Governing and Financing Metropolitan Areas in the Developing World

Author ORCID Identifier

Roy Bahl: https://orcid.org/0000-0002-7956-5076

Document Type

Book Chapter

Publication Date



The economic activity that drives growth in developing countries is heavily concentrated in urban areas. Catchphrases such as “metropolitan areas are the engines that pull the national economy” turn out to be fairly accurate. But the same comparative advantages of metropolitan areas that draw investment also draw migrants who need jobs and housing, lead to demands for better infrastructure and social services, and result in increased congestion, environmental harm, and social problems. The challenges to metropolitan public finances are to capture a share of the economic growth that is adequate to finance the new and growing expenditure needs and to organize governance so that services can be delivered in a cost-effective way, giving the local population an adequate voice in fiscal decision making. At the same time, care must be taken to avoid overregulation and overtaxation, which will hamper the now quite mobile economic engine of private investment and entrepreneurial initiative. Th is book identifies the current issues of importance in metropolitan governance and finance in developing countries, describes the practice, explores the gap between practice and what theory suggests should be done, and lays out the reform paths that might be considered. Part of the solution will rest in rethinking expenditure assignments and instruments of finance. But this will need to be done in a context of how government is structured, the characteristics of the local economy, the infrastructure gap, the concentration of poverty and slums, environmental concerns, and the external financing options. The “right” approach also will depend on the flexibility of political leaders to relinquish some control in order to find a better solution to the metropolitan finance problem.

This chapter reviews the main lessons that have been learned about each of these issues, by drawing on the existing literature and on the research reported in the 14 chapters that follow.


(c) 2013 Lincoln Institute of Land Policy. From Bahl Roy W, Johannes Linn and Deborah Wetzel, eds., Financing Metropolitan Governments in Developing Countries, pp. 85-106. Lincoln Institute of Land Policy 2013.