The inadequate level of public services in the metropolitan areas of developing countries, and the prospects of continued high level of growth of city populations over the next three decades will almost certainly cause national leaders to revisit their urban strategy. The goal in this chapter is to support such efforts by reviewing the state of metropolitan governance and finance in developing countries, suggesting the lessons that might be learned from theory and from the international experience, and considering the policy reform choices that are open. There is a rich body of research literature on the subject of urban governance and finance in the industrial countries. But in developing countries, where the problems and reform options are fundamentally different, there is much less research, relatively little information that can be used to assess the success of policy, and almost no comparative data.

We focus in this chapter specifically on the opportunities and challenges of metropolitan governments. We do so because the large cities around the developing world are where in the foreseeable future a large share of economic growth and its sources - innovation, competitiveness, skills, entrepreneurship, integration into global productive and knowledge networks and so on - will be located. Moreover, the special issues faced by metropolitan areas in developing countries are, if anything, even more neglected than the general urban management and finance issues. However, much of our analysis and many of our conclusions also apply to the more general challenges of urban service provision and finance in developing countries.

In the next section of this chapter, we summarize the evidence about the magnitude of the public servicing problems facing large urban governments. We then turn to the models of governance that are used to deliver assigned services within metropolitan areas and to the efficiency-equity trade-offs involved. In sections 4 and 5, the most commonly used financing models are described and evaluated. Section 6 concludes and suggests a general policy direction.