On Wednesday April 25th, the Macdonald-Laurier Institute (MLI) released a new paper, Success and the City: How charter cities could transform the developing world, by Paul Romer and Brandon Fuller. The Executive Summary is presented below, with the permission of the Macdonald-Laurier Institute.

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The United Nations expects the urban population in less developed regions to double in the next four decades alone, from roughly 2.5 billion to over 5 billion people.1 This wave of urbanization presents a unique opportunity for billions of people to live healthier, greener, and more prosperous lives. The Charter Cities Initiative aims to channel this unprecedented scale of urban growth in a positive direction, offering new choices to reform minded political leaders as well as new choices to migrants in search of better places to live and work.

A charter city is a new type of special zone, one that can serve as an incubator for reform. In partnership with credible allies, a developing country can pursue reforms in a special zone large enough to one day accommodate a city with millions of residents. By starting on a new and undeveloped site, the formal rules in a charter city, and the norms that these rules encourage, can differ markedly from the ones that prevail elsewhere in the country.

These rules can nevertheless be legitimate in the eyes of the migrants to the zone, just as the rules in high-income countries are legitimate in the eyes of the few immigrants that manage to move from less developed countries.

Honduras recently decided to pursue a path that is based in part on the charter cities concept. The Congress there defined a new legal entity, la Región Especial de Desarrollo (RED). The government will soon use the RED to establish a reform zone to which families can move safely and legally. The RED government will be largely independent from the Honduran central government. The leadership in the RED will have the power to partner with foreign governments in critical areas such as policing, the courts, customs, and anti-corruption.

By participating in the governance of the RED, credible partner governments can make the new city a more attractive place for would-be residents and investors. With protections from a modern system of law and administration, foreign direct investment in infrastructure can support the growth of a new city in the RED, a city that can eventually become a hub for the Americas.

The RED presents an opportunity to tackle directly the biggest obstacle to growth and development all over the world: the dysfunctional systems of rules and enforcement that keep people from reaching their true potential. It is possible for Canada, along with other reputable governments, to help establish institutional credibility in an undeveloped region in Honduras to which millions of people could move.

Such a partnership can do what traditional aid cannot: offer people a chance to live and work in a safe and well-run city, a city that provides economic opportunities for Canadians and Hondurans alike, and a city that has the potential to inspire reform in Honduras and throughout the Americas.

1. United Nations Department of Economic and Social Affairs (2010). The World Urbanization Prospects: The 2009 Revision. United Nations. Available on the Internet at: http://esa.un.org/unpd/wup/index.htm, as of February 11, 2012.

Paul Romer is a professor of Economics and the director of the Urbanization Project at the New York University Stern School of Business. Brandon Fuller is the director of Charter Cities and visiting scholar in the Urbanization Project at New York University’s Stern School of Business. To view the full paper click here.

Mr. Romer will be speaking on April 25 at an event hosted by the Ottawa Economics Association in partnership with MLI.