There is a symbiotic relationship between the economies of rural and urban areas. Although each part of a region has its unique characteristics, rural and urban areas are tied together by regional economic activity and by markets in agricultural produce, manufactured goods, services, and labor. Consumption and control over natural resources (often the building blocks of regional economic growth) are shared. The interconnected nature of urban and rural places has, at times, led to conflict. Rural communities and smaller towns may resent cities because they have failed to control emissions of sewage, toxics and other wastes that pollute vital streams and coastal areas - lowering fish yields, rendering valuable agricultural land useless and harming the health of residents. Agricultural producers have blamed an urban bias amongst policymakers for artificially restricting farm prices. Cities, in turn, have felt held back by the need to support large hinterlands, often inefficiently administered. They have complained of seemingly endless streams of migrants to urban centers, generating a demand for services they feel ill-prepared to meet. Cities sometimes have responded by refusing to supply basic services to new arrivals or by failing to extend infrastructure networks beyond the traditional core.

Sound economic development demands that conflicts of this type are mitigated through negotiations between stakeholders at the regional level, and that the markets connecting the different portions of a region operate as efficiently as possible. Given the clear interdependence of rural and urban areas, development professionals must also adjust their programmatic lens, so that separate development strategies for the rural and urban areas of a region are replaced by programs that acknowledge and build on the linkages connecting them.

Cities and Agricultural Markets

Urban-based activity is now recognized as critical to rural income generation. In a global economy, farmers are not only competing with other countries for access to the international export market, but - as they continue to liberalize - they are competing for access to domestic markets as well. Urban markets can be vital to the survival and improved well-being of farmers and can be a testing ground for new and innovative products. Development professionals need to recognize the importance of domestic markets to agribusiness and rural development and help farmers market their goods domestically as well as internationally.

The "marketing margin" between consumer and producer prices for agricultural goods is also important as it is a good measure of how effectively the urban and national system is supporting the agricultural sector in bringing produce to market. In Africa, where linkages are poor, as much as 70% of the final cost of agricultural goods consists of intermediate marketing costs. The largest component of such costs is transportation, caused by poor-quality feeder roads into market towns. Other costs consist of multiple, inefficient layers of middlemen and poorly organized urban markets. Similar inefficiencies escalate the costs of agricultural inputs, like fertilizer and credit. The lack of credit market access by small rural producers, for example, has repeatedly been identified as a crucial obstacle preventing rural households from responding more swiftly to price signals and consumer demand in agricultural markets. Credit markets for small rural producers have broken down in the face of urban banks' bad experience with loan repayment and the apparent lack of stable collateral to back agricultural loans.

A number of countries, with support from international agencies, have launched rural-urban linkage programs designed specifically to address these failures. Nepal's Rural-Urban Partnership Programme is illustrative of the approach. It makes use of existing kinship and social networks between households in rural areas and market towns to build urban marketing specializations that support rural production. It has sponsored some 2,000 urban-based entrepreneurial start-ups that handle vegetable marketing, farm to town transportation, and seed and fertilizer sales. Initiatives like these lower rural production costs and broaden market access. Urban and regional capital budgets, as part of a regional development strategy, can give greater priority to paving feeder roads and promoting transportation access to towns. These connecting physical links often are overlooked in cities' budgets and may not be reflected in the budgets of any regional bodies. Throughout Asia, urban-based financing institutions, following the lead of Grameen Bank, have introduced lending to collective groups of agricultural producers as a way of substituting social capital, and the group's desire for future access to credit markets, for more traditional physical collateral. Follow-up analyses have shown these programs to be very effective in extending credit-market access beyond urban centers and raising small-holder agricultural production and incomes.

Rural-Urban Labor Markets.

Household surveys reveal that rural residents are directly dependent on urban sources for much of family income. In Thailand, depending upon region, farm households derive between 55% and 75% of their total income from non-farm sources - i.e., remittances from relatives, processing of agricultural products, seasonal migration, daily commuting to urban jobs, contracting out manufacturing tasks from city firms, etc. These urban-linked sources of income provide the most readily accessible opportunities for incremental income for rural families. Recognition of this inter-dependence argues for dismantling barriers to rural-urban exchange where these still exist. Such barriers may take the form of licensing requirements for temporary urban migration, restrictions of government service jobs to urban residents, or taxes like the octroi that burden the import of goods into the city proper. Regional development strategies can usefully start with a scan of labor and product markets and the measures that impede factor mobility, especially for labor.

Migration

Migration to cities occurs for a number of reasons, both good an bad. The greater productivity of urban centers often means that there are greater employment opportunities in cities. Migrants are willing to risk the insecurities of urban life for the possibility that they may give themselves and/or ensuing generations the opportunity for economic advancement. In growing economies, labor migration is the fastest and largest-scale poverty alleviation measure. China illustrates just how effective migration can be. It is estimated that some 80 million rural labor migrants moved to China's urban areas in the 1990s. Household surveys show that after one year migrants have almost the same unemployment rate as local residents, and, though their wages are lower than long-time residents and their jobs less appealing, migrants earnings far exceed their earnings before moving. China has come to recognize the productive value of labor flows and now encourages partially controlled rural-urban migration instead of attempting to prohibit it.

Not all migration to cities is voluntary. In some cases, people are forced to move to cities because they have lost their land and/or livlihood. As farmers enter the global market and are forced to compete with each other for market share, they are forced to increase productivity or face bankruptcy. Increases in productivity in the agricultural sector are often generated by mechanization, an increase in the size of individual holdings, and/or an increase in other inputs that reduce the need for labor and can render small farms unviable. Population growth is also an important part of the picture. As generations are born, they inherit smaller and smaller plots of land. At some point, it is no longer possible to subsist off available land and younger generations move to cities in search of new opportunities. Migrants also come to cities to gain relief from conflict. The number of internally displaced peoples in the world is large and growing. Most of them live in cities. Development professionals need to pay special attention to this group of migrants as they are the most likely to have migrated without much needed social networks and without the capital they will need to take advantage of the many opportunities urban life can provide.

Rural to urban migration is certain to continue - even though the rates of movement to the largest metropolises has begun to slow. Policymakers can best respond by taking advantage of the opportunities that migration creates, and by acting to mitigate the undesirable impacts, rather than by fruitlessly attempting to stem migration. Programs that make schools readily available in new urban settlements can rapidly raise the average level of schooling in the country. Policy measures that deny publicly paid schooling and health services to new urban migrants, still effect in some countries, foreclose the opportunity to productively integrate these populations into the urban economy.

High rates of migration can generate harmful externalities, when urban investment does not keep pace with population growth. This is especially true of wastewater, solid waste, other forms of pollution, and traffic congestion. Cities must proactively identifying available plots of land and slotting certain portions for development. The city can then begin to lay the appropriate infrastructure before new populations arrive, saving themselves the additional investments needed to lay water pipes and sewage around existing communities. Cost-recovery pricing of basic services, like water supply and treatment, is one of the keys to sustaining necessary investment levels and a goal that can easily be reached by use of pooled financing mechanisms and the installation of a community-based process that demands contributions from the primary users of services in a particular area. (See briefs on Water Supply , Sanitation , and Urban Poverty )

Markets move toward equilibrium in part by the flow of labor supply toward higher-paying locations. This is complemented by the flow of production activities, especially in manufacturing, outward from the traditional urban center into surrounding regions. The steady decentralization of manufacturing has long been recognized. It is triggered by the search for less expensive land and lower-priced labor drawn from rural and small town locations. Manufacturers tend to disperse outward within the same urban region, so that they can continue to take advantage of the national and international marketing networks found in the city and utilize the financing institutions also headquartered there. In fact, national subsidies intended to decentralize manufacturing away from the capital region often have ended up moving manufacturers only 100 miles or less away from the urban center - with the result that a hyper-extended metropolitan region is created, involving even greater congestion costs and a larger regional concentration of population and economic activity.

When driven by market prices, the process of manufacturing decentralization tends to be an efficient one. It creates higher-paying job opportunities for residents outside the city. Manufacturing dispersal, however, can be driven by other considerations. Re-locating firms may look not only for cheaper labor, but for a labor supply that is less protected by social restrictions, such as regulations against child labor or restrictions on work hours. Locations in the urban hinterland may be favored because there are no environmental regulations restricting waste disposal. This search for gaps in the regulatory framework can inflict costs on the entire metropolitan area by polluting air and water basins. These problems need to be dealt with through more uniform regional environmental and labor controls. In the last two years, Shanghai Municipality, for example, has moved to impose the same air and water discharge and treatment standards on outlying communities as it does for the traditional core city. Development professionals can help in this process by identifying areas within a metropolitan region where the environmental impacts of manufacturing concentration can be most efficiently accommodated - because infrastructure networks already are in place, because air and water flows help in natural dispersion, or because local authorities are willing to make new investments in public facilities that mitigate the impact of new manufacturing. Manufacturing decentralization is proceeding at a rapid pace throughout the developing world. Successful patterns of regional development require that environmental considerations and other public impacts be taken into account in this re-location.

Many of the difficulties of regional and urban-rural development stem from fragmented governance. The city boundary usually does not define a natural market area or environmental zone. Nor does it mark the end of densely populated settlements. It often does mark, however, the end of urban service provision, as well as the end of city land-use and environmental controls. Sometimes, the area outside of the city is governed by a weaker "rural" county or falls into an area of generalized provincial authority. It is often unclear which jurisdiction is responsible for providing services to spontaneous, informal settlements located in this intermediate zone. Even where jurisdictional boundaries are better defined, local governments generally are ill-equipped to deal with issues of regional scope. Several municipalities may each discharge wastes into a common river, which downstream cities use for potable water intake. No traditional mechanisms exist for promoting efficient solutions, such as having downstream cities assist upstream cities in wastewater treatment, or having different municipalities join forces to build a common sanitary landfill.

These issues can be addressed in complementary ways. Institutions need to be established that can impose a regional perspective for major investments - whether this takes the form of regional governments or of mandatory forms of cooperation between the local authorities in a region. Intergovernmental grant programs that assist local capital financing should require, as one element for local eligibility, regional impact analyses of major new investments and regional evaluation of projects, like water treatment facilities, that have impacts far beyond local authority boundaries. Many countries operate donor-assisted Local Development Funds that provide credit financing for this type of project. Similar requirements to evaluate regional impacts and explore alternative project designs from a regional perspective should be an element of publicly assisted credit financing for major projects. One potential advantage of moving toward project financing of infrastructure facilities is the possibility of defining market boundaries that cross jurisdictional lines. The most efficient location and size of a water intake and treatment plant or other facility can be identified. Then, uniform service fees can be charged to all users, wherever located, to recover project costs. This model requires inter-jurisdictional agreement at the planning stage, but avoids the ongoing difficulties of inter-jurisdictional co-operation in plant operation and pricing policy.

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