Spatial inequality is growing in both developed and developing countries - Study

A study of regional inequality in Kazakhstan was conducted within the framework of joint program of the Kazakhstan Government and the Asian Development Bank for exchange of knowledge and experience. The study was prepared by international experts in close cooperation with experts of Economic Research Institute JSC (ERI).

Against the background of growing regional inequality not only in Kazakhstan, but also in many other parts of the world, empirical research of this kind is of fundamental importance to provide a theoretical and empirical basis for assessing and monitoring spatial inequality and developing comprehensive development strategies.

To compensate for insufficient depth of more traditional empirical methods of convergence analysis, an in-depth assessment of regional inequality was carried out by introducing three families of indices. In particular, these are the coefficients of variation and their derivatives, development trap index and index of regional competitiveness and cohesion.

Coefficients of variation that have been commonly used in convergence studies over the past three decades have revealed a situation of growing regional inequality over the past 20 years, especially taking into account proportion of the population. While Kazakhstan has traditionally demonstrated higher indicators than other emerging economies, but also lower than developed countries in terms of spatial inequality, there is reason to believe that inequality is growing and has exceeded indicators of other developing countries, even in the context of Central Asia.

Index of development traps revealed the existence of regional traps that affect all stages of their development. Such regions are more exposed to the risk of economic stagnation and  recession, and their dynamism and competitiveness will require government incentives.

The Regional Competitiveness and Cohesion Index of Kazakhstan provided a detailed overview of territorial characteristics of inequality in the regions. Again, the index showed that there are significant differences between regions of the Republic of Kazakhstan in six components considered (i) health and basic living standard; (ii) higher education and training; (iii) labor market efficiency; (iv) market size; (v) technological readiness; and (vi) innovation). 

The regional inequality identified in the course of study cannot be ignored or considered inevitable. Some of the mechanisms that are generally considered to play a role in reducing spatial inequality (for example, effect of redistribution from richer regions to lagging ones) are insufficient to ensure efficiency and equity. Moreover, in Kazakhstan, migration flows to urban centers considered in some studies (Glaeser & Kerr, 2009) as the main factor in reducing income inequality between regions, lagging regions are often left without skilled labor and with a wide range of problems associated with brain drain. 

Solving the problems of regional development is by no means an easy task. The fight against spatial inequality requires concerted, nationwide efforts covering a wide range of policy areas. A simple solution to problem of regional inequality through compensatory and redistributive measures and generous transfers from quite successful to lagging regions is unlikely to be enough to create a more balanced national economic ecosystem.

In this context, striving for efficiency by accelerating globalization and agglomeration forces does not guarantee justice, while focusing solely on justice, for example, through redistributive policies, can undermine efficiency. Therefore, it is necessary to achieve efficiency and justice at the same time since spatially neutral policy and a policy based on specifics of the territories location fail to do so.

Among them, a policy that takes into account the location specifics is more likely to contribute to economic development of each territory, creating more opportunities for the population. This type of policy refrains from applying universal approaches to elaboration of regional development strategies and can be useful for overcoming the trap state into which regions may fall as a result of limited economic dynamics.

Ultimately, a policy that takes into account the region specifics, based on a comprehensive assessment of regional competitiveness, such as the indices presented in report, can be crucial for extracting economic benefits from closer integration into international markets not only by a minority of leading regions, but also by lagging regions that can experience a new phase of innovation and economic dynamism, using their unrealized potential. Such approaches have proven successful in European regions and they may prove equally successful in the Kazakhstan regions if they are carefully implemented and supplemented with comprehensive initiatives aimed at improving institutional capacity of the country.

The Economic Research Institute will apply the proposed methodological approaches for further studies of regional inequality.

Full version of the study: Regional Inequality Study for Kazakhstan