to what type or how much public service should be provided. In a worst casescenario, the government logically creates a high risk in choosing a project with lowerbenefits at higher costs.(2) Techniques of Value-CapturingMethods in capturing value can be categorized into three: (a) Value internalization; (b) Directvalue-capturing; and (c) Indirect value-capturing.(a) InternalizationA common, direct value-capture technique is where transportation investors purchase anearby land before investments are made. In Japan, there are several examples whereinprivate railway companies purchased land along a planned railway line and developedhouses in advance on the purchased land. These experiences show the so-called“announcement effect” which results due to the spread of project information before theinvestment. This effect often creates high values of a kind similar to insider’s information andcan sometimes cause political problems. Furthermore, spatial monopolies due toacquisitions of vast lands by a specific operator may also cause economic problems.(b) Direct value-capturingIn some cases, individuals or areas are clearly expected to achieve benefits frominvestments in infrastructure. For example, when the local populace requests for a newstation, they could pay investment costs because its benefits will surely redound down tothem. The land adjustment scheme of Japan is a case. In the scheme, all land areas closeto the transportation infrastructure, such as a highway or railway, are reshaped by cutting offsome of their parts, and the cutoff sections are utilized for transportation infrastructure. Asland adjustment increases the value of the reshaped land, landowners will not lose theirinvestment even though the size of their land areas decreased. However, in practice, it isquite difficult to build consensus on the direct value-capturing scheme. This is because thereare technical difficulties in the scientific evaluation as to who the actual beneficiaries are andhow much the benefit would be.(c) Indirect value-capturingAll benefits stemming from transportation investments will finally result in the increase ofland prices under a “Capitalization Hypothesis.” When this hypothesis is applied, benefitscan be captured through the imposition of either a property or a land tax. However, inpractice, several problems occur. One is that the negative value may be found in other areasbecause the invested area has more attraction than the other areas. When the localgovernment collects property tax, the project of the national government will spill over intothe local market. In this case, the question of how to recapture the collected local tax shouldbe discussed. Besides, the value captured through the taxation system cannot normally becollected before the project. However, the United States has a scheme called tax incrementfinancing (TIF) which prepares the resource by issuing local bonds on the security ofexpected tax revenues.100

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Report4. Examples of Value-Capturing: Railway and Subway Projects inJapan(1) Tama Denen-Toshi (Tama Garden City) Railway: Historical Case of Value InternalizationJapan was developing so fast in the 1950s. In Tokyo the population grew at about 25% peryear. Its rapid urbanization and lack of houses and transport infrastructure were so seriousthat heavy traffic congestion and the corresponding quality of life were damaging theregional economies. Too much population inflow into the Tokyo metropolitan area requiredthe provision of more social andeconomic infrastructures. In 1953, Mr.Keita Goto of Tokyu Railway Co.proposed a master plan for the TamaArea in the western part of Tokyo.The plan covered a 14-17 millionsquare meter area intended to createa “second Tokyo.” Although thelong-term regional spatial plan madeTokyoTokyu Denen-toshi Lineby the central government had acompletely different concept fromGoto’s proposal, he successfullychanged the direction of the spatialplan toward his idea by practicallygetting consensus from manyYokohamaresidents in the area after heFigure 1: Tokyu Denen-Toshi Lineproposed a new railway project (theDenen-Toshi line) which wouldconnect the area to the city center in 1966. The Tokyu Railway Co. applied the landadjustment scheme in the development. One of the reasons why the scheme succeededwas due to the fact that the landowners supported the project because they trusted thedeveloper who was the local railway operator. The route of the Denen-Toshi line had manycurves because the vicinity is mountainous and forested. This route was chosen upon therequest of the local residents and as the land adjustment project progressed. Since the start Photos: Development around the station of the Tokyu Denen-Toshi Line101

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final Reportof its operation in 1984, the traffic flow on the Denen-Toshi line has increased graduallyalong with the growth of the population in the developed area.At present, the Tokyu Denen-Toshi line is one of the most profitable operations of thecompany. The subcompanies of Tokyu Railway Co. developed department stores at thestations, offered cable television services to households along the line, as well asrestaurants and sport facilities. The total area of the project became thrice the initialproposal.(2) Railway Investment in Fukuoka City: Increase in Tax Revenue due to RailwayConstructionFukuoka is one of the major cities in Japan, with a population of 1,320,000 in 2000. It has a76.6-km railway network including a 17.8-km length of two subway lines completed in 2004.Its major railway lines are the Nishitetsu Omuta Line and the JR (Japan Railway) KagoshimaLine connecting Fukuoka to its southern areas. Both lines are separately operated by twoprivate railway companies. The local government operates two subway lines. The firstsubway line started its service in 1981, the second line started in 1993, connecting the citycenter with the local airport. Since the 1980s, 11 new stations have been constructed mainlyalong the Nishitetsu Omuta Line, while the frequency of rail service of the JR KagoshimaLine has expanded from 70services per day in 1980 to178 services per day in 2002.The map of the railwaynetwork is shown in FigureC4.1.Subway No.2Subway No.1The start of the two-subwayservices generated socialeconomic benefits for theCityCentrearea. User benefits resultingNishitetsufrom the investments in theOmuta LineJR Kagoshimafirst subway were estimatedLineat JP¥ 3.45 million per yearwhile the supplier’s benefitwas JP¥ 0.22 million per year Figure C4.1 Map of Railway Network in Fukuoka(both estimates are as of1995). To sum these benefits in fiftyyears, the total benefit amounts toJP¥ 3,695 billion whereas totalinvestment cost was JP¥ 459.0 billion(1995 prices). The economic internal rateof return of the first subway line wasestimated at 20.8%. The social discountrate in Japan is 4.0%.The contour maps of the land prices inFukuoka City in 1980, 1990, and 2000are shown in Figure C4.2. By comparingPhoto: Vehicle of Subway No.1102

the two maps of 1980 and 1990, it wouldshow that land price increased along thefirst subway line. Further, a comparisonof the two maps of 1990 and 2000showed that the land price along theNishitetsu Omuta Line and JRKagoshima Line increased more than theother areas. This means that theinvestment in railway services canchange the distribution of land prices inurban areas. The net value of total landprice by investing in the two subways inthis city was estimated at JP¥ 58,397million per year (real value as of the yearof 1998). The increase in land prices andeconomic activities in Fukuoka Citystemming from its two-subwayinvestments created more tax revenuesfor the local government. Its net taxrevenue in 1995 was estimated atJP¥ 8,229 million (in nominal price)including JP¥ 6,726 million from propertytaxes and JP¥ 1,503 million from cityplanning taxes.As far as the budget of local governmentis concerned, resources for railwayinvestment in Fukuoka come fromvarious sources. The local governmentset up its own High-speed RailwayInvestment Fund in 1974. The totalrevenue of the fund from 1974 to 1999was composed of the following: 24.7%came from tariff revenues, 43.1% fromcommercial bank loans, 15.8% from thegeneral budget of the local government,and 10.3% from central governmentStudy on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportFigure 3: Contour maps of land price inFukuoka City (upper: 1980, middle: 1990 andlower: 2000)subsidy. Although about 15% of the total revenue was covered by the general budget of thelocal government, about 10% of the general budget of Fukuoka city is subsidized by thecentral government (the average percentage in 25 years from 1974 to 1998).When analyzing the relationship between net tax revenue, fund budget, and investment cost,it was found out that about 30.0% of the investment cost is covered by net tax revenue dueto the increase in land prices. However, the local government has incurred losses of about27.0% of its total investment cost in the past 20 years.103

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportReferences1) Cervero, R; Ferrell, C; Murphy, S: Transit-Oriented Development and JointDevelopment in the United States: A Literature Review, TCRP Research Results Digest,Transportation Research Board, 2002.2) Rybeck, R. :Using Value Capture to Finance Infrastructure & Encourage CompactDevelopment, Public Works Management & Policy, Vol.8 (4), pp 249-260, 2004.3) Belzer, D; Autler, G. : Transit Oriented Development: Moving from Rhetoric to Reality,Brookings Institution, 2002.4) Cervero, R; Duncan, M. : Transit’s Value-added Effects: Light and Commuter RailServices and Commercial Values, Transportation Research Record, 1805, 2002.5) Japan Society of Civil Engineering: Review of Transportation Development Scheme,Revised version, 1991.6) Kanemoto, Y.: Urban Economics, Toyo-Keizai-Shinposya, 1997.7) Institute of Transport Policy Studies: Technical Report on Investment Effect of UrbanRailway in Japan 2003, 2003.104

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportAppendix-D: Basic Data of EAP CountriesTable D1Basic Information on EAP CountriesTotal PopulationShare of Urban Population GDP perTrade % toRegionalArea(000) Growth Rate (%) 1) CapitaHDI Poverty Gini(%) Growth Rate (%)GDPDisparity(Km2)(US$ in ’95)Ratio 2) Index3)2000 80-90 90-00 2000 80-90 90-00 2000 2000 2001Cambodia 176,520 12,021 3.0 2.8 16.9 3.17 5.84 304 110 0.56 n.a 40.4 (‘97) -China 9,327,420 1,262,460 1.5 1.1 35.8 4.90 3.80 815 49 0.72 16.1 (00) 40.3 (’98) 10.3Fiji 18,270 812 1.5 1.0 49.4 2.49 2.74 2,710 132 0.75 n.a n.a -Indonesia 1,811,570 206,265 1.9 1.5 41.0 5.17 4.49 986 74 0.68 7.2 (00) 30.3 (’00) 12.0Kiribati 730 91 2.2 2.3 38.2 3.12 3.30 575 .. n.a. n.a. n.a. -Laos 230,800 5,279 2.6 2.5 19.3 4.86 4.78 438 83.9 (98) 0.53 26.3 (97) 37.0 (’97) -Malaysia 328,550 23,270 2.8 2.5 57.4 4.60 3.95 5,017 230 0.79 < 2 (97) 49.2 (’97) 4..9Marshall Islands .. 52 4.1 1.2 65.8 5.16 1.33 1,540 80.8 (99) n.a. n.a. n.a. -Micronesia - 118 3.1 2.1 28.3 3.63 2.82 1,686 n.a. n.a. n.a. n.a. -Mongolia 1,566,500 2,398 2.4 1.3 56.6 3.32 1.23 386 147 0.66 n.a. 44.0 (’98) -Myanmar 657,550 47,749 1.9 1.7 27.7 2.14 2.85 n.a. 0.55 n.a. n.a -Palau 460 19 2.3 2.4 69.5 2.97 2.38 5,494 117 n.a. n.a. n.a. -PNG 452,860 5,130 -18.7 29.2 17.4 4.01 4.10 1,015 90 (99) 0.55 n.a. 50.9 (’96) -Philippines 298,170 76,627 2.4 2.3 58.6 5.16 4.19 1,161 106 0.75 14.6 (00) 46.1 (’00) 9.2Samoa 2,830 172 0.3 0.7 22.1 0.16 1.15 1,379 114 0.76 n.a. n.a -Solomon Islands 27,990 419 3.4 2.8 19.7 6.78 5.88 663 n.a. 0.63 n.a. n.a -Thailand 510,890 60,728 1.8 0.9 19.8 2.71 1.47 2,793 125 0.77

Study on UrbanizationJBIC/ADB/World Bank Joint Study “Infrastructure in East Asia: The Way Forward”Final ReportTable D2 Infrastructure Service Level of Selected Countries in 2000Access to Water (%) Access to Sanitation (%)Vehicle Paved RoadOwnership Length per Capita 1)Total Urban Rural Total Urban Rural 2000 Km / 000Cambodia 30.0 54.0 26.0 17.0 56.0 30.0 4.8 0.15China 75.0 94.0 66.0 38.0 68.0 75.0 7.6 0.25Indonesia 78.0 90.0 69.0 55.0 69.0 78.0 21.4 0.75Lao PDR 37.0 61.0 29.0 30.0 67.0 37.0 5.0 0.54Malaysia .. .. 94.0 .. .. .. 149.7 2.22Mongolia 60.0 77.0 30.0 30.0 46.0 60.0 22.8 0.62Myanmar 72.0 89.0 66.0 64.0 84.0 72.0 n.a. n.a.Papua NewGuinea42.0 88.0 32.0 82.0 92.0 42.0 25.7 n.a.Philippines 86.0 91.0 79.0 83.0 93.0 86.0 27.0 0.14Thailand 84.0 95.0 81.0 96.0 96.0 84.0 95.0 1.03Vietnam 77.0 95.0 72.0 47.0 82.0 77.0 n.a 0.30Source: WB. 2003. World Development IndicatorsPaved road length: M. Fay & Tito Yepes, 2003. ”Investing in Infrastructure: What is needed from 2000 to 2010“, World Bank Policy Research Paper 3102Table D3Regional Comparison of DevelopmentAnnual Growth of GDP (%) Population Below Poverty Line (%)60-70 70-80 80-90 90-00 1987 1990 1993 1996 1998East Asia & Pacific 4.6 6.6 7.3 7.7 26.6 27.6 25.2 14.9 15.3Europe & Central Asia - - - -1.6 0.2 1.6 4.0 5.1 5.1Latin America & Caribbean 5.3 5.8 1.2 3.3 15.3 16.8 15.6 15.6 15.6Middle East & North Africa - - 2.3 3.3 4.3 2.4 1.9 1.8 1.9South Asia 4.2 3.1 5.7 5.2 44.9 44.0 42.4 42.3 40.0Sub-Saharan Africa 5.2 3.6 1.7 2.2 46.6 47.7 49.7 48.5 46.3Low- & middle-income countries 5.3 5.4 2.9 3.3 28.3 29.0 28.1 24.5 24.0Source: GDP growth rate: WB 2003, World Development Indicators,Poverty: WB 2000/2001. World Development Report106