TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |1 Territorial development in Argentina: diagnosing key bottlenecks as the first step toward effective policy Executive Summary VOLUME I ARGENTINA Territorial development in Argentina: diagnosing key bottlenecks as the first step toward effective policy © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not neces- sarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encour- ages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution— World Bank. 2020. Territorial development in Argentina: diagnosing key bottle- necks as the first step toward effective policy. Washington, DC: World Bank. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org Cover photo: © Isabel de Lara. Further permission required for reuse. Cover design: © Isabel de Lara. Further permission required for reuse. VI | ACKNOWLEDGEMENTS The Territorial development in Argentina: diagnosing key bottlenecks as the first step toward effec- tive policy report was prepared by a team led by Nancy Lozano-Gracia (Senior Economist GSU10– co-Task Team Leader) and Horacio Cristian Terraza (Lead Urban Specialist GSU10, co-Task Team Leader), and consisting of Beatriz Eraso Puig (Urban Development Specialist, GSU10), Veronica I. Raffo (Senior Infrastructure Specialist, GTD04), Somik Lall (Global Lead, Territorial Development), Nathalie Picarelli (Young Professional), Jessica Grisanti (Consultant, GSU10), Diana Cristina Tello Medina (Consultant, GSU10), Sally Murray (Consultant, GSU19), and Sebastian Anapolsky (Consultant). Marcela Nandllely Gonzalez (Program Assistant, GSU10) provided overall adminis- trative assistance. The team is grateful for peer review input from Ellen Hamilton (Lead Urban Specialist, GSU11), Ayah Mahgoub (Senior Urban Development Specialist, GSU11), and Javier Sanchez-Reaza (Senior Economist, GPSJB). The team is thankful for the additional contributions provided by Pablo Fajgelbaum (Associate Professor of Economics, UCLA), Olivia D’Aoust (Urban Economist, GSU19), Alice Duhaut (Economist, DECIE), Gilles Duranton (Dean’s Chair in Real Estate Professor, Wharton Real Estate Department), Steven Farji Weiss (Economist, GFCAE), Daniel Gomez Gaviria (Senior Economist, GFCLC), Katie L. McWilliams (IT Officer, Data and Information Management, ITSOP), Diana Van Patten (Research Assistant, UCLA), and Anthony Venables (BP Professor of Economics, Oxford). The team benefited from the guidance from Jesko Hentschel (former Country Director, LCC7C) and Carole Megevand (former Program Leader, LCC7C). Valuable comments and guidance were provided by Emily Sinnott (Program Leader, LCC7C), Cristian Quijada Torres (Senior Private Sector Specialist, GTC04), and Catherine Lynch (Senior Urban Specialist, GSU10). The report was prepared under the overall guidance of Ming Zhang (Practice Manager, GSU10). The report was edited in English by Sam Ashworth. The book’s design is credited to Isabel De Lara. The policy discussion in this report has benefited from discussions during 2017-2019, with high- level government officials, including representatives from: Ministry of the Interior, Public Works and Housing of Argentina, Ministry of Production of Argentina, Undersecretary of Municipal Relations of Argentina, Secretariat of Productive Integration, Province of Salta, Province of Jujuy, Municipality of Salta, Municipality of Jujuy, Observatory of Employment and Business Dynamics (Ministry of Labor), Argentine Government social insurance agency (ANSES-Jujuy), and the Economic Social Council of the province of Salta. TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS | VI I ABBREVIATIONS AMBA Buenos Aires Metropolitan Area CABA Autonomous City of Buenos Aires CNPV National Population and Housing Census (Censo Nacional de Población y Vivienda) DB World Bank’s Doing Business Report EPH Permanent Household Survey (Encuesta Permanente de Hogares) GCI World Economic Forum’s Global Competitiveness Index GDP Gross Domestic Product GGP Gross Geographical Product GHSL Global Human Settlement Layer GoA Government of Argentina GVA Gross Value Added IADB Inter-American Development Bank ICT Information and Communication Technologies INDEC National Institute of Statistics and Censuses KSI Krugman’s Specialization Index LISA Local Indicator of Spatial Association AELs Local Economic Areas LQ Location Quotients MAS Metropolitan Area of Salta NBI Unmet Basic Needs (Necesidades Básicas Insatisfechas) NEA Northeast region NOA Northwest region OECD Organisation for Economic Co-operation and Development OEDE Observatory of Employment and Business Dynamics (Observatorio de Empleo y Dinamica Empresarial) ONDAT National Observatory of Transport Data (Observatorio Nacional de Datos de Transporte) OSM Open Street Map PBA Province of Buenos Aires PET Strategic Territorial Plan (Plan Estratégico Territorial) SAME CABA’s Emergency Medical Services SMEs Small and Medium-Sized Enterprises TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |1 EXECUTIVE SUMMARY CONO DE ARITA IN SALTA, ARGENTINA Sebastian del Val © 2| EXECUTIVE SUMMARY EXECUTIVE SUMMARY Argentina’s population and economic activity geographical disparities remain; for example, is highly concentrated in few places, similar provinces in the North of Argentina continue to to global trends. Globally, economic develop- struggle with extreme poverty and considerable ment has historically been concentrated in a few gaps in living standards when compared to the places: In fact, only 1.5 percent of the planet’s rest of the country. While overall poverty rates land is home to half of its production. With a have been falling since 2002, poverty incidence in population of 40.12 million, Argentina’s popula- the Northwest and Northeast regions are at 25.4 tion is highly concentrated in its capital (INDEC, and 33.2 percent respectively and are the highest 2010). According to the 2010 Census, 66 percent in Argentina. Although regional gaps in access to of the population is concentrated in Buenos Aires water and primary education have been impro- Metropolitan Area and the nearby Pampeana ving, the Northwest still lags in terms of access to Region. Further, 91 percent of the country’s popu- sanitation, secondary education, and human deve- lation lives in urban areas, and 70 percent of the 1 lopment outcomes. total urban population are concentrated in just 31 Given that Argentina had a primary deficit of cities. Recent work suggests that those high levels 4.2 percent of GDP in 2017 and inflation of 24.8 of concentration have persisted, with the United percent at end-2017, prioritizing investments Nations estimating a 91.8 urban population rate will be necessary also in the context of territorial in the country in 2015. Economic activities in development. How can the government reduce Argentina are also geographically concentrated in development gaps across the national terri- the central and coastal areas, with two-thirds of tory while at the same time supporting growth the national GDP being produced in two regions: opportunities within a context of national Buenos Aires Metropolitan Area (AMBA, per its fiscal deficit? Using a territorial development name in Spanish) and Pampeana (Muzzini et al.), lens that allows the identification of challenges 2016). and opportunities at the sub-national level, this But unlike countries like South Korea, the report provides a framework and diagnostics to concentration of economic activity has not understand Argentina through three dimensions: been balanced by successful efforts to improve Scale, Specialization, and Convergence. Chapter 1 living standards across the country. Despite explains the territorial development framework a sustainable overall poverty reduction, today used for the analysis. Chapter 2 provides an over- 40 percent of Argentina’s population is still view of the economic geography of Argentina and vulnerable to falling into poverty, and large the challenges the country faces along these three dimensions. Chapter 3 presents a closer look at two 1 All localities with a population of 2,000 or more are considered urban in Argentina. TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |3 provinces, Salta and Jujuy, and puts them under the But economic theory and international expe- same lens. Chapter 4 summarizes the key messages rience suggest that spatial concentration is of the report, providing benchmarking to compare inevitable and desirable -successful places have Argentina to other countries around the world in managed to extend the benefits brought by such Scale, Specialization, and Convergence. economic concentration to all regions throu- ghout a country. Further, when places are well Scale, Specialization And connected, people can reach more economic Convergence: A Framework For opportunities, and firms can reach larger Territorial Development markets for inputs and outputs. When connec- tions are lacking, capital and labor markets Territorial development is development that is are segmented, economies of scale limited, aware of where things happen. Economic acti- and opportunities truncated. The benefits of vity, people, jobs, and living standards are often concentration can be spatially spread when not equally distributed across a country. Hence, places are well connected, and connected places when thinking about how to reach every corner can specialize in the tasks and product lines in of a country, every citizen within its boundaries, which they are most productive. But concentra- policy makers must understand the landscape of tion and specialization do not need to lead to territorial development along three dimensions: disparities in living standards across regions. • Scale, because people and firms often They can instead be leveraged to achieve spatially concentrate in just a few places, and convergence across a territory. An analysis that this is evidence that proximity is valuable. looks at the economic geography of a country • Specialization, because the benefits of along these three dimensions can therefore concentration can be spatially spread when help identify challenges and define priorities in places are well connected and connected a territorial development strategy. places can either specialize in their most For each territorial development dimension, productive sectors, or diversify and keep analysis was steered by key guiding questions innovating. and proxy indicators chosen to answer such • Convergence, because spatial concentra- questions. It is worth noting that no single tion of people and firms can be harnessed indicator can answer the key questions around to improve living conditions everywhere, Scale, Specialization, and Convergence, and enabling the convergence of living standards. hence several indicators are used in this anal- Scale, Specialization, and Convergence – the ysis. Scale, for example, is represented by indi- key dimensions of territorial development. cators on concentration of people, economic People and firms are often concentrated in activity, and firms. For Specialization, indica- a few places within a country, reflecting the tors around the distribution of such economic value of proximity. However, spatial concentra- activity and employment were used, coupled tion of economic activity is often a concern for with measures on connectivity and an enabling governments that would like to see economic environment. Convergence was measured growth evenly spread out across a territory. through indicators on living standards. 4| EXECUTIVE SUMMARY Where does Argentina stand? Scale Specialization Economic activity is concentrated in the Employment specialization is weak in Province of Buenos Aires but its bene- most provinces of the country fits do not extend to all regions Economic Concentration: Nighttime lights Krugman Specialization Index (KSI) at the province Source: data from NOAA, 2015. level Source: Data from OEDE, authors’ computation. Convergence Argentina has seen some convergence in living standards, but gaps remain in some key indicators Percentages of the total number of poor people living in each district Source: INDEC (2010) TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |5 LOW SCALE IN ARGENTINA – capital. 71 percent of passengers in 2016 used an low firm density, with little growth of firms airport in the Pampeana region, of which 61.4 Concentration of people and economic activities is percent had Buenos Aires city4 as their origin or high in Argentina, but firm density is low, as most return destination. In terms of cargo, 91 percent firms remain micro and small, implying a lack of of the total airport freight passes through Ezeiza scale. International Airport in Buenos Aires. Finally, the greatest flows of cargo and passengers are in the Argentina aligns with global trends, with popu- corridor connecting Buenos Aires with Rosario lation and economic activity being concentrated and Cordoba –where much of the country’s popula- in a few places. The Province of Buenos Aires hosts tion and main economic activity are concentrated. close to 40 percent of the population and contrib- utes to 1/3 of the national Gross domestic product But despite concentration of people and economic (GDP). The capital city is nearly 11 times as large activity, lack of scale is reflected in mainly firms as the second largest city, Cordoba, reflecting the that are mainly local and small, with overall low fact that Argentina has one of South America’s firm density across different areas. Most firms highest urban primacy rates with 44.4 percent, just are concentrated in the Pampeana region, hosting below Paraguay with 58.6 percent and Peru with 77.5 percent of the country’s firms. In 2015, 67 48 percent. Brazil, on the contrary, has the lowest percent of firms were microenterprises, 22 percent primacy rate in South America with 13.1 percent. small, 6 percent medium, and 5 percent large firms. Moreover, 91 percent of the country’s population While most of the firms in Argentina are micro- lives in urban areas2 , and only 31 cities contain 70 enterprises, 51 percent of the private employment percent of the total urban population. Northern is generated by large firms. This pattern is not Argentina is second in terms of concentration of unique though, international experience suggests population, followed by Cuyo and Patagonia, in that in most countries the clear majority of enter- that order. However, despite experiencing rapid prises (between 70% and 95%) are microenter- urbanization in the past two decades, the North’s prises. But, firm density in Argentina is two to contribution to national GDP is still well below its four times lower than in neighboring Chile and population share. The North is home to 21 percent Brazil. Argentina has only 13 firms per 1,000 habi- of the population but contributes only 10 percent tants, while Chile and Brazil have 48 and 25 firms to national GDP3 and 7 percent of total exports per 1,000 habitants respectively. The Pampeana (INDEC, 2016). Cuyo and Patagonia, on the other and Northern regions have low density with just hand, host 8 percent and 6 percent, respectively, of 16 firms and six firms per 1,000 inhabitants. national population, and contribute 7 percent and Lack of scale is also seen in the dominance of 8 percent of GDP (Ministry of Production, 2015). microenterprises that do not graduate to higher Argentina displays concentration in other size groups. Firms in Argentina stagnate in their ways: Buenos Aires acts as Argentina’s trans- size group over time, with only a few graduating port hub, with most air transportation of pass- to higher size classes. For example, 57 percent engers and road freight flowing through the of microenterprises remained a microenterprise after 5 years, and 40 percent closed. In the case of 2 All localities with a population of 2,000 or more are considered urban 4 Share of the passengers that used the two airports serving AMBA: in Argentina’s official definition. Aeroparque Jorge Newbury and Ezeiza International Airport. 3 GDP in constant prices of 2004; Ministry of Production (2015). 6| EXECUTIVE SUMMARY medium firms, only 6 percent grew to become large all years analyzed, revealing that specialization firms. The fast-growing firms—those that manage at the province level between 2006 and 2016 was to increase employment quickly and sustainably— weak, and grew weaker over time. At a smaller only represented less than 1 percent of the total scale, some small- to medium-sized cities show number of firms between 2010-2016 (Ministry of high levels of employment specialization, partic- Production, 2018). ularly in the Northern provinces. But less than 1 percent of the cities in Argentina have employ- LOW SPECIALIZATION IN ARGENTINA – ment specialization. lack of integration between local markets Local markets in Argentina are not well-integrated Weak specialization levels point at connectivity due to poor connectivity and institutional barriers. challenges. There are significant spatial dispari- ties in terms of access to connective infrastruc- Services dominate GDP and employment, and ture across Argentina, which largely align with there is high contribution of non-tradeables economic under-performance. While provinces in to employment in Argentina. In 2017, services central Argentina are well connected, reflecting contributed to 50.4 percent of national GDP. In a dense transportation network between cities, all regions, employment has also been mainly hard connective infrastructure is weak particu- concentrated in the services sector5, about 43 larly in the North and Patagonia. The North of percent nationally in 1996 and 48 percent in Argentina displays lower road density than the 2016. Regionally, Pampeana’s services sector national average, Pampeana, or Cuyo. Except for contributes 78 percent of local GDP and consti- Jujuy, road density in the NOA region was 8 km tutes almost half of total employment, followed and 5.9 km every 100 km2 for national and provin- by manufacturing and commerce. In Northern cial roads respectively in 2015. Moreover, areas in Argentina, services represent about 39 percent of Patagonia together with areas East and West of employment, but their prominence has grown over the Jujuy-Salta-Cordoba corridor have the lowest time. Finally, Metropolitan Buenos Aires and the levels of road accessibility and relatively higher top five agglomerations have lower employment in travel times. To put this into perspective, Tanzania tradeable sectors compared with the average for and Namibia, in Africa, have a road density of 9.1 both direct and best-practice comparator cities. km and 5.5 km every 100 km2 of land area (FAO, Specialization at the regional and city levels is 2011), respectively. These connectivity challenges weak and becoming weaker over time. To better translate to high logistics cost, particularly for understand the levels of specialization of employ- the northern provinces. Logistics cost for the ment across locations in Argentina, a Krugman northern regions has been estimated to be up to 50 Specialization Index (KSI) was built. In general, percent higher than in the neighboring Center and highly specialized localities have indices higher Cuyo regions (World Bank, 2016). Also, in the 2016 than 0.75, whereas localities with an index Logistics Performance Index ranking, Argentina below 0.35 can be considered as not special- ranked 66 – after Mexico, Brazil (54, 55) Uganda ized (Blankespoor et al., 2017). In Argentina, the (58); Kenya (42) and India (35). Furthermore, ‘Soft’ mean and median KSI are very close to 0.35 for connective infrastructure is weak in the country. Overall, northern Argentina is the most disad- 5 OEDE data. Total number of employed in the province is obtained from the total number of employees declared in that province by each firm. vantaged in terms of internet access. In 2016, TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |7 21 percent of people had residential broadband The Northern provinces are home to a high share connections, well below the national average of of Argentina’s poor population, and they encom- 41 percent. The same differences are observed in pass Argentina’s poorest provinces as well. Even other telecommunications: there were on average today, the provinces in the Northwest of Argentina 146 mobile lines for every 100 people in Argentina struggle with extreme poverty and considerable in 2017, but only 119 in the Northern provinces gaps in living standards when compared to the compared for instance to 152 in Patagonia. rest of the country. Some localities in the Northern provinces have more than 35 percent of house- Weaknesses in institutional barriers also holds with unmet basic needs. The two munici- dampen integration. Quality of institutions in palities that fare the worst on unsatisfied basic Argentina is a key constraint for further invest- needs are in Formosa and Salta, with 68 and 49 ments and private sector expansion. Analysis percent of households lacking basic needs. The using information from the Argentina Enterprise North also dominates in terms of absolute poverty. Surveys for 2010 and 2017 suggests that firms in Most districts with a share of the overall house- both the informal and formal sector highlight holds with unsatisfied needs at the upper end of institutional barriers as the key obstacles to their the distribution, are in Northern provinces and regular operation. Buenos Aires. In fact, three districts in Buenos LACK OF CONVERGENCE IN ARGENTINA – Aires have the largest proportion of total house- some progress, but gaps still exist holds with unmet basic needs (i.e. Distrito Federal, Despite convergence in living standards in some La Matanza and General Sarmiento). areas, large disparities between regions in Argentina Those regions with high levels of poverty and gaps remain. in living standards are also less effectively equip- Argentina has seen some convergence in living ping their populations with skills for produc- standards, but gaps remain. While access to tive work. As with access to water, there has water has converged over the years, the Northern been convergence in primary education coverage. region still lags behind the rest of the country in According to the last census (2010) the national terms of access to sanitation and basic services. average was at 92.3 percent, and the range at 75 percent of households the Northeastern prov- provincial level from 88.5 to 97.4 percent. However, inces (Chaco, Formosa, Santiago del Estero) have the North of Argentina still lags in human capital access to water, which is the lowest percentage development, with provinces in the North system- in the country, but it is still not that far from the atically ranking among the bottom provinces proportion in the city of Buenos Aires (99 percent) in education indicators. All the provinces in the (World Bank, 2018). In the case of sanitation, only North have secondary completion rates below or 18.01 percent of the population in the province of at 50 percent. Of all provinces below the median Misiones in NEA has access to sewage, while in (45.8 percent), seven are in the North, with the Chaco and Formosa, less than 35 percent have. In remaining three in Patagonia, one in Pampeana, contrast, more than 80 percent of the population in and one in Cuyo. Similarly, the illiteracy rate in the provinces of Tierra del Fuego, Santa Cruz, and northern Argentina (at 3.7 percent) is twice as high Chubut in Patagonia has access to sewage. as the national average. 8| EXECUTIVE SUMMARY Where Do The Provinces Of Salta public accounts. Moreover, hard and soft connec- And Jujuy Stand? tive infrastructure are weak within and between Salta and Jujuy. Salta and Jujuy’s provincial-level Salta and Jujuy have high concentration of people roads are particularly low quality, with only 12.5 in northern Argentina, but lack of SCALE is and 14.8 percent paved respectively, suggesting evidenced by firms’ low growth and producti- that they are relatively poorly connected inter- vity. Salta and Jujuy are important provinces nally to facilitate local-level trade, scale, and within Argentina’s Northwest (NOA). They specialization. However, the Northwestern Road have three international borders with Chile to Development Corridor Project has the potential the West, Bolivia to the North, and Paraguay to to facilitate trade between Jujuy’s main cities, and the Northeast. Within the Northwestern region with the city of Salta. This may facilitate develop- (NOA), they represent 41.2 percent of the popula- ment of regional value chains in key sectors such tion, and 42 percent of the economic activity (26.9 as mining, agriculture, and tourism. and 15.3 percent of Geographical Gross Product- GGP-, respectively). However, the provinces of Low access to and quality of basic services, low Salta and Jujuy have lower firm density than the human capital, and lack of public infrastruc- national average, with 6 and 5 firms per 1,000 ture perpetuate the gaps in livings standards people, respectively. Moreover, in the capital city and opportunities in Salta and Jujuy, making of Salta, the share of informal firms is 45.1 percent, CONVERGENCE a challenge. Poverty rates in the highest in the country. Informality is typically Salta and Jujuy rank highest among all urban associated with low-scale firms that are poorly agglomerations nationally. Salta and Jujuy have a specialized, entailing low productivity, invest- poverty incidence of 24.8 and 24.2 percent respec- ment, and survival. tively, topped only by Santiago del Estero (38.3 percent). Regarding households with unmet basic Public services’ dominance and weak connectivity needs, Salta has the highest proportion (19.4) and limit opportunity and economic integration for Jujuy (15.5) the third highest in the NOA region. Salta and Jujuy, hindering SPECIALIZATION. Additionally, Salta and Jujuy have qualitative A large proportion of Salta and Jujuy’s services housing deficits of 25.7 and 24.0 percent respec- sectors involve public services. Public services tively. In terms of human capital, illiteracy rates in account for almost a quarter of total GGP in Salta the provinces Salta and Jujuy are low (3 percent), province. 36.5 percent of the city of Salta’s residents but much higher than the national average (1.9 were employed by the public sector in 2015. This percent). Regarding public infrastructure, only share distinguishes the city of Salta from inter- 3.6 and 4.8 percent of the houses in Salta and San national cities like Bloemfontein in South Africa, Salvador de Jujuy have streetlights outside their which is the judicial capital of the country, but still houses. Nevertheless, the municipalities of Salta has around 9.6 percentage points lower employ- and San Salvador de Jujuy have higher access to ment in public services than Salta. International basic services relative to the rest of the cities in experience suggests that continued reliance on their provinces and lower shares of houses whose the government for productive activities indi- conditions are below habitability standards (16.8 cates low levels of productivity in a territory, percent for Salta and 16.6 percent for San Salvador while also presenting an unsustainable burden on Jujuy). TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS |9 Where Does Argentina Stand In providing some benchmarking to assess how Argentina compares to other countries around the The World? world in Scale, Specialization, and Convergence. Key The tables below summarize the key messages messages for policy makers on where to go from of the report, pointing at the key findings and here are also included for each dimension. TERRITORIAL DEVELOPMENT IN ARGENTINA Scale can mean concentration of people Argentina vs the World of the population is concentrated in the Argentina does not differ from 37% Buenos Aires Metropolitan Area global trends with population and economic activity being 91% of the country’s population lives in urban areas highly concentrated in a few of this urban population is concentrated in just places. Santiago (Chile) accounts 70% 31 cities for 40% of the country’s urban population. Scale can mean concentration of economic activity Concentration around the world is similar, where Tokyo and Paris 66% of GDP is produces in two regions: Buenos concentrate over 40% and 30% Aires Metropolitan Region and Pampeana. of their own nation’s economic The economy of AMBA is nearly 11 times activity in less than 4 and 2% of as large as that of the second largest city, the country’s land respectively. Cordoba. But these places have managed to distribute the benefits brought But AMBA has not managed to extend these by this economic concentration benefits to all regions. throughout all regions. Scale Scale can mean concentration of firms Countries in the region such as Chile and Brazil have firm Lack of scale is also indicated by a high share of densities 2 to 4 times as high. local and micro firms with overall low firm density, Australia and South Korea have a and a small share of fast-growing firms. firm density of 88 and 66 firms per Argentina has only 13 firms per 1,000 inhabitants; this is 1,000 inhabitants. even lower in the Northern regions, which have 6 firms per 1,000 inhabitants. INFORMATION FOR POLICYMAKERS To get scale, policymakers will have to think about solutions that foster agglomeration economies, increase productivity, and allow concentration of people and firms to thrive while also minimizing the negative externalities of concentration (congestion, pollution, etc.). Creating Scale means supporting the expansion of economies of scale external to firms – for example, by supporting agglomeration economies through better local services or through reducing barriers in the local business environment — and supporting the scale of production within firms or sectors which raises the efficiency of production. One way in which local governments have often tried to create scale is through Special Economic Zones (SEZs). SEZs can support the creation of scale by allowing agglomeration economies to follow – organized clusters of firms solve a coordination failure and allow efficient provision of infrastructure and services, but only if there is demand for the services they offer, and markets for those industries. In addition, it is essential to accompany them with complementary policies and investments to ensure their success. 10 | EXECUTIVE SUMMARY TERRITORIAL DEVELOPMENT IN ARGENTINA Specialization can mean places are able to focus Argentina vs the World in their most productive sectors On average, the top 5 The dominance of the service sector across regions aligns agglomerations in Argentina with weak specialization: have lowe employment in Dominance of services: 64% of GDP; 48% of employment. tradeable sectors compared The KSI analysis reveals weak specialization at the province with the average for both level and city level, with specialization becoming weaker direct (Bangkok, Istanbul, and over time. São Paulo) and best-practice A relatively high share of Argentina’s urban jobs depends on comparator cities (London, Paris, non-tradeable sectors. and Seoul). Connectivity enables specialization According to the Logistics Performance Index (LPI) in 2016 Patagonia and the North have longer Argentina ranked 66th, after India Weak connective infrastructure travel times and the lowest levels of (35), Kenya (42), Mexico (54), is hampering market integration road accessibility. Brazil (55) and Uganda (58). in Argentina Weaknesses in 'soft' connective Specialization infrastructure also dampen integration. A good business environment can spark investment, Argentina has a product market fostering integration and specialization regulations (PMR) index score of 3.11. This is relatively restrictive Analysis of the Argentina Enterprise Surveys for compared to other OECD 2010 and 2017 suggests that firms both in the countries and other countries informal and formal sectors highlight institutional in the region such as Colombia barriers as the key obstacles for their regular (1.77), Chile (1.51), Peru (1.66) and operation. Mexico (1.91). INFORMATION FOR POLICYMAKERS To achieve specialization, it will be necessary to think about solutions that allow firms to reach larger markets for their inputs and outputs. Connective infrastructure (soft and hard) is key to integrating regional markets. For example, provinces can connect urban and rural places within their borders and connect themselves to the national economy. Investments in connectivity between places make it cheaper for those places to trade. When a connective investment is made, relocation responses of people and firmas may be hampered if there are barriers to their mobility, highlighting the need for complementary actions. This includes frictions like land transfer fees, business registration costs, information gaps for job search, and sunk cost invest- ments in buildings. TERRITORIAL DEVELOPMENT IN ARGENTINA: DIAGNOSING KEY BOTTLENECKS | 11 TERRITORIAL DEVELOPMENT IN ARGENTINA Convergence means convergence in living standards Argentina vs the World Despire overall poverty reduction, large disparities in Argentina has reached similar levels to living standards persist in Argentina, with the North te OECD average in access to water and particularly lagging. The Northern provinces are home sanitation. to a high share of Argentina's poor population, and they Internationally comparable test score encompass Argentina's poorest provinces as well. data shows that Argentina underperforms While access to water has converged over the relative to its peers both at the primary years, important gaps remain between the and secondary level. The median Northern regions and the rest of the country Argentine performs in mathematics in terms of access to sanitation and basic an equivalent of 2.5 years below the services. average of OECD countries. Primary education has been improving, Argentina is still far behind in terms shortening the gap between leading and of infant mortality, under-five mortality lagging areas. However, disparities remain in rate, and life expectancy compared to secondary education, quality of education, health international standards. Chile has half services, and other indicators. Lagging regions maternal mortality rate and almost half Convergence in Argentina are less effectively equipping their infant mortality rate; in Malaysia mortality populations with skills and productive work. rates are also lower, even with less spending per GDP than Argentina. INFORMATION FOR POLICYMAKERS For convergence, the right policy mix depends on how the population is distributed across space. All localities need access to decent public services and human capital development. Where population density is low, it will be important to concetrate access to services inregional centers that allow extended access to the region and consider the possibility of providing mobile services. Where population density is high, a more place-based approach may be required, from social protec- tion to – sometimes – more proactive LED policies. In large cities, where divisions of formality vs. informality can generate deep gaps in the quality of life, spatially targeted policies may be necessary to reduce these divisions. But to ensure that public services are distributed effectively it will be necessary to strengthen local institutions and build capacities, so that local governments can fulfill their responsibilities in terms of providing basic services and local public goods to their citizens. 12 | EXECUTIVE SUMMARY REFERENCES Blankespoor, B.; Bougna Lonla, T.; Garduño Rivera, R.; Selod, Muzzini, E., Eraso Puig, B., Anapolsky, S., Lonnberg, T. and H. (2017). 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