Because we often tell the story of Hong Kong’s success, the model of a charter city that comes to mind for many people is one in which the government from a developed country administers the rules in a zone hosted and populated by people in a less-developed country. Partnerships between developed and less-developed countries are certainly feasible, but there are many other possibilities. For example, Shenzhen is the dual to Hong Kong and another illustration of the potential for charter cities.
To get a better sense for the flexibility of the concept, it helps to keep the essential ingredients of a charter city in mind. The creation of a charter city requires three basic elements and three national roles, all of which are based on the key dynamic of choice.
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Paul’s latest working paper is available on the NBER website.
Abstract:
Economists devote too much attention to international flows of goods and services and not enough to international flows of ideas. Traditional trade flows are an imperfect substitute for flows of the underlying ideas. The simplest textbook trade model shows that a welfare-enhancing move toward freer flows of ideas should be associated with a reduction in conventional trade. The large quantitative effect from the flow of ideas is evident in the second half of the 20th century as the life expectancies in poor and rich countries began to converge. Another example comes from China, where authorities dramatically reduced accident rates by adopting rules of civil aviation that were developed in the United States. All economists, including trade economists, would be better equipped to talk about international flows of technologies and rules if they adopted a consistent vocabulary based on the concepts of nonrivalry and excludability. An analysis of the interaction between rules and technologies may help explain important puzzles such as why private firms have successfully diffused some technologies (mobile telephony) but not others (safe municipal water.)
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In Africa’s Eastern Promise, a recent article in Foreign Affairs, Deborah Brautigam writes of the two-part development strategy that China pursues with a select number of partner countries in Africa. The strategy consists of loans backed by natural resources and special economic zones—ideas that come directly from China’s development experience at home.
China Eximbank issues market-rate loans that finance infrastructure projects such as roads, railways, hydropower, schools, water systems, and hospitals in Africa. Borrowers repay the loans with natural resources—oil in countries like Angola, Nigeria, and the Republic of the Congo, cocoa beans in Ghana, and copper in the Democratic Republic of the Congo. More often than not, Chinese firms receive the infrastructure contracts, but the agreements typically contain provisions that specify a competitive bid process and a degree of subcontracting to local firms.
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“We know from history that the competitive pressures created by migration can boost economic growth. But strong opposition to immigration in the world’s richest economies prevents many people from moving to better systems of rules. Charter cities bring the good systems of rules to places that would welcome migrants. Indeed, charter cities offer the only viable path for substantial increases in global migration, while lessening the contentious political frictions that arise from traditional migration flows.” —Paul Romer (Prospect)
Paul writes about charter cities in the February edition of Prospect. An ungated version of the article is now available.
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“Roughly 3 billion people from the world’s working poor will move from villages to cities over the next few decades. The choice is not whether the world will urbanise — it’s doing so, fast — but where and under which rules. Cities are so valuable that people will choose slums over rural poverty if that is their only choice. But charter cities would give them another option.” —Paul Romer (The Sunday Times)
The Sunday Times published a commentary by Paul Romer today. The piece was adapted from a longer article written for the February edition of Prospect magazine.
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Which parts of globalization matter for catch-up growth? This was the question Paul Romer asked during a session titled Growth in a Partially De-Globalized World at this year’s American Economic Association conference in Atlanta. Romer pointed out that while the barriers to trade in goods and services receive a great deal of attention, other barriers to the exchange of ideas represent an important obstacle to the benefits of globalization as well.
Tim Kane of the Kauffman Foundation offers an excellent discussion of the talk on the Growthology blog.
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Why is the average income of Canadian and Japanese residents so much higher than that of North Koreans or Ethiopians? Daron Acemoglu offers his answer in a recent commentary for Esquire magazine. He argues that differences in institutions, or rules, are the key driver behind global inequality.
Acemoglu asks readers to consider the two cities of Nogales on the Mexico-U.S. border. On the Arizona side, residents enjoy relatively high incomes, good infrastructure, and reliable public services.
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Our inner-environmentalist tends to romanticize rural settings. Rural areas offer open spaces and direct access to natural amenities. Cities bring to mind concrete, congestion, and pollution. Our inner-preacher counsels penance for our urban sins. People must suffer for wanting a modern lifestyle. Stewart Brand wants us to rethink these pastoral and moralistic instincts. As he explains, one of the best ways to protect the environment is to let the billions of people who live in rural poverty do what they want to do: move to cities.
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“…[P]roposing some new rules [in a charter city] and then asking who would like to opt in—who would like to live under these new rules—could give us a mechanism to reform the rules under which we live, to change them, to improve them much more rapidly.” —Paul Romer (on BBCCaribbean.com)
Listen to the BBCCaribbean.com interview and read the related article.
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“There’s a little corner of economics where there still exists a sense of wonder about what is possible.” —Paul Romer (on BBC World Service’s Global Business)
Listen to the Global Business interview. Read program host Peter Day’s comment on the importance of ideas.
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“International action is not forthcoming on things like climate change and preventing genocide; do you think it would be difficult to get international agreement on Charter Cities?”
Paul Romer answers this question and others from William Easterly on the Aid Watch blog.
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“One of the criticisms is that any developing nation establishing a charter city would risk draining the rest of the country of its existing talent and capital.” —Antony Funnell (host, Future Tense)
Read or listen to Paul Romer’s response (along with the rest of the interview) on the Future Tense website.
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Aren’t the cities that the world needs springing up naturally? Why do we need the construct of a charter city to encourage faster or better urbanization?
Paul Romer answers these questions and more from Dwyer Gunn at the Freakonomics blog.
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Charter cities have been recently featured in several publications: The Boston Globe, Forbes (article), Forbes (video), Newsweek.
The video of the talk I gave at TEDGlobal has now been posted.
A transcript should be available soon. If you are multilingual, you can volunteer to translate it into other languages.
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