Decentralization: A Strategy for Countering Rapid Urbanization in a Dualistic Economy

Zahedul Amin
September 10, 2013
Decentralization: A Strategy for Countering Rapid Urbanization in a Dualistic Economy

The economies of South Asia are predominantly dualistic in nature. Large numbers migrate from rural areas to cities for better jobs and higher incomes. A rapidly increasing share of the Bangladeshi population migrates to urban areas in search of employment opportunities. They mostly opt for employment in the industrial enterprises or the services sector.

In line with the Dual Sector Model of Development (Lewis, 1954), the drivers behind this are the higher wage in the urban industrial sector. As the country’s economy continues to grow, it experiences rapid expansion and modernization of the urban areas. The urban population, especially in Dhaka, is growing faster than the rural population. At the same time, the labor force in non-agriculture is growing faster than the labor force in agriculture. This growth of the urban population and labor force is primarily due to differences in birth and mortality rates between rural and urban areas.

There is a strong correlation between rapid urbanization and development in the dualistic economies of South Asia. The process of surplus labor transition from the rural subsistence sector to the urban industrial sector is at an all-time high. More often than not, the process of urbanization spirals out of control, especially in densely populated countries such as Bangladesh. Rapid urbanization invariably creates intricate management problems in the following:

  • Governance
  • Planning
  • Housing
  • Transport
  • Land use
  • The environment
  • Energy
  • Public services
  • Finance

It generally slows down the economy by giving birth to more problems than solutions. These problems are responsible for the increasing importance of studies that are calling for an end to rapid urbanization.


Decentralization is the process of reducing pressure on urban centers by systematically dispersing decision-making governance closer to the people. It is imperative to find remedies to the problems caused by rapid urbanization.

Administrative Decentralization

Administrative decentralization seeks to redistribute authority, responsibility, and financial resources for providing public services among the different levels of governance. Local government is a vital part of overall governance. Local government institutions, being nearer to people, can involve themselves in various ways. They can support in planning and implementation of projects, and supervision of educational institutions, hospitals, and other government-financed units. They can also support new initiatives like innovative health services and vaccination, enforcement of laws regarding social security, environmental protection, and mobilization of resources in the form of taxes, fees, and tolls.

Popular participation is also important because of its potential to hold local government institutions accountable to the community. Local government institutions can enforce the accountability of the central government authorities. The more aware, vigilant, and active the community becomes, the greater the pressure on both local government institutions and the central government authorities to become transparent and responsive.

Political Decentralization

Political decentralization aims to give citizens or their elected representatives more power in public decision-making. While Bangladesh is one of the most centralized countries in the world, decentralization should be taken as a very important component of the country’s poverty alleviation and long-term development strategy. A major reason for problems of governance in Bangladesh is its unitary character and high levels of centralization of administration in its capital Dhaka. Due to excessive centralization of power, almost all major political and administrative decisions are taken in Dhaka. Hence people’s scopes for participating in governance and administration are very limited.

Fiscal Decentralization

Fiscal decentralization, the dispersal of financial responsibility, is a core component of decentralization. The issues that need attention for carrying out effective fiscal decentralization are economic growth, government structure, changes in public expenditure patterns, fiscal imbalances, good governance, and service delivery. These can be met through a feasible mix of policies, including expanding local revenues through property or sales taxes or indirect charges and intergovernmental transfers that shift general revenues from taxes collected by the central government to local governments for general or specific uses.

Way Forward

Decentralization creates new centers of power that can complement the central government. For the decentralization process to function successfully, this reality must be accepted by the political parties. The right place to start the decentralization process is to establish a clear assignment of expenditure responsibilities at all the different levels of government. Political accountability and revenue autonomy are necessary, but they must be accompanied by a transparent distribution of administrative functions. A direct way to ensure clarity in the assignment of functional responsibilities is to assign each of them exclusively and completely to a single level of government.

It is a must for decentralized entities to have access to adequate revenues. Decentralization, even if superbly designed, will not function properly if human resources are not adequate. The presence of well-trained public servants, especially in the area of budgeting and financial management, is of paramount importance. In developing countries, external donors often support and fund decentralization. However, the government needs to have an explicit decentralization strategy and implementation plan for that strategy.

Bangladesh needs to move towards development at an accelerated pace. But when decreasing returns set in as a negative externality of unchecked urbanization, the need for countering urbanization arises to sustain the positive effects of economic development. Resources for development need to be dispersed and diversified.

Decentralization is the only long-term solution to rapid urbanization and urban expansion, despite the possibility of some short-term policies to counter rapid urbanization. With successful decentralization, economic resources will disperse with the national population. Economic growth will result from the creation of new urban centers.

WRITTEN BY: Zahedul Amin

Zahedul Amin is an entrepreneur and consultant with 14 years of experience working for development agencies, private enterprises and government entities. He co-founded LightCastle Partners—a consulting firm looking to foster inclusive economic growth for Bangladesh and beyond. He has extensive research experience and loves to solve development challenges adopting a systemic approach. He holds a Bachelor’s and Master’s degree from IBA (Institute of Business Administration), University of Dhaka. Zahed has extensive experience in private sector development, landscape studies, impact assessment, financial assessments, market entry studies, banking, non-profit, and private & development sector consulting across 20+ sectors in Bangladesh including the Apparel Sector. He has successfully led 120+ projects while working with top-tier clients like The Gates Foundation, WFP, IFC, H&M Foundation, The World Bank, UN Agencies, EKN, BRAC, SNV, Ashoka, WaterAid, among others. Zahed is an International Visitors' Leadership Program (IVLP) alum, an entrepreneurship Fellow at the State University of New York (SUNY) and an Acumen Fellow.

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