Urban Poverty in East Asia

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East Asia Urban Working Paper Series

Urban Poverty in East Asiaa review of Indonesia,

the Philippines, and Vietnam

September 2003

Working Paper No. 11

Urban Sector Development UnitEast Asia Infrastructure Department

The World Bank


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AcronymsADB Asian Development BankBPS Badan Pusat Statistik

DHS Demographic and Health Surveys

EAP East Asia and Pacific

FIES Fami ly Income and Expenditure Survey

GDP Gross Domestic Product

GRP Gross Regional Product

IN Indonesia

LSMS Living Standards Measurement Surveys

LSS Living Standards Survey

PA Poverty Assessment

PH Philippines

PPA Participatory Poverty Assessment

PRA Participatory Rapid AppraisalPRSP Poverty Reduction Strategy Paper

NGO Non-governmental Organization

SUSENAS National Socioeconomic Survey

SWRS Social Weather Report Survey

TA Technical Annex

UIP Urban Indicators Program

UN United Nations

UNCHS United Nations Centre for Human Settlements (Habitat)

UNDP United Nations Development Programme

VLSS Vietnam Living Standards Survey

VN Vietnam

WDI World Development Indicators

WDR World Development Report

WUP World Urbanization Prospects


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Table of ContentsAcronyms

Foreword

Acknowledgments

EXECUTIVE SUMMARY i

PART ONE: THE CONTEXTOF URBAN POVERTY 1

A. Purpose and Approach of this Review 1

B. Trends in Urban Demographics 1The Urban Transition 1

The Sizes and Growth of EAP Urban Areas 4Migration and Urban Growth Rates 6

C. The Urban Economic Context 7Changing Economic Activities 7

Increased Concentration in Peri-Urban Areas 9

Susceptibility to Macroeconomic Shocks 9

D. Implications of Demographic and Economic Changes for Urban Poverty 11Associations among Urban Growth, Poverty, and Total Poverty 11

The Relationship between Migration and Poverty 13

EAP Trends in the Incidence of Poverty, and Urban Poverty, in Particular 14

Implications of Urban Development for Reducing Poverty 16

PART TWO: AN ANALYSISOFQUANTITATIVEANDQUALITATIVEINFORMATION 19

A. A Conceptual Framework for Urban Poverty 19

B. Methodological Issues in Quantitative Assessments of Urban Poverty 21

Limitations of National Household (Living Standards) Surveys 21

C. Demographic Profile of the Urban Poor 23

Age, gender, household size and composition 24

Migration Status 24

D. Labor and Human Capital Assets 25Education Status 25

Health Status 25

Employment Status and Types of Work 27

E. Physical Assets: Housing, Land and Infrastructure 29Housing and Land Tenure 29

Electricity and Durable Consumer Assets 31

Water supply 31

Sanitation 33

Transport 35

F. Insecurity and Urban Poverty 36Insecurity of Home and Place 36

Personal Insecurity 37

Financial Insecurity 37


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G. Empowerment, Social Capital and Urban Poverty 38Relations with Government 38

Social Networks among the Urban Poor 39

PART THREE: IMPLICATIONSFOR POLICY, INSTITUTIONAL DEVELOPMENT,AND RESEARCH 41

A. Summary: Urban Poverty in the EAP Region 41

B. Policy and Institutional Implications of Urban Poverty 43

C. Suggested Priorities for Research into Urban Poverty in the Region 45

REFERENCES 47

ANNEXES 51

LISTOF TABLES

Table I.1. Total Urban and Rural Populations, East Asia and Pacific Region 2

Table I.2. Historic and Recent Trends in Urbanization: East Asia and Other Countries Compared 2

Table 1.3. Comparative Structural Indicators of Urbanization, by Country and Subgroups 3

Table I.4. Standard Measures of Income (Expenditure) Poverty in Rural and Urban Areas 14of the Philippines and Vietnam, 1985, 1991, 1998

Table I.5. Indonesia: Comparisons of Rural and Urban Poverty Incidence Derived 15with Different Measurement Methods

Table I.6. Cumulative distribution function of per capita expenditure, by type of settlement (Indonesia) 15

Table II.1. Health Indicators by Urban-Rural Residence 26

LISTOF FIGURES

Figure I.1. Trends in rates of urbanization: Indonesia, Philippines, and Vietnam 4

Figure I.2. Comparison of urban growth in the Philippines, Indonesia, Vietnam 4

Figure I.3. Differences in City size patterns between the East Asian subregions, 5as compared to other developing countries

Figure I.4. Increase in the urban share of the total poverty in East Asian countries, 121990-2000 and projections to 2030

Figure II.1. Indonesia Urban Household Demographics: Female-headed Households, 24Elderly Households and Large Families, by per Capita Expenditure Deciles

Figure II.2. Philippines Urban household demographics: Female Headship and Elderly Headship, 24

by per Capita Expenditure DecilesFigure II.3 Vietnam Urban Housing: Types of Temporary structures used, 29

by per capita expenditure deciles

Figure II.4 Indonesia Urban housing status: Private ownership, rent, lease and other, 30by per capita expenditure decile.

Figure II.5. Phi lippines and Mani la Urban Housing Qual ity, by per Capita Expendi ture Deci les 30

Figure II.6. Vietnam Urban sources of drinking water, by per capita expenditure deciles 32

Figure II.7. Phi lippines Urban access to own faucet r ises wi th per capita expendi ture status 32

Figure II.8. Indonesia Urban sani tation (f inal disposal): Sept ic tank use and unsafe methods, 33by per capita expenditure decile

Figure II.9. Vietnam Urban type of toilet: by per capita expenditure decile 34


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ForewordThe East Asia and Pacific Region is experiencing an urban transition of breathtakingscale. Between 2000 and 2030, the urban population will increase by half a billion

people, almost doubling the current level to a total of 1.2 billion, and the growth rateof the urban population is likely to be 130 percent of the Regions total populationgrowth.

As the Region is urbanizing, so too, to a considerable extent, is poverty. Urban areas

offer greater opportunities for work, lower unit costs of service provision, and accessto new ideas and social exchange. The urban transition is therefore a key element in

the process of increasing income and welfare for the country as a whole. But countriesfacing rapid urban growth confront rising demands for housing, land and urban services,

which local governments and related institutions are often ill-prepared to meet. Officialpolicies have often denied recognition to urban migrants as legitimate claimants for

city services. At the same time, urban residents are particularly vulnerable tomacroeconomic shocks that affect demand for their labor and raise prices for essentialgoods and services. They are also vulnerable to environmental and public health

hazards that arise when dense settlements are not well managed. The individualsleast able to compete in the face of such constraints are the poor.

The present study was motivated by the fact that the nature and dimensions of urban

poverty in the East Asia and Pacific Region have not heretofore been subjected tomuch direct or systematic analysis, either quantitative or qualitative. Discussions ofoverall poverty in the Region have tended to gloss over its urban manifestations, whileurban operations suffer from the lack of a strong grounding in relevant povertyknowledge. Poverty surveys and analyses in the Region have examined urban poverty

to a very limited extent and without sufficient detail to permit conclusions about thefactors that define and affect it.

This review is a first attempt to analyze available quantitative and qualitative information

on urban poverty across three large countries in the RegionIndonesia, the Philippinesand Vietnam. It aims to draw out observations and issues concerning the substance ofurban poverty in these three countries as well as the methodologies of urban poverty

analysis. The analysis is based on a review of existing literature and household surveydata. It is useful not only for what it reveals but also for what it cannot reveal due to

the limited data on urban poverty that currently exists, and the methodologies usedwhich often fail to capture the complex and variegated nature of urban living. It is

therefore an important contribution to our knowledge on poverty. As a preliminaryanalysis, it lays the groundwork for determining priorities for further work for bothoperations and research on urban poverty in the Region.

Christian Delvoie

Sector Director, Infrastructure DepartmentEast Asia and Pacific Region

Urban Poverty in East AsiaA review of Indonesia, the Philippines, and Vietnam


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EXECUTIVE SUMMARYThis study reviews available quantitative and qualitative information on urban povertyissues and trends in the East Asia and Pacific (EAP) Region, with particular focus on

Indonesia, the Philippines, and Vietnam. The effort is motivated by a concern thatmuch of the poverty analysis undertaken in the Region does not adequately represent

the urban realities there, and by the conviction that a strong grounding in relevant, in-depth knowledge about poverty could improve the effectiveness of urban operations.The aim of this preliminary assessment is to reach a fuller and more accurate

understanding of the evolution of urban poverty in the Region and especially in thosethree large countries, in order to inform both the Banks research and its operations,

and to enhance our dialogues with local and national clients on strategies to reducepoverty.

The review is a desk studythat is, it is limited to material accessible to the WorldBank in Washington, drawing mainly on reports of field work and other published andunpublished papers. The empirical analysis focuses on the household poverty surveysand Bank-sponsored poverty assessments, which are the principal data sources used

by the Bank and by the national governments in designing poverty-related activities.The study focuses on Indonesia, the Philippines, and Vietnam because each has carried

out a recent Bank-assisted exercise in poverty assessment and has had an active dialoguewith the Bank on urban strategy and operations. The report identifies certain

shortcomings and gaps in conventional poverty measurement and recommends futurerefinements and priorities.

The urban population of the East Asia and Pacific Region will almost double between2000 and 2030, from 665 million to 1.2 billion. The annual rate of increase in the last

25 years (3.75 percent) is exceeded only by that in Sub-Saharan Africa. Over the nextgeneration, the urban increment alone will account for 130 percent of the total

population growth in the Region, because of the absolute decline in rural populations.

Vietnam, Indonesia and the Philippines are at distinctly different points in their urban

transitions. According to the official indicator of urbanization, the Philippines appearsin the upper-middle rank, Indonesia in the middle rank, and Vietnam in the low rank

among countries of the Region. However, in many countries of the Region themeasurement of what is urban is distorted by omission of the extensive peri-urban

areas that are in fact the fastest growing areas.

Urban growth results from a combination of natural increase in the urban population,net migration from other areas of the country, and reclassification of rural areas asurban. Rural-to-urban migration appears to be the major factor explaining urban growth

in the least urbanized countries (e.g., Vietnam), but becomes much less importantthan natural increase and reclassification in more urbanized areas (e.g., in the

Philippines).

Countries undergoing rapid urban growth, whether due to natural increase or to in-migration, confront rising demands for housing, land, and urban services. The urban

residents least able to compete for such constrained supplies are the poor. Their plighthas been exacerbated by a distinctive phenomenon in Southeast Asia: migration not

Purpose andApproach of theStudy

Part One:The Context ofUrban Poverty

Trends in UrbanDemographics

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into the city cores, but rather into peri-urban areas (beyond and not necessarily adjoiningthe city boundaries) that have recently attracted much investment. The exclusion of

these peri-residents from local government jurisdictions means that the householdslack access to social services and are at greater risk of poverty even in the midst of a

relatively strong local economy. The transition countries in the region, notably Chinaand Vietnam, have strictly controlled rights to reside in the major cities (although

China no longer enforces the policy strictly). Such measures exacerbate hardships formigrants who may remain illegal unregistered residents for years.

The absolute size of urban areas in EAP is dramatic. The population of cities in theRegion with over one million residents will increase by half, from 330 million to

almost 500 million, between 2000 and 2015; similarly, that of mega cities (over 10million) will increase from about 80 to 120 million. In Eastern Asian countries,

population is more evenly spread across city-size categories than is typical in thedeveloping world, although with cities of 1-5 million residents slightly dominant. The

populations in Southeastern Asia, however, are heavily clustered in cities of under500,000 residents, and also more concentrated in the mega cities than is typical in

other developing countries. The Southeastern Asia subregion is thus especiallychallenged to manage the very high growth rates in the largest cities.

Size of cities is not in itself a development issue, but size together with rapid growthclearly present a serious challenge. The key to residents welfare lies with the citys

capacities, both financial and managerial, to ensure essential services and to preventor counteract crippling land costs and negative externalities: traffic congestion, pollution

and crime. Such problems tend to worsen as cities grow and they burden the poordisproportionately. Unlike higher-income groups, the poor lack the resources to findalternative services and protection, or to negotiate with authorities and service providers.

Simultaneously with the urban transition, the Region is undergoing a structuraltransformation of its economy. These changes can be seen best within a broad spatial

perspective encompassing not only the city proper but entire city-regions. Aseconomic development changes through shifts in production and employment from

largely rural agriculture to largely urban industry and services, the transformation extendsinto hinterland areas before they are officially classified as urban. To find cheaperland, traditional manufacturing shifts outward from the large cities on to smaller cities.

However, the more information- and technology-intensive industry and services remainin the central cities and metro areas (and also extend into some new periurban areas),

because their needs for skills, infrastructure and amenities are more importantconsiderations than land costs.

For many unskilled workers and for most of the poor, the main sources of income are

in the small-scale and informal sector, where employment is related to infrastructureand other services, construction, trade and small-scale manufacturing, and urban

agriculture. Those sources of employment exploit the multiplier effects of the registeredformal economy.

In rural areas too, such diverse economic activities are increasingly important. Non-farm employment there generally benefits from proximity to urban areas (as does

agricultural production) because of access to markets, information, and infrastructure.

To reap the potential productivity advantages of large urban labor markets, the extentto which the framework of economic policies and the business environment offer

incentives for investment and private enterprise is clearly important. The Regionsmacroeconomic-financial crisis of the late 1990s demonstrated that although urban

The Urban EconomicContext

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areas generate economic activity, they also are vulnerable to ripple-through effects ofcyclical and other macroeconomic shockseffects that are particularly hard on those

living at the margin of poverty.

One result of extended periurban development in the Region is that the central citiesno longer offer a wide range of formal sector jobs across skill levels and in both

manufacturing and services. Manufacturing is moving outside the city limits;consequently high end, modern services and the informal sectors very low-end

production and services are left as the officially recognized urban economy. Thus, theurban poor may have less occupational mobility within the cities than has been availableto urban residents in other countries. Policies to ensure a well-integrated internal

labor market (with ease of migration and internal mobility) are called for if spatialsegmentation of population and of jobs is to be avoided. The peri-urbanization

phenomenon also calls for realistic policies of urban management that integrate theouter zones with the cities and provide them with adequate urban services.

In both the Philippines and Vietnam, consumption, or expenditures, poverty has

declined over the 1990s for both urban and rural populations, whether measured byheadcount or as depth of poverty. Urban poverty headcounts cited in the recent

poverty assessments (16 percent of the urban population in Indonesia, 12 percent inthe Philippines and 9 percent in Vietnam) remain well below those for rural areas.

However, measurements of urban poverty are subject to certain important caveats.Correcting for the omission of unregistered migrants, for example, could raise the

urban poverty headcount in Vietnam to perhaps 15 percent. For Indonesia, differencesin the measurement methodologies have an enormous impact on the ratios of povertyheadcounts between rural and urban populations. Moreover, the low but improvingindicator of poverty depth there implies that the urban population is close to thepoverty line. Therefore, changes in estimations of this lineas well as actual adverse

events that cause income shockscan have a large (whether statistical or real) impacton the risks of individuals falling into poverty.

For all three focus countries, economic inequality is higher in urban than in rural

areas. In the Philippines and Vietnam, urban inequality is worsening. Intra-urbaninequality in those countries is also evident from much of the data on access to basicservices and on status across housing, land tenure, water and sanitation, and transport.

Possibly reflecting the limitations of official measurements of poverty as well as attestingto real inequalities, the urban population in the Philippines rate their own poverty

status well above official estimates, and above self-ratings by rural respondents.

As measured by the conventional consumption (expenditure) measures of poverty, theurban poor as a proportion of the total poor populations of developing countries,

including those in the EAP Region, are projected to increase significantly. Conservativeassumptions would indicate that in 2025, urban poverty would average about 40 percent

of total poverty in the overall Region, up from about 25 percent in 1998 (Hentscheland Bump, 1999). The urban share of populations in poverty could range from overhalf (Indonesia and the Philippines) to less than a fifth in China and Vietnamalthough

predictions for China, especially, vary greatly according to presumed poverty incomethresholds and definitions of urban population.

It is not a simple task to predict how the trends in urbanization and economic activity

in the EAP countries will affect the magnitude and proportions of poverty in urbanplaces. In theory, as the share of the total population that is urban increases, thatshould reduce the total poverty in a country over the medium term, because urbanization

is highly correlated with rising national income, greater market depth, and otherdevelopment indicators. In those terms, increasing urbanization would be expected

The Urbanization of

Poverty: Incidenceand ProblematicElements

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to mean rising incomes for the urban residents and for in-migrants to the cities. Overtime, too, urbanization should benefit the remaining rural population, by relieving

pressure on rural land, enlarging markets for rural goods, and building up savings forpublic and private transfers to rural areas. However, the pace of income growth in

urban and in rural areas does not necessarily remove the income inequalities betweenthem. Indeed, the urban-rural gap may widen for a time, especially with respect to

rural areas that are intrinsically under-resourced in natural or human capital, ifgovernments do not introduce effective transfer policies and foster well-integratedfinancial markets.

Although it is sometimes thought that rural-urban migration simply shifts poverty from

rural to urban areas, in-migrants to cities are not necessarily motivated by poverty norlanguishing among the poor there. How government policy and the incumbent

population treat the migrants is critical in determining their welfare and how well theyintegrate into city life.

Despite the expectation for rising urbanization to reduce both total and urban poverty

over the medium term, the transitional processesthe influx of migrants, as well as

other changes that create new demands on cities for services, jobs, housing, andinfrastructure can create hardship for many urban residents in the short term. Even

with good conventional urban management, cities may confront a more deep-seatedphenomenon: poverty that is more a manifestation of fundamental social, political,

and institutional divisions, now heightened by the context of urban growth. Suchproblems are revealed where:

there are deep divisions between social groups (e.g., legal and nonlegal

residents);

certain settlements within the city are spatially segregated from others, leaving

residents burdened with many persistent disadvantages, including risk of evictionand social stigma;

many residents have little or no normal political voice, or access to legal redress;

or

certain vulnerable groups are insufficiently protected by social networks andother institutions.

To change such structural determinants of poverty requires more than simply efforts to

improve incomes; fundamental reforms in governance, both local and national, wouldbe necessary. There are thus possibilities that in urban areas, poverty could both be

created faster and be resolved faster, according to the determinants involved and howthey are managed.

It is of interest to this review to identify factors associated with, or contributing to, the

Regions increases or decreases in overall poverty (and of course, in urban poverty in

particular). Causation of change and its implications for poverty strategies are noteasy to identify. In all three countries, the agricultural population has the highestincidence of poverty and the highest share of the total poor. For the Philippines and

Vietnam, poverty assessments conclude that given the continuing preponderance ofthe poor in agriculture, better performance of this sector is crucial to alleviate povertyimpacts, but so is a structural shift of population out of agriculture into activities with

higher productivity. The key questions are then: in what locations do high productivityactivities (including high-value agriculture) take place, and what are the conditions

that best support them?

Within all three countries, the regions with the highest incidences of poverty are oftenremote from population centers, and are those that depend on agriculture yet have

The Role of UrbanDevelopment in

Reducing Rural,Urban andNationwide Poverty

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relatively poor natural resources. By virtue of their locations, such regions have lessaccess to the economies of agglomeration, which are based on proximity to markets

for goods and labor, to infrastructure that reduces production costs, and to networksfor exchange of information and technology. Even within rural areas of Vietnam, for

example, both nonfarm employment and agricultural activities benefit in peripheralareas close to sources of urban demand; their living standards are higher and there is

less poverty. The urban characteristic of relatively dense and larger-scale settlementalso permits activities with high fixed costs (increasing returns to scale) to be providedmore efficientlyactivities such as secondary and tertiary education and health services,

and network infrastructure. In short, the common observation that more urbanizedregions (e.g., the Red River Delta, the South East and the Mekong Delta in Vietnam)

have lower incidences of poverty should not be attributed simply to chance or unfairpolicy advantage. Their advantage may arise from intrinsic elements of the general

urban context that enable growth and poverty-reducing activities at lower cost andwith higher returns than would be possible in a general rural context. The advantages

hold not only for public investment in infrastructure, for example, but also for muchprivate investment, which derives productivity advantages from the physical proximity

of other producers, workers, consumers and suppliers.

Nothing about the theory of agglomeration economies guarantees that population

concentration alone will achieve economic growth or reduce poverty. What is criticalis how well producers and workers are able to respond to the opportunities that urban

marketplaces offer. The management of urban growth in the EAP countries will thereforematter greatly not only for the poor within the cities, but even more for the contribution

urban areas can make to the economy and to the prospects for reducing poverty in therural areas. Similarly, it will be important for strategies for reducing national and ruralpoverty to draw on the potential of urban agglomerations to enhance productivity.

That is acknowledged quite explicitly in the poverty assessments for Vietnam and thePhilippines, and in the latest national plan for China. The national poverty strategies

in countries of the Region should incorporate two indispensable elements: i) policies

and investments that strengthen the opportunities and abilities of the rural populationto shift to activities allowing higher returns, and/or to move to locations offering greateropportunity; and ii) programs to help cities and towns become more effective inproviding jobs and services.

The present review uses a broad definition of poverty reflecting several dimensions:

opportunity and capability, security, and empowerment (WDR 2000/01). Threeparticular aspects of urban life directly affect how poverty is manifested (Moser,

Gatehouse and Garcia, 1996): the characteristic reliance on cash income for all necessities (monetization);

environmental hazards, stemming in particular from the relative density of urban

habitation;

social fragmentation or churning. Although urban social networks can be

strong and highly functional, they differ from those in rural areas. The larger turnoverand the absence of many of the social and especially, familial support structures

common in rural areas can contribute to urban social stress.

To incorporate the dynamic and contextual elements of urban poverty, it is alsonecessary to take into account the vulnerability to risks associated with poverty, and

Part Two:An Analysis ofQuantitative and

QualitativeInformation

MethodologicalApproach and Issues

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the corresponding importance of the various assets, both formal and informallabor,human capital, natural capital, physical productive assets, household relations, and

social capitalthat determine households ability to manage risks (Moser, 1998).Evidence of how the poor cope with risks reveals that, although they draw on a wide

range of such assets as best they can in response to shocks and crises, often they alsocut back expenditures for food and other basic necessities. Urban populations face a

high covariance of risks to the household when jobs or other sources of incomedisappear, because obtaining essential services requires cash; they face risks to theneighborhood community as well, of forced evictions when tenure is insecure.

For the study, the databases of the living standards surveys for Indonesia, the Philippines

and Vietnam were broken down to extract the responses from the urban and the ruralpopulation samples.1 Respondents were classified according to expenditure deciles

and in some cases, according to poor and nonpoor groupings and their survey responseswere compared accordingly.

These (and most) living standards surveys limit the picture they can convey about

urban poverty for several methodological reasons:

They may fail to capture fully the mixed sources of many households livelihoods,drawn from both rural and urban activities and assets regardless of where they live.

The samples are typically too small to permit disaggregation among and withinurban areas (i.e. different cities cannot be compared, nor can neighborhoods within

cities.)

Given the rapid changes in urban population, the sampling frames may be outdated.

The survey instruments are often insensitive to the particularities of urban life.

More discussion of the last two points is found below.

Despite the caveats above, some preliminary observations can be made from the surveydata, supplemented by limited review of qualitative studies in the three focus countries.

The following analysis identifies both what can and what cannot be known from thosesources.

The data from the living standards survey reveal that the poor and poorest amongthe urban populations of Indonesia, the Philippines and Vietnam are not the usuallyexpected vulnerable groups (i.e. not female-headed households or the elderly),

but they do include large families.2 Private transfers of urban origin may be a keyto the vulnerable groups avoiding poverty.

The migrants surveyed are not shown to be less well off than longtime residents.However, a major shortcoming of the Vietnam survey is its failure to capture the

nonregistered migrants who suffer official exclusion from services and benefits.

Although in general, indicators improve with the increasing size of settlements,

the largest urban areas (Manila and Jakarta) are not necessarily the most favored.For example, with respect to water and sanitation in Jakarta, the poor there are

worse off than those in smaller settlements.

1) For the Philippines, the 1997 Family Income and Expenditure Survey (FIES) dataset contains information about 38,000 households in 81 provinces and 16 regions; 47percent of the total sample are urban households. For Vietnam, the 1998 Household Living Standards Survey (VLSS) was used, containing 6000 households of which1730 (29 percent) are urban. The Indonesia poverty assessment is based on the SUSENAS 1999 dataset of 205,700 households (approximately 800,000 individuals), 31percent of which are urban. Each survey provides for comparison of income and non-income characteristics across per capita expenditure deciles and across poor/non-poor groupings; it also breaks down the characteristics within each decile or grouping. Poverty lines are established separately in the surveys by region and by rural andurban zones.

2) The finding that larger households have higher poverty risk was not checked against alternative assumptions about economies of scale in household consumption.

Quantitative andQualitative Findings

Reviewed

Characteristics of theincome-poor and their

locations

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The housing status of the urban poor is marked by a high degree of crowding andby tenure insecurity, or the risk of forced eviction. A large quality differential in

housing exists across urban income groups, although in the Philippines housingconditions are surprisingly poor even for the urban middle class.

Although, overall access to education, health facilities, water and sanitation ispredictably higher in urban than in rural areas, it would require a breakdown of

effective access and quality of service, and of outcomes across income groupsand zones of the city, and among urban localitiesto determine accurately the

welfare status of different groups in either absolute or relative terms. Suchdisaggregations are not feasible from most of the survey databases.

Sources of water supplyand quality ofsanitation are highly divergent across urbanincome groups. In Jakarta and Manila, the poor are more likely than the rich to pay

for water. The large proportion of the urban poor without basic sanitation or safewaste disposalin Vietnam and Jakarta poses major health risks for them and for the

entire city populations.

Historically, the high density of East Asian cities has enabled use of nonmotorized

transportand walking, but with urban growth, that is changing. The mobility andaccess of the poor are affected by problems in public transport, increased trafficcongestion and accidents, ground level pollution, and transport-related crime,

although these factors were not captured by the survey data sets.

The unemployed identified in the surveys are not always also among the urban

poor. The survey instruments are not well suited to capture the vagaries of urbanearnings patterns, especially in the informal sector.

The information available makes clear the large disparities in educational attainment

among the urban population. In the urban setting, moreover, the intermediate

levels of education do not necessarily translate into higher incomes.

Health status in urban areas is worsened by behaviors, multiple stresses and

environmental risks. In the Philippines, infant and child mortality are higher forthe urban poor than for the rural poor. Studies elsewhere of variations in health

outcomes have shown them to vary even more across zones of the same city.However, the available living standards surveys for this studys focus countries do

not permit such an analysis. The surveys reveal malnutrition and hunger in someurban areas of the Philippines and Vietnam. Although risky behaviors, disaster-prone living conditions, incidence of crime, violence and HIV-AIDS, and traffic

accidents are likely to affect mortality and morbidity in urban areas, especiallyamong the poor, those factors are not covered in the surveys reviewed.

The urban poor face a covariance of threats to their personal, financial and communalsecuritystemming from uncertain housing tenure, macroeconomic shocks (both to

their earnings and to prices), crime, and other social pathologies such as drug use. Usually, the poor must rely on private financial transfers rather than public transfers

to mitigate theirfinancial risks.

Despite their physical proximity to seats of political power, the urban poor report

having little influence on policies or programs affecting them, unless t h e yorganize. Generally the urban poor perceive themselves to be excluded bygovernment, yet highly vulnerable to individual instances of official corruption.

The urban poor have many complex social networks which serve many functions:

of social integration, mutual support, labor market facilitation, and collective actionto obtain services and housing. It is this highly diversified social capital, ratherthan formal relations with government agencies, that helps the urban poor to manage.

ObservationsConcerning Earning

Status andCapabilities

CharacteristicsAffectingEmpowerment and

Security

Housing, physicalassets and services

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Some urban poverty can be viewed as resulting from a temporary mismatch betweenthe supply and demand for jobs and for services, especially when rapid in-migration

occurs. If institutions are both responsive and efficient, they can reduce such gaps byproviding more resources for services and by removing specific bottlenecks such as

undue regulatory barriers. But in the three focus countries viewed here, and arguablyin many others, much of the poverty appears due to deepseated political and institutional

factors that shut certain groups out from the opportunities and protections that otherscan expect from either markets or from the government. The empirical finding ofdeep and pervasive inequalities in the urban areas suggests that the fundamental roots

of poverty reside in the structures of governance.

To relieve the other type of povertywhich may be characterized as waiting in aqueue that moves by fair, well-known and accepted rulesgovernments and external

donors can accelerate the queue by applying more financial resources and byidentifying and establishing measures to accelerate supply, such as support for private

sector participation; also, by providing information, they can strengthen the expressionof demand for services. Such processes depend on government attention to policy

reform and improved investment in infrastructure, and to private sector development.Thus, appropriate government efforts remain a priority in the Region, in particular,attention to reducing regulatory or other disincentives to providing services to low-

income residents. Another high priority should be encouraging municipalities to changepolices that obstruct land development, and to undertake flexible urban planning that

can steer such development so as to forestall slums appearing concomitantly withpopulation growth.

To get at the deeper problems that disempower the urban poor and keep them fromtaking advantage of improved opportunities, it is necessary to act more directly onunderlying institutional issues. The insecurities of housing and land tenure, livelihoodinsecurity and physical insecurity that plague low-income urban residents call for new

policies and programs that will strengthen residents legal protections and their rightsfor housing and land tenure, reduce official corruption and arbitrary acts, and foster

the communities own social capital. Community-driven programs to upgrade slumneighborhoods, which improve a wide range of physical and communal services through

the residents own actions, would reduce many sources of vulnerability. Such programssuccess, however, requires local and national governments to support them as part ofan evident commitment to better governance that recognizes the residents as full citizens

with rights and responsibilities, rather than simply tolerating the programs as isolatedactions. Also necessary would be raising the capacity of local governments to function

more responsively, transparently and accountably in their basic responsibilities, andperhaps even to establish participatory strategic planning of their funding allocations

and other activities. Broad benefits to the urban poor would flow from such atransformation of the relationship between the local government and citizens.

The urban transition and the potential economies of agglomeration can raise productivity

for both rural and urban residents, but only in the presence of certain basic mechanisms:a well integrated internal market for labor and goods, with ease of movement andgood information flows, and low production costs due to shared infrastructure. Reforms

of policies and programs to make urban economies function efficiently, and thus raisetheir returns to private investment, would be of value to the nation as a whole.

Such policies and programs would, for example:

welcome internal migrationcertainly, remove residence restrictions where theylinger, and facilitate urban-rural remittances as a major source of private transfers;

A Key Distinctionand Its Implications

for Policy andPrograms

viiiE x e c u t i v e S u m m a r y


19/132

favor efficient domestic markets for goods and services and aid them by improvingtransport and telecommunications; and

correct distortions or missing segments in the financial markets, in particular by

enabling credit and banking services for the poor.

Greater attention to reforming the housing and land markets and to improving urban

transport in the Region is crucial. The widespread inadequacies in housing and transport,which affect many urban residents but especially burden the poor, should be amongthe most urgent concerns of governments and of the Bank because those failures weaken

the very heart of the urban economy, which is a fluid labor market.

Finally, the findings on urban poverty and inequality argue for developing more detailedinformation on impacts and targeting within the urban population. Nationally

representative household surveys cannot provide the necessary spatial disaggregation.What are needed are special purpose surveys capable of producing panel data. Similarly,

analysis of public expenditures should go beyond aggregate attributions simply torural or urban beneficiaries, to more accurately identify the distributional reach within

each urban population and urban area.

The present analysis raises important points about the accustomed methods of empiricalresearch on poverty, the living standards surveys, as being ill-suited to the context of

urban poverty, and therefore unlikely to delineate accurately its nature and the relevantdistinctions with respect to rural poverty. The most serious problems are likely to

stem from the fact that the research methodology, which has been developed andapplied most extensively in rural settings and reflects rural notions of life, carries a

bias inherent in the sampling design and survey instruments that works against anaccurate representation of the urban poor.

For one thing, because urban populations constantly change so that homes often containseveral families, and because unregistered urban in-migrants are not counted, the

decennial census-based urban sampling frames quickly become nonrepresentative.

They are especially likely to miss those who are transient or without a fixed address.Although techniques to ensure more accurate sampling are known, they are not alwaysapplied.

Another difficulty is that because the national survey instruments and methods are

typically designed for rural households, work, and living conditions, they usually arenot adapted adequately to capture the complexities of urban livelihoods and socialrelationships, or the multi-spatial nature of households rooted in both urban and rural

life. It is necessary to combine qualitative and quantitative methods and informationsources to overcome both these limitations. Alternative approaches to sampling and

to survey design should be tested and applied.

Given better methods of obtaining a more complete and accurate picture of urbanpoverty, a number of specific issues and questions should be explored. The preceding

review suggests some highly relevant research topics:

The effects of interspatial mobility (migration and multi-spatial livelihoods) onpoverty in both rural and urban areas. This research would look at circular andtemporary rural-to-urban migration as well as at longer-term movement, and would

examine both the role of private financial transfers and the mechanisms by whichrural migrants become integrated into the urban society and economy.

The dynamics of informal employment in urban areasthe quality of livelihoodsand the patterns of occupational mobilityin the context of policies and institutions.

Suggested Prioritiesfor Research onUrban Poverty in theEAP Region

ix



20/132

How social networks among the urban poor help members cope with poverty andits various dimensions (these networks often include links with rural residents).

A disaggregated analysis of health outcomes by zones within some major cities

and comparisons among different cities with different sizes, growth rates, and degrees

of service provision, to map health-related poverty in more geographic and socio-economic detail than is now known.

Evaluation of how of specific interventions or packages of interventions, such asneighborhood infrastructure improvements and tenure security, affect the well-

being of low-income residents. The role of social capital and how it affects or isaffected by residents participation in such interventions would be a further research

question.

xE x e c u t i v e S u m m a r y


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22/132


23/132

1.1 The present work aims to begin filling gaps in the Banks understanding ofurban poverty in East Asia by a desk review, surveying as much as possible of thequantitative and qualitative work that is currently available and extracting urban data

from the poverty surveys, to arrive at implications for policy research and externalassistance. Given resource and time constraints, the study is focused on three countries

Indonesia, the Philippines and Vietnambecause each has carried out a recent Bank-assisted exercise in poverty assessment, and has had an active dialogue with the Bank

on urban strategy and operations. The review looks at the three countries and someselected evidence on others to illustrate urban poverty developments within East Asia

and the Pacific, but does not generalize to the entire Region.

1.2 The present study is therefore a preliminary effort to extend our knowledge on

the extent and nature of urban poverty in the three countries, the apparent contributingor associated factors, and the possible approaches with which country policies and

donor assistance might tackle poverty problems. Where it can help to clarify thedistinctive nature of urban poverty, the study compares and contrasts the findings on

poverty in urban areas with those for rural areas. Such comparisons can illuminatesimilarities and differences in policy or operational assistance for different spatialcontexts, and identify potential synergies in urban and rural efforts to reduce poverty.

By design, therefore, the study raises more questions and hypotheses than conclusiveanswers, thereby suggesting directions for future work.

1.3 The remainder of this section briefly outlines the demographic and economic

context of urban development and the overall pattern of urban and total poverty inEast Asia and the Pacific (readers familiar with the Regional background may want to

skip this section). Section II begins with a conceptual framework to view urban poverty,and some methodological issues. It then reviews the empirical evidence from surveys

in the three focus countries, supplemented where possible by qualitative studies andillustrations from other countries in the Region, to gain a preliminary picture of urbanpoverty in its several dimensions. Section III recapitulates the main elements of urban

poverty that have emerged from this evidence and outlines some priorities for policyand program responses and for future research.

1.4 The urban population of the East Asia and Pacific will almost double between

2000 and 2030, from 665 million to 1.2 billion, according to the UN (Table I.1). Theurban increase alone will account for more than the total net increase in nationalpopulations, because of the absolute decline in the population counted as rural.

1.5 A comparison of the East Asia and Pacific Regions rate of urbanization with

that of the other developing countries is presented in Table I.2.

1.6 Table I.2 shows that the East Asia and Pacific Region has urbanized more rapidlyover the past 25 years than have the developing countries overall; it has also far exceeded

PART ONE:

THE CONTEXT OF URBAN POVERTYPurpose andApproach of thisReview

Trends in UrbanDemographics

The UrbanTransition

1



24/132

the pace of the currently developedcountries when they passed through a

similar stage of their urbanization inthe 1900-25 period. The developing

countries have urbanized with muchhigher overall population growth than

the industrial countries had. This hasbeen particularly true in EAP, whichhas had 3.75 percent annual growth

of the urban population over the past25 years, a pace exceeded only by Sub-

Saharan Africa. That rate is projected to decline sharply over the next period alongwith falling population growth overall, but the urban increment will account for a

historically unprecedented 130 percent of total population growth over the nextgeneration (more than making up for rural population declines).

3) Mongolia is similar in this respect to many other countries in transition from Soviet-style socialism. Thailand followed deliberate decentralization policies through itsnational plans for many years. Vietnam's early urbanization trend was influenced by war up to the early 1970s, then was curbed sharply by policies of rural resettlementinto "new economic zones" through the early 1980s and by urban residency controls.

2PART

ONE

The Context of Urban Poverty

1.7 From the viewpoint of this study, it is noteworthy that Vietnam, Indonesia and

the Philippines are at distinctly different points in their urban transition (defined hereas urbanization, the shift in population share from rural to urban areas). Table I.3

presents the countries of the East Asia Region (excluding the small Pacific islands)grouped by level of urbanization.

1.8 Table I.3 shows the Philippines at upper-middle rank, Indonesia in the middle

rank, and Vietnam in the low rank of urbanization. For the most part, these urbanizationrankings correlate with levels of economic development according to the well-knownlog-linear relationship, although there are clear anomalies in the Region: Mongolia is

highly urbanized for its per capita income and economic structure, and Thailand appearsvery much less so.3 Indonesia is still at the steep slope of its urbanization curve, with

relatively high annual increase in the rate of change of urbanization, while Vietnam is just heading into this phase, and the Philippines pace of urbanization is starting to

taper off (Figure I.1). All three countries have urban growth (i.e. annual increase of theurban population) of around 3 percent per annum, with Vietnams poised to acceleratein the coming decade (Figure I.2).

* The East Asia and Pacific (EAP) Region combines Southeastern Asia andEastern Asia, less Japan. It excludes Melanesia, Micronesia and Polynesia.

Source: UN, World Urbanization Prospects (WUP), 1999 Revision.

TTTTTaaaaabbbbble I.1.le I.1.le I.1.le I.1.le I.1. TTTTTotal Urban and Rotal Urban and Rotal Urban and Rotal Urban and Rotal Urban and Rururururural Pal Pal Pal Pal Populaopulaopulaopulaopulationstionstionstionstions,,,,,

EastEastEastEastEastAsia and PAsia and PAsia and PAsia and PAsia and Pacifacifacifacifacific Ric Ric Ric Ric Reeeeegion*gion*gion*gion*gion*

EAP Region 2000 (million) 2030 (million) Increase (million) %increase

Total Population 1877.0 2301.9 424.9 22.6

Urban Population 664.8 1230.1 565.3 85.0Rural Population 1212.5 1071.8 (-140.7) (-11.6)

Urban/Total 35.4% 53.4%

TTTTTaaaaabbbbble I.2.le I.2.le I.2.le I.2.le I.2. Historic and RHistoric and RHistoric and RHistoric and RHistoric and RecentecentecentecentecentTTTTTrrrrrends in Urbanizaends in Urbanizaends in Urbanizaends in Urbanizaends in Urbanization:tion:tion:tion:tion:

EastEastEastEastEast Asia and Other Countries Compar Asia and Other Countries Compar Asia and Other Countries Compar Asia and Other Countries Compar Asia and Other Countries Comparededededed

Developed Countries All Developing Countries East Asia and Pacific Region

Year 1900-1925 1975-2000 2000-2025 1975-2000 2000-2025

Share urban (%),26-40 27-40 40-53 20-35 35-51

beginning-end of period

Urban pop growth90 140 82 151 75

over 25-year period (%)

Growth Rate (% p.a.)

Urban 2.57 3.56 2.43 3.75 2.25

Rural 0.05 1.12 0.20 0.60 -0.32Total 0.87 1.92 1.23 1.45 0.74

Contribution of urban96 62 92 71 130

to total pop growth (%)

Country data developed from Brockerhoff and Brennon, 1998; Other data UN, WUP 1999 Revision.All averages weighted by population.


25/132

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1.9 Characterizations of urban populations of course depend on the definitions

used and thus can differ across countries and even in the same country over time. 4 Forexample, China reset its urban threshold, causing a discontinuous jump in registeredurban growth for 1985-90.5 Vietnam counts an area as urban if a settlement has at least

4,000 residents and at least 60 percent of the population is engaged in nonagriculturalactivitiesa rather conservative definition that gives added weight to rural areas. 6 In

many countries, especially in East Asia, a major factor obscuring the measurement ofurbanization is the failure to count peri-urban areas as urban (see discussion further

below). UN data record Thailands population as only 22 percent urban in 2000,while official government statistics report that proportion as 30 percent; the Thai

planning ministry (NESDB) acknowledges that a more accurate figure, taking accountof peri-urban settlement, would be about 40 percent.7

1.10 Households often depend on very diverse economic livelihoods, combiningagriculture, manufacturing, commerce and other services, either in their residential

location (urban or rural), through seasonal or other temporal migration, and/or throughan extended family portfolio of economic activities in which different family members

engage across different locations. Hence, to fully understand the economiccircumstances and prospects of the poor, whether counted as urban or as rural, it isnecessary to have a disaggregated picture of their livelihoods and their interactions

outside their main geographic areas.

1.11 As countries go through the urban transition inevitable with development, the

rate of growth of the urban population has particular relevance to urban poverty.Urban growth results from a combination of natural increase in the urban population,net migration from other areas of the country, and reclassification of rural areas as

FigurFigurFigurFigurFigure I.1.e I.1.e I.1.e I.1.e I.1. TTTTTrrrrrends in rends in rends in rends in rends in raaaaates oftes oftes oftes oftes of urbanizaurbanizaurbanizaurbanizaurbanization:tion:tion:tion:tion:

Indonesia,Indonesia,Indonesia,Indonesia,Indonesia, PhilippinesPhilippinesPhilippinesPhilippinesPhilippines,,,, , andandandandand VVVVVietnamietnamietnamietnamietnam

FigurFigurFigurFigurFigure I.2.e I.2.e I.2.e I.2.e I.2. Comparison ofComparison ofComparison ofComparison ofComparison of urban gurban gurban gurban gurban grrrrrooooowthwthwthwthwth

in the Philippinesin the Philippinesin the Philippinesin the Philippinesin the Philippines,,,, , Indonesia,Indonesia,Indonesia,Indonesia,Indonesia, VVVVVietnamietnamietnamietnamietnam

4) Most countries follow a UN or other standard statistical convention to define residents as urban (or rural) if more (or less) than a threshold level live in a single agglomeration.Besides population concentration, urban definition may take account of criteria such as sectoral shares of employment, "contiguous built-up area", and administrativedesignation.

5) In China, a place needs about 50,000 residents to qualify as urban, compared to 10,000 in the Canadian or U.S. definition. The Chinese urbanization level would be wellover 50 percent if the latter threshold were used.

6) Campbell (2001), p. 19.7) Communication with Dr. Douglas Webster (Stanford University), July 2001.

4PART

ONE


Source: Population Division of the Department of Economic and Social Affairsof the United Nations Secretariat, World Urbanization Prospects:The 1999 Revision. Part 1: Urban and Rural Areas (POP/DB/WUP/Rev.1999/1), data set in digital form. World Bank, World

Development Indicators (WDI) 2000 and 2001.

FigurFigurFigurFigurFigure I.1.e I.1.e I.1.e I.1.e I.1. TTTTTrrrrrends in rends in rends in rends in rends in raaaaates oftes oftes oftes oftes of urbanizaurbanizaurbanizaurbanizaurbanization:tion:tion:tion:tion:

Indonesia,Indonesia,Indonesia,Indonesia,Indonesia, PhilippinesPhilippinesPhilippinesPhilippinesPhilippines,,,, , andandandandand VVVVVietnamietnamietnamietnamietnam

FigurFigurFigurFigurFigure I.2.e I.2.e I.2.e I.2.e I.2. Comparison ofComparison ofComparison ofComparison ofComparison of urban gurban gurban gurban gurban grrrrrooooowthwthwthwthwth

in the Philippinesin the Philippinesin the Philippinesin the Philippinesin the Philippines,,,, , Indonesia,Indonesia,Indonesia,Indonesia,Indonesia, VVVVVietnamietnamietnamietnamietnam

Source: Population Division of the Department of Economic and Social Affairsof the United Nations Secretariat, World Urbanization Prospects: The1999 Revision. Part 1: Urban and Rural Areas (POP/DB/WUP/Rev.1999/1), data set in digital form.

01950

Urban population as a percentage of total population

Percentage(%)

Philippines

Indonesia

Vietnam

Trend in Urban Population Shares

1970 1990 2010 2030

20

40

60

80

1950-55

Trend in Growth Rate of Urban Population

Average annual rate of change of the urban population

Percentage(%)

Vietnam

Indonesia

Philippines2

4

6

1965-70 1980-55 1995-00 2010-15

The Sizes andGrowth of EAP

Urban Areas


27/132

urban. Countries undergoing rapid urban growth, whether due to natural increase orto in-migration, confront rising demands for housing, land, and urban services. The

urban residents least able to compete for such constrained supplies are the poor.

1.12 The absolute size of EAP urban areas is dramatic. The population of cities in theRegion with over one million residents will increase by half, from 330 million to

almost 500 million, between 2000 and 2015; similarly, that of mega cities (over 10million) will increase from about 80 to 120 million. Whereas in 1950 only three of the

worlds 30 largest cities were in the developing countries of East Asia, and they wereall in China (averaging 3.9 million residents each), by 2015 there will be seven there:Bangkok, Jakarta, Metro Manila, and Seoul along with the original Beijing, Shanghai

and Tianjin (averaging 17.1 million residents each) (UN, 2000).

1.13 But size of cities is not in itself a development issuebig is not per se bad, andthere is evidence that large urban areas, when well managed, are more spatially efficient

than smaller ones (Prudhomme 1994). The key to residents welfare lies with thecitys capacity, both financial and managerial, to ensure essential services and to prevent

or counteract crippling land costs and negative externalities: such as traffic congestion,

pollution and crime. Such problems are often associated with large cities and theyburden the poor disproportionately. In most developing as well as in developed

countries, about half of the urban population resides in cities of less than half a millionresidents, and another quarter in cities of the 1-5 million range (Figure I.3). Growth

rates are quite dispersed across the size ranges but tend to be highest in cities of over1 million. However, the city size distributions, for both Eastern Asia and Southeastern

Asia, are quite distinct from these international tendencies, although in different ways.The Eastern Asian countries show population more spread across the size categories,but with cities of 1-5 million slightly dominant. Southeastern Asia, by contrast, haspopulation heavily clusteredin the below-500,000

category; but it also hasrelatively more in the 10-

million-plus range than isthe case in other countries.

The Southeastern Asiasubregion thus faces aspecial challenge: managing

very high growth that iscontinuing in the largest

cities.

1.14 Research on a largesample of cities of differentsize categories across all

developing regions has

revealed that the combinedeffects of city size and highgrowth rates raise infant

mortality rates, which are anindicator of residents basicwelfare. At city growth rates

slightly over 3 percent perannum, effects (odds ratios)

on infant mortality are no


5

FigurFigurFigurFigurFigure I.3.e I.3.e I.3.e I.3.e I.3. DifDifDifDifDifffffferererererences in City sizences in City sizences in City sizences in City sizences in City size pae pae pae pae patterttertterttertterns betwns betwns betwns betwns between the Easteen the Easteen the Easteen the Easteen the EastAsianAsianAsianAsianAsian

subrsubrsubrsubrsubreeeeegionsgionsgionsgionsgions,,,,, as comparas comparas comparas comparas compared to other deed to other deed to other deed to other deed to other devvvvveloping countrieseloping countrieseloping countrieseloping countrieseloping countries

FigurFigurFigurFigurFigure I.3.e I.3.e I.3.e I.3.e I.3. DifDifDifDifDifffffferererererences in City sizences in City sizences in City sizences in City sizences in City size pae pae pae pae patterttertterttertterns betwns betwns betwns betwns between the Easteen the Easteen the Easteen the Easteen the East

Asian subrAsian subrAsian subrAsian subrAsian subreeeeegionsgionsgionsgionsgions,,,,, as comparas comparas comparas comparas compared to other deed to other deed to other deed to other deed to other devvvvveloping countrieseloping countrieseloping countrieseloping countrieseloping countries

Growth & Shares of Urban Populations in City-size Categories, Four Country Groupings

City Size Categories (Number of Residents)

%ofUrbanPopulation

Fewer than 500,000 - 1 - 5 5 - 10 10500,000 1 million million million million +

2000

2015

70

2000

2015

60

50

40

30

20

100

SoutheasternAsia

Eastern Asia

Least DevelopedCountries

Less Developed Countries

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, WorldUrbanization Prospects: The 1999 Revision. Part 2: Urban Agglomerations (POP/DB/WUP/Rev.1999/2/F16), data setin digital form. According to the UN WUP, Eastern Asia comprises China, Hong Kong, DPR Korea, Japan, Macau,

Mongolia and the Republic of Korea. Southeastern Asia comprises Brunei Darussalam, Cambodia,East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.


28/132

worse for agglomerations above 1.5 million than for cities in the 750,000-1.5 millionsize range. However, the negative effects increase considerably with higher growth

rates for each city size range.8 Where such urban growth is occurring, policies mustmanage its challenges by improving local government functions so that they protect

and promote the welfare of the residents, especially the poor.

1.15 Another important structural urban characteristic is the concentration of theurban population in one dominant (primate) city, or a very few cities. The EAP

Region has an average rate of urban primacy lower than that in other developingcountries, but also a very wide range, from China at 3 percent to Thailand at 56percent (Table I.3). Recent international research has shown that urban concentration

is related to economic efficiency (Henderson, 1999). The evidence suggests a bestdegree of national urban concentration that increases sharply as income rises up to a

threshold for per capita income (about $5000 in purchasing power parity), then declinesmodestly. The study also shows that the best degree of urban concentration declines

with country scale. Of the East Asian countries studied, Korea and Thailand appear inthe Henderson analysis to have excessive urban concentration (at least according to

their official urban statistics), Malaysias is below the estimated optimum for its incomelevel, and Chinas is about right, given its size. It is also likely from this analysis thatthe Philippines is nearing an excessive concentration in Metro Manila. The study author

concludes that the economic costs of concentration rates that exceed or fall far short ofthe estimated best level are considerable, in terms of forgone economic growth. The

factors affecting primacy are complex: history, openness to trade, degree of fiscal(de)centralization, and extent of interregional transport infrastructure. The research

finds that greater road density significantly reduces urban concentration, an effect thatrises with national income. What is of interest for the present review is the confirmationthat although the process of urbanization (agglomeration of economic activities,

population and markets) promotes economic growth, imbalances in a countrys urbandevelopment have high costs. Ensuring that cities and towns throughout the country

are well managed and are integrated in subregions should be a deliberate element of

strategies to accomplish poverty reduction as well as national growth.

1.16 The significance of internal migration for urban growth is difficult to assessaccurately because in census data, migration is not distinguishable from the

reclassification of formerly rural areas as urban. However, it can safely be said that forcountries at relatively low levels of urbanization, rural-to-urban migration is the

dominant factor in cities growth, but that at higher levels of urbanization and ofincome (up to a threshold of about US$4,000 (1985 prices)), internal natural increase

in the cities is the main source of growth (Lucas, 1999). For example, rural-to-urbanmigration is seen as explaining the bulk of the urban population growth in Vietnam(Lim et al., 2000), which is in an early stage of urban transition.9 In an analysis of 26

developing countries in the 1980s, net migration plus reclassification explained 40

percent of urban population growth; however, in a broader sample of 46 developingcountries over 1960-1990, the average contribution of migration and reclassificationappeared highest in East and Southeast Asia.10

Migration andUrban Growth

Rates

8) Brockerhoff and Brennan (1998), p. 1-40. Conclusions apply to a sample including East Asian cities, although results for the latter are not separately identified.9) A 1985 cross-country study found the contribution to urban population growth of net migration plus reclassification to be about 61 percent for Thailand, 55 percent for

Indonesia, and 40 percent for the Philippines--consistent with their relative levels of urbanization. (Ogawa, 1985, cited in Shareen Joshi, 2001.)10) Ibid. In China, the number of towns more than quadrupled during 1982-90 because of reclassification. In Indonesia, net rural-urban migration is estimated to account for

25-30 percent of urban population growth, with 30-35 percent attributed to reclassification of settlements and the remaining 40-45 percent due to natural increase(Wegelin, 2001, p. 4).

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1.17 Internal migration tends to have diverse patterns (including rural-rural and urban-urban) as development proceeds. Even some urban-rural migration is observed, at

least temporarily, in times of macroeconomic crisis such as East Asia experienced in1998-99. A distinctive phenomenon in Southeast Asia in recent years has been migration

not to the city cores, but rather to peri-urban areas (zones beyond and not necessarilyadjacent to city boundaries), as they have attracted much new investment. As already

noted, the increased population of a peri-urban area is not necessarily counted asurban in the censuses. Furthermore, the fact that the residents fall outside localgovernment jurisdictions means that they lack access to social services and are at

greater risk of poverty even in the midst of a relatively strong local economy.

1.18 The transition countries in the region, notably China and Vietnam, have pursuedpolicies in the past of strictly controlling rights to reside in the major cities. In Vietnam,

as discussed below, such measures restricting access to employment and services haveexacerbated hardships for poor migrants, who remain illegal unregistered residents

for many years. In China, the household registration system, created in the early 1950sto limit residency and employment in cities, is now being relaxed in some provinces,

and some flexibility in enforcement appears in parts of Vietnam.1.19 Considerable flows of international migration, as well, go to the peri-urban and

urban areas of East Asia. Burmese workers migrate to Thailand, and Indonesian andPhilippino workers to Malaysia and Singapore. These migrants, an increasing share of

whom are women,11 often suffer the lowest legal and social status, and the worst livingconditions (Webster, 2001).

1.20 As has been documented in many countries, urban areas, especially large cities,

contribute more than their population share to the national economy. For example,

the three major cities of Vietnam (Ho Chi Minh City, Hanoi and Haiphong), with acombined official population of 12 percent of the national total in 1990, produced 19

percent of the gross domestic product; by 1995, with their population share largelyunchanged, these cities generated nearly 30 percent of the national output. With their

surrounding provinces, the Mekong and Red River Deltas included, the combinedcity-regions produce more than 70 percent of the national output with half the national

population.12

1.21 Taking the broader regions surrounding urban centers into account is important,because though economic development proceeds through shifts in production andemployment from largely rural agriculture to largely urban industry and services, those

shifts go on, as well, in hinterland areas before they are officially classified as urban.To find cheaper land, traditional manufacturing shifts outwards from the large cities or

to smaller cities. However, the more information- and technology-intensive industryand services remain in the central cities and metro areas, or new peri-urban areas,

because their needs for skilled labor, infrastructure and amenities are more importantconsiderations than land costs. For many unskilled workers and for most of the poor,

11) Females such as domestic servants in Malaysia (mainly from Indonesia) now outnumber males among official overseas migrant workers, although males still dominate thelarger population of illegal and undocumented workers (Hugo, 2000, cited in Joshi, May 2001).

12) Campbell, op. cit., p. 21. Recently the Southeast Region alongside Ho Chi Minh City has demonstrated dynamic enterprise development and structural economictransformation more dramatic than that of the Mekong Delta; compared to the Mekong Delta, the Southeast accounts for a much larger share of private sector employment(especially manufacturing). (Comments by Carolyn Turk and Rob Swinkels, World Bank Hanoi office)

The UrbanEconomic Context

ChangingEconomic Activities

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the small scale and informal sector, with informal infrastructure and other services,construction, trade and small scale manufacturing, and urban agriculture, is the main

source of income. That sector exploits the multiplier effects of the registered formaleconomy.

1.22 Similarly diverse economic activities are important in rural areas. For example,

among villages of Thai Binh province in Vietnam (Red River delta), 52-64 percent ofincome is earned in services and small businesses.13 Such nonfarm employment

generally benefits from proximity to urban areas (as does agricultural production)because of access to markets, information, and infrastructure.14 In addition, many studiesshow that migration of workers into both formal and informal urban activities is more

common from regions relatively near the migrants destination. In short, migrationbehavior weakens with distance,15 which further suggests that an urban economys

domestic influence should be considered beyond the official city boundaries.

1.23 What are the most vibrantly growing economic activities in the focus countries,and how do these relate to the urban demographics? In Vietnam, growth in output and

employment was much stronger in industry, and especially in services, than in

agriculture during 1993-98, as would be expected in its early stage of structuraltransformation. Ironically, employment growth in nonfarm activities was higher in

rural areas of Vietnam than in urban ones.16 The incomplete state of reforms (doi moi)

may have meant that private sector commerce and manufacturing in urban areas

remained relatively more constrained.17 Vietnams rate of growth for wage employment(considered in the Vietnam Poverty Assessment as synonymous with formal sector)

was only half of what Indonesia achieved in the first half of the 1990s after it embarkedon similar reforms.18 Of course, wage jobs and reported unemployment affect a relativelysmall share of the labor force even in urban areas of Vietnam. There is a strong dualityin the labor force (i.e. little employment moves from the informal to the formaleconomy), possibly more than is found in the Regions more fully market-oriented

countries, because in Vietnam formal private enterprises are relatively underdeveloped.Job growth has been most dramatic in the labor-intensive light manufacturing, largely

export-oriented, in the main cities especially for young female workers, many of whomare migrants.19 An example is shoe production in and around Haiphong and Ho Chi

Minh City.

1.24 In the Philippines there has been little additional shift in employment from

agriculture to industry and services since the mid-1980s. Although the labor productivity(output per worker) of industry is about five times that of agriculture and about twice

that for services, labor productivity has deteriorated in industry and stagnated in theother sectors since 1984, with a decline in capital intensity.20 Therefore, though there

is considerable scope for such sectoral shifts in employment to gain more income, itmay not happen without better economic management.

13) Survey of 45,000 families from 1999 agricultural publication, cited in Ibid., p. 19.14) See Chapter 5 of 2003 World Development Report: Sustainable Development in a Dynamic Economy. (The World Bank and Oxford University Press, 2002).15) Lucas, op. cit., updated at presentation at World Bank, March 2000.16) Vietnam: Attacking Poverty, tables 3.1 and 3.2.17) However, the differential between urban and rural incomes continues to increase because the urban-to-rural productivity differential is high and growing (from a ratio of 2.4

in 1986 to 4.2 in 1998), due to the rising ratio in nonagricultural-to-agricultural productivity (from 4.4 to 7.3), and the ratio of informal sector productivity to primary sectorproductivity (from 4.0 to 4.5) over the same period. Jean-Marie Cour, 2001.

18) NGO Poverty Working Group, 2000, p. 47. (Hereafter referred to as "Vietnam Poverty Assessment").19) Campbell, op. cit.20) Philippines Poverty Assessment, Vol. II, Chapter 2, Fig. 2.13.

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1.25 In East Asia, industrial relocation and new investment are most apparent in theextended urban regions (peri-urban areas) outside major cities. This spatial trend will

account for 40 percent of urban population growth in the Region over the next 20-25yearsspecifically, 53 percent of that in the extended Bangkok region, 70 percent in

Jakartas extended urban region, and about 40-60 percent in major Chinese cities.21 Peri-urban areas can be defined by their underlying process characteristics: that is, they

demonstrate an ongoing shift from an agricultural to a manufacturing-dominated economy,a corresponding change in employment structure, rapid population growth andurbanization, and changing spatial development with rising land costs. These peri-urban

areas are becoming home to most large manufacturing investment and to foreign directinvestment, locating in industrial estates with large perimeter structures and infrastructure

networks along with access to a major city for higher level services. Their workers arenot commuters but residents, often migrants from other urban areas and including both

highly qualified and less skilled workers as well as migrants from rural areas, all drawnby both the core formal sector jobs and by the spin-off demand for other services (see

Box I.1).

1.26 A result of this pattern of peri-urban development is that in the cities proper, awide range of formal sector jobs across skill levels appear in services, but not inmanufacturing, since the manufacturing is increasingly moving outside the city limits.

Thus, high end modern services and very low-end, informal production and servicesare remaining as the officially recognized urban economy. An implication is that the

urban poor may have less occupational mobility within the cities than has been availableto urban residents in other countries at other times (e.g. in the U.S or Europe during the

20th century). To avoid spatial segmentation of population and of jobs, therefore, policiesto ensure a well-integrated internal labor market, at the minimum, are essential. Workersshould be able to migrate within the country without administrative restrictions and

should have physical mobility (which depends further on land tenure, housing, andurban and inter-urban transport). The peri-urbanization phenomenon also calls for realistic

urban management policies that integrate the outer zones with the cities and provide

adequate urban services for them.

1.27 In East Asia, the urban economies and their residents have been particularlyvulnerable to macroeconomic shocks such as the financial crisis of 1997-98. That impact

hit urban areas through price increases for imported goods and food products (the latterdue also to coinciding effects of El Nino); job losses initially in the high-end services

such as finance and construction; and consequent reductions in demand for other urbanoutputs and services such as transportation, hotels and restaurants, entertainment, domestic

help, etc. Thus, losses in real earnings affected the poorer workers more as second-ordereffects, while higher income earners experienced the initial job cuts more directly.

1.28 In Indonesia, the financial crisis was estimated to affect the urban economy and

especially the largest cities more than it did the rural sector, with urban-based GDPdeclining in 1998 by 18 percent, versus 14 percent for the entire economy.22 During1997-1998, urban households reduced real spending on food by 28 percent, as compared

to 8 percent reduction for rural households.23 While all regions of Indonesia experiencedan increase in the incidence of poverty between February 1996 and February 1999, therelative increase was much higher in urban areas than in rural areas: the urban povertyrate rose by 126 percent, almost double the increase in rural areas.24 Similarly, the urban

IncreasedConcentration inPeri-Urban Areas

Susceptibility toMacroeconomicShocks

9

Urban Poverty in East AsiaA review of Indonesia

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Urban Poverty in East Asia

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