Contribution of TL2 Chilean regions to national growth

National growth depends on the contribution of all regions. Contributions of regions to aggregate growth depends on the size and performance of regions; meaning how large is the regional economy and how has it been growing over a given time period. Contributions to aggregate growth among OECD TL2 and TL3 regions follow a general pattern that replicates in different scales: approximately one third of aggregate growth is driven by very few (big-hub) regions, which provide a disproportionately large contribution, and the remaining two-thirds by the rest, which do not contribute much individually (Box 1.5). Understanding regional contributions in Chile is particularly relevant, given its particular geography and differentiation in economic activities across the regions.

The disproportionate contribution Santiago made to national growth (52%) over 1995-2011 was partly due to the effects of the global financial crisis. As in many OECD countries, the contribution of regions to national growth in Chile appears to be dominated by a single region (Santiago). More than half of national growth over 1995-2011 was driven by Santiago alone. This high contribution was partly due to the effect of the crisis: during 2007-11, Santiago contributed to 72% of national growth while three regions contracted. During the period leading to the crisis. however. Santiago contributed to 45%

Box 1.5. Contributions of regions to aggregate growth in the OECD

Recent OECD studies examining contributions to aggregate growth find a general pattern among regions. Around one third of aggregate growth is driven by very few regions. The remaining two-thirds. while not dominated by any single region, stems from the combined contribution.

Among OECD TL2 and TL3 regions, while the distribution in GDP and GDP per capita growth rates follows an approximately normal distribution, the regional contributions to aggregate growth follow a power law, with a coefficient around 1.2 (in absolute terms). This implies that Few-Large (FL) regions contribute disproportionately to aggregate growth whereas Many-Small (MS) individual regions contribute only marginally. Nevertheless, because the number of these smaller regions is very large and the decay of their contribution to growth is slow (generating a fat tail distribution), their cumulated contribution is around two-thirds of aggregate growth. For the period 1995-2007, only 2.4% of OECD TL3 regions contributed to 27% of OECD GDP growth, but the remaining 97.6% corresponds to 73%. The distribution of growth rates by size follows a non-monotonic pattern, with the largest concentration of above average regional growth rates being concentrated for middle-sized regions. Overall, the great heterogeneity suggests that the possibilities for growth seem to exist in all types of regions.

Box 1.5. Contributions of regions to aggregate growth in the OECD (cont.)

Contributions of TL2 regions to OECD growth, 1995-2007

Source: OECD (2011), OECD Regional Outlook 2011: Building Resilient Regions for Stronger Economies, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264120983-en.

FUAs also tend to follow this pattern. The 268 largest FUAs contributed on average to over half of the total OECD growth over the period 2000-08. The distribution of growth contribution also follows the shape close to a power-law distribution. The FL FUAs include Seoul Incheon (Korea), which appears in the first position, followed by New York (United States), London (United Kingdom), Los Angeles (United States), Tokyo (Japan) and Paris (France). Just the top 20 OECD FUAs contribute to 25% of the aggregate OECD growth during the period 2000-08. The remaining 92% of the OECD FUAs contribute to almost 75% of the aggregate growth, even if its individual contributions are below 0.5% of OECD GDP growth (Figure 1.32).

Sources: OECD (2011), OECD Regional Outlook 2011: Building Resilient Regions for Stronger Economies, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264120983-en; OECD (2013), OECD Regions at a Glance 2013, OECD Publishing, Paris, http://dx.doi.org/10.1787/reg glance-2013-en.

of national growth, 14% was driven by Bio-Bio and Valparaiso and the remaining 41% by regions with a degree of rurality no less than 63%. This suggests that Santiago is, indeed, a key engine of national growth. Nevertheless, 40% of national growth is driven by regions with a significant share of their population living in rural communities.

 
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