Letters in Spatial and Resource Sciences (2018) 11:343–359

https://doi.org/10.1007/s12076-018-0217-2

ORIGINAL PAPER

Regional concentration and national economic growth

in Brazil and Chile

Patricio Aroca1 · Carlos Azzoni2 · Mauricio Sarrias3

Received: 12 October 2017 / Accepted: 27 August 2018 / Published online: 30 August 2018
© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Abstract
This paper investigates the hypothesis that the spatial concentration of economic activ-
ity might impair national growth, using the experiences of Brazil and Chile. In the first
stage we have used regional data to estimate country-specific models in which regional
growth is conditioned by a set of controls, considering population density as a measure
of concentration. The results of this stage show that population density has a negative
effect on the growth of Brazilian and Chilean regions. In the second stage we have
simulated the impact of the actual changes in population observed in the regions within
these countries between 1980 and 2010. Using the new densities, we have recalculated
the growth of the regions, generating a new national growth rate as a weighted aver-
age of the estimated growth of the regional economies. The regional deconcentration
observed in Brazil produced less negative results in terms of national growth. While
the Chilean increasing spatial concentration resulted in negative effects for national
growth: the national GDP growth rate was reduced by 0.8% on a yearly basis. These
results replicate the findings of Brülhart and Sbergami (J Urb Econ 65:48–63, 2009)
for Brazil and Chile in their cross-section of countries. Working with regional data
within the countries allowed determine the gains/losses in the national GDP growth
rate, and to point out the effects on each region within the countries.

Keywords Concentration · Growth · Brazil · Chile · Regional policy

JEL Classification R11 · R12 · O47 · N16

B Patricio Aroca
patricio.aroca@uai.cl
Carlos Azzoni
cazzoni@usp.br
Mauricio Sarrias
mauricio.sarrias@ucn.cl

1 Universidad Adolfo Ibáñez, Avda. Padre Alberto Hurtado 750, Viña del Mar, Chile
2 Universidade de Sao Paulo, São Paulo, Brazil
3 Universidad Catolica del Norte, Antofagasta, Chile

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1 Introduction

Inequality has become a central issue for the research and policy agendas. As in
many other developing areas, Latin American countries present high levels of per-
sonal income inequality, which are accompanied by a pronounced degree of spatial
disparities, both in terms of the spatial concentration of population and production,
and regional inequality, measured in terms of per capita income, poverty levels, access
to public goods, etc. The prevailing paradigm informs that concentration tends to pro-
mote hub circles that generate significant spatial inequalities in the country (World
Bank 2009; ECLAC 2009; OECD 2009; Foreign Affairs Latinoamérica 2009; CAF
2010). In this context, concentration is believed to have positive effects on national
growth. Therefore, place-based policies would only be justified on political and social
grounds, constituting mitigating actions that would bring about a national cost in terms
of foregone growth potential. In many countries, this has attracted the attention of pol-
icy makers, who seek to design deconcentration policies to mitigate what is understood
as a negative byproduct of growth.
However, the influence of spatial concentration on national growth is still to be
determined. The discussion about the possible existence of a trade-off between concen-
tration and growth was very active for a while, but has faded out with time (Richardson
1977, 1978, 1978; Mera 1967, 1973, 1978; Stohr and Todtling 1978; Cole 1987).
With the increased interest raised by the New Economic Geography, as in many other
issues in the regional science literature, this topic has resurfaced recently (Dall’Erba
2003; Meyer and Lackenbauer 2005; Ulltveit-Moe 2007; Martin 2008; Meyer 2008;
Alexiadis and Eleftheriou 2011; Jackson 2011). In this context, this paper aims to
present evidence on the effects of excessive concentration on the growth of the entire
economies of Brazil and Chile.
The choice of the two countries is meant to represent different situations in Latin
America. In terms of area and population, Brazil is over 11 times as large as Chile.
In spite of the size differences, both countries spread over a large distance in the
North–South direction, which prompts to differences in natural conditions related to
weather, with impacts in primary activities. In fact, the two countries show pronounced
spatial concentration, as well as other forms of regional disparities. Brazil went through
a spatial deconcentration process in recent years, while Chile keeps concentrating, in
spatial terms. By dealing with these different situations, the results will be illustrative
as to the topic of interest of this research.
The paper is organized in five sections, including this introduction. In the next
section we present a brief review of the literature. The following section present
details of the methodology used, which is applied for the cases of Brazil and Chile.
In Sect. 4 we move from regions to the national aggregates, and simulate the impact
of changes in regional population to national growth. Finally, the last section presents
the conclusions of the analysis.

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Regional concentration and national economic growth in… 345

2 Literature review

The idea of a trade-off between efficiency and equity populates the economic literature
for a long time. Kuznets (1955) and Okun (1975) looked at it from a macroeconomic
perspective, arguing that growth generates inequality, a topic that has reached full
steam nowadays, with the visibility gained by the book of Piketty (2014). Williamson
(1965) added a regional perspective to the idea, inaugurating a discussion that has
reemerged in recent decades, in the literature of the New Economic Geography and
Endogenous Growth Theory. Unlike the previous authors, Williamson argues that
economies of scale and agglomeration generate positive effects on growth in earlier
stages of development, which tends to produce inequality, expressed in the concen-
tration of economic activity in some areas of the territory. In the intermediate stages,
diseconomies of agglomeration tend to appear, reducing the gains from concentration.
In later stages, more agglomeration produces less growth, since the diseconomies of
agglomeration outweigh the economies of agglomeration.
On the theoretical side, the challenge was modelling the relationship between con-
centration and growth, defining the direction of causality, providing a functional form
and establishing the dynamics of the process. Krugman developed a series of stud-
ies, described in Krugman (1991), considering the various efforts made in the fields
of Economics and Geography from a historical perspective. He summarized the key
modelling aspects, incorporating elements of the growth process such as increasing
returns to scale, cumulative causation, agglomeration economies, externalities and
market potential. The series of studies developed by the author were key to the rise
of what is known as the New Economic Geography (NEG), which incorporates ideas
and theories that have been developed separately in Economics, Geography, or what
is now known as Regional Science (Brakman et al. 2009; Combes et al. 2008).
The initial lessons from these NEG models, soon to be called the New Economic
Geography of Growth (NEGG), implied that concentration reinforces growth, i.e., the
higher the concentration level, the higher the growth (Martin and Ottaviano 1999).
Fujita and Thisse (2003) suggested that concentration and growth are mutually rein-
forcing, i.e., causality is seen in both directions. Baldwin and Martin (2004) added a
territorial conceptualization, asserting that spatial concentration induces growth and
vice versa. Gardiner et al. (2011) conducted a synthesis of NEG, showing that it predicts
a trade-off between regional equity and national growth. Baldwin et al. (2005) devised
some cases in which NEG predicts that investments in infrastructure aimed at promot-
ing interregional trade increase spatial concentration and growth, but reduce income
inequality between regions. More recently, Cerina and Mureddu (2014) developed a
NEG extended model challenging these conclusions. In their model, agglomeration
produces lower growth in the periphery, which might have negative effects on the
growth rate of real income at the national level.
On empirical grounds, several authors have attempted to test Williamson’s hypoth-
esis on cross-sections of countries. Wheaton and Shishido (1981), using data for the
1970s and 1980s, found an inverted—U relationship between growth and concentra-
tion, placing the GDP per capita where the relation changes from positive to negative
at USD 5000 (USD of 1985). MacKellar and Vining (1995) updated that study with
data from the 90s, and suggested that the critical value could be way higher than that.

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Fig. 1 Primacy Effect on Growth Rate Conditioned to GDP per capita, 85 countries. Source Own elaboration
based on data and code by Brülhart and Sbergami (2009)

From his analysis of 70 countries over the 1960–1995 period, Henderson (2003) con-
cluded that productivity growth at the national level is maximized at a certain degree
of urban concentration, and this optimum degree varies with the level of development
and country size. Therefore, over or under-concentration can be harmful to national
productivity growth. Brülhart and Sbergami (2009) revisited the same topic, expanding
the number of countries, the period of analysis, and the number of variables. Primacy,
measured as the share of the population living in the main urban concentration, came
out as a significant growth promoter. However, the interaction of primacy with the
log of the GDP per capita is negative, supporting the Williamson (1965) hypothesis:
as GDP per capita increases, the positive impact of primacy on growth goes down,
reaching a point where the impact becomes negative, that is, more primacy impairs
growth.
We have used the same data set employed by Brülhart and Sbergami (2009) to
highlight the cases of Chile and Brazil.1 The continuous line in Fig. 1 is the adjusted
relationship between the initial level of per capita GDP and the reaction of growth to
primacy; the dotted lines are pseudo confidence intervals. The turning point at which
concentration starts impairing growth is located around the USD 10,000 per capita
income level, just below the Brazilian level in 1960; Chile is further ahead in per
capita income in that year. Thus, the two countries of interest in this paper present
levels of GDP per capita large enough to eliminate the positive effect produced by
agglomeration. Since Chile is located to the right of Brazil, the negative effect of
primacy on growth would be larger than in the Brazilian case.
Thus, there is empirical evidence and theoretical basis to argue that, given certain
conditions, or by reaching a certain threshold of territorial or regional concentration,

1 We thank the authors for providing the information and the code.

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Regional concentration and national economic growth in… 347

increasing concentration might have a negative effect on the overall growth of the
economy. When this point is reached, the trade-off between equity and growth would
cease, making a case for regional policy. In this situation, promoting regional equity by
supporting the growth of backward areas would have a positive impact on the growth
of the country. This sets the stage for the consideration of the cases of Brazil and
Chile, countries that present high levels of spatial concentration and different paths of
concentration change in recent times.

3 Concentration and growth at the sub-national level

The existing studies typically compare growth and concentration for a set of countries.
With the exception of Combes et al. (2011), the literature does not show longitudinal
studies for specific countries. An ideal way of investigating the relationship between
concentration and growth would be to estimate a model with national data linking
these two dimensions. This ideal relationship can be expressed as

yt  f (concentration t , contr ol variables) + εt (1)

where yt is the economic growth in the country, in year t. In this model, the practical
problem is the small number of years for which the variables are available, which
limits the degrees of freedom to obtain statistically robust results. In order to get
meaningful results, one would require a long time series of data that is not generally
available, especially in developing countries. A possible alternative is to use regions
within countries to produce cross-section situations for the period for which data is
available. However, finding such long and detailed time series at the subnational level
is virtually impossible, especially for developing countries. This limitation prevents
adapting cross-country methodologies to the countries of interest in this research,
which led us to design a research strategy to overcome this difficulty. In this paper we
deal with regions within Brazil and Chile.
Thus we adopt a hybrid methodology: in the first stage we estimate econometrically
the relationship between regional growth and a set of variables, including population
density. In the second stage, we estimate the impacts on national growth of the actual
changes in concentration observed in the period of estimation. Changes in regional pop-
ulation produce changes in densities, thus changing the national measures of regional
concentration. With these new regional densities, we recalculate the growth of the
regions, generating a growth estimate of the national economy as a weighted average
of the growth of these regional economies. By analyzing changes in concentration and
changes in national growth, we are able to provide evidence on relationship between
these two dimensions.

3.1 The theoretical model

Given this limitation, we propose a methodology that makes use of the degrees of
freedom allowed by using data for regions within countries. Once the parameters

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establishing the relationship between growth and concentration at the regional level
are estimated from within-country regional cross-sections, they can be used to simulate
the impacts that concentration would have on growth at the national level. As for the
regional cross-sections, we estimate Solow’s growth equations to generate predicted
regional growth rates associated to different values of the control variable x, which is
linked to some measure of concentration (Barro and Sala-i-Martin 2004).
In the neoclassical growth theory, output per effective labor in period t, q(t), con-
verges to the steady state level q*. The linear approximation around the steady state
leads to:
d log(q(t))  
 λ log(q ∗ ) − log(q(t)) (2)
dt

where λ is the speed of convergence (Islam 1995, p. 1135). Equation (2) implies that,
for two points in time, t m−1 and t m : log(q(tm ))  (1 − ρ) log(q ∗ ) + ρ, where
def
ρ  exp(− λ(tm − tm−1 )) (3)

The product per effective worker is defined as:

Y (t)
(t)  (4)
A(t) ∗ L(t)

where Y (t) is the aggregate output, L(t) are aggregate hours worked and A(t) repre-
sents the technological progress in period t, which affects the productivity of labor.
Assuming that A(t) increases at a constant rate g, such that A(t)  A(0) exp(g*t), Eq. (4)
implies that
 
Y (t)
log(q(t))  log − log( A(0)) − g ∗ t (5)
L(t)

Substituting Eqs. (5) in (3), we obtain:

   
Y (tm ) Y (tm−1 )  
log  ρ log + (1 − ρ) log(q ∗ ) + log( A(0)) + φm (6)
L(tm ) L(tm−1 )

where

φm  g(tm − ρ ∗ tm−1 ) (7)

 
Y(tm−1 )
A more intuitive way to express Eq. (6) is obtained by subtracting log L(tm−1 )
from both members, leading to:
     
Y (tm ) Y (tm−1 ) Y (tm−1 )
log − log  (ρ − 1) log + (1 − ρ)
L(tm ) L(tm−1 ) L(tm−1 )
 
∗ log(q ∗ ) + log( A(0)) + φm (8)

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Regional concentration and national economic growth in… 349

Since ρ < 1 if λ > 0, this equation shows that the level of product per capita has a
negative effect on the growth of the next period. Regions with small product per capita
levels are expected to grow faster than regions with large levels. Although this equation
is more intuitive, Eq. (6) is more instructive from the perspective of the econometric
estimation (Hayashi 2000). It describes the behavior of the growth rate for each region
i. Assuming that the speed of convergence, λ, and the growth rate of technology, g,
are the same for all regions, Eq. (6) for region i can be written as:

yim  φm + ρyi,m−1 + αi ∀i  {1, 2, . . . , k} (9)

where k is the number of regions in the country, and:

 
Y (tm )  
yim  log for the region i αi  (1 − ρ) ∗ log(q ∗ ) + log( A(0)) (10)
L(tm )

3.2 Estimation

If we add the error term ηim to the Eq. (9), we obtain the following estimable equation:

yim  φm + ρyi,m−1 + αi + ηim (11)

Equation (10) shows that α i depends on the level of the stationary state level q* and on
the initial level of technology A(0). The econometric treatment of α i in the estimation
depends on the theory of growth selected. In general, the conditional convergence
literature includes variables that could affect q* or A(0), such as measures of political
stability and the degree of financial intermediation.
If the estimation is performed with cross-sectional data, the term A(0) is not observ-
able, so its effect is captured by the constant. If it is different for each spatial unit,
then it is captured by the constant of a Fixed-Effects model. If its behavior is random,
its effect will go to the error term, generating an omitted variable problem. If it is
correlated with the explanatory variables, the estimated coefficients will be biased.
The direction of the bias can be determined using the standard formula for omitted
variable bias. The partial correlation between A(0) and the initial value of y is likely to
be positive, and the expected sign of A(0) is also positive. Therefore, an overestimation
is expected.
In general, regional growth models estimate the following equation (Gardiner et al.
2011; Brülhart and Sbergami 2009)

yim  φm + ρyi,m−1 + xi,m−1 · β + αi + ηim (12)

where x is a vector of l control variables and β is the associated vector of coefficients

to be estimated.
The cross-section estimation allows for the use of a larger amount of data. However,
the existence of idiosyncratic characteristics of the regions makes the OLS estimation
inconsistent. One good aspect of econometric panel models is that they allow con-
trolling for omitted or non-measured region-specific effects. Additionally, if GDP and

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other variables of the model are observed in M + 1 points in time, t 0 , t 1 , t 2 , …, t M ,

Eq. (12) is available for m  {1, 2, …, M}. Panel data models with fixed effects could
be applied to this system of M equations, but there is the problem that the system is
dynamic, in the sense that some of the explanatory variables are dependent variables
in other equations of the system (Hayashi 2000).
One way to obtain consistent estimates of Eq. (12) is to generate the first differences
of M equations and obtain M − 1 estimable equations, namely:

yi2 − yi1  μ1 + ρ · (yi1 − yi0 ) + (ηi2 − ηi1 )

yi3 − yi2  μ2 + ρ · (yi2 − yi1 ) + (ηi3 − ηi2 )
..
.
 
yi M − yi,M−1  μ M−1 + ρ · yi,M−1 − yi,M−2 + ηi M − ηi,M−1 (12)

where

μm  φm+1 − φm (13)

The estimation of the system in Eq. (13) with OLS or random effects model produces
inconsistent results, because the regressors are not orthogonal to the error term. For
example, in the first equation, (yi1 − yi0 ) is not orthogonal to the error term, because
E(yi1 ρ · ηi1 )  0. A consistent estimation can be performed with multiple equations
GMM, if there are valid instruments, or with a dynamic panel, with lagged variables
as instruments. In this study we estimate a dynamic panel using GMM. This approach
has three main advantages. First, it solves the simultaneity problem. Second, it is more
robust to measurement problems than cross-sectional models. The additive measure-
ment problems that do not vary over time are absorbed by the specific effects of each
region. Given the adequate lags function as instruments, the dynamic panel by GMM
maintains consistency even in the presence of region-specific or year-specific mea-
surement errors. Third, this method is consistent even if the controls are endogenous,
if the instrumental variables are sufficiently lagged. In this study, we use dynamic
panel models applied to yearly panels.

3.3 Results

We have estimated the model with data from 20 states of Brazil and Chile, obtaining the
results displayed in Table 1. The estimations were made independently, and the choice
of variables followed the availability of data and the adequacy for the specificities of
each country. We have included time variables, to control for cyclical effects or effects
that equally affect all regions in a given period of time. We have used 2-year lagged
variables as instruments. To assess the quality of these instruments, we applied the
Sargan test (Roodman 2009).2 The Arellano and Bond test for serial autocorrelation
assumes the null hypothesis that the differences in errors are not auto-correlated. The
2 As for robustness, besides estimating the model with a system of equations via the Generalized Method
of Moments (GMM SYS), we have also tried Fixed Effects and Random Effects, and cross-section and

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Regional concentration and national economic growth in… 351

Table 1 Estimation results—GMM SYS

Brazil Chile

log GDPpct−1 − .0310673*** − .0166463***

(.00962) (.007347)
log Densityt−1 − .0063348*** − .0045677***
(.00242) (.0022735)
Educationt−1 0.0041212***
(.00181)
Share of public sector on GDP − .1547004***
(.05571)
log unemployment ratet−1 0.0087234 0.0183628***
(.00911) (.0073358)
Cooper productiont−1 0.0001117
(.000096)
Sargan (p value) 0.702 0.372
AR (1) (p value) 0.000 0.000
AR (2) (p value) 0.355 0.468
N 600 390
Standard errors in parentheses. The Sargan test has the null hypothesis that the instruments as a group
are exogenous, that is, the instruments are uncorrelated with the error term. THE AR1 test has the null
hypothesis that there is no autocorrelation of order 1 in the error term. The AR2 test has the null hypothesis
that there is no autocorrelation of order 2 in the error term
*p < 0.1, **p < 0.05, ***p < 0.01

AR (1) test allows us to contrast the hypothesis that there is no autocorrelation of

order 1 in the error term. This is usually rejected because the difference in estimation
errors are auto-correlated by construction, since it assumes that the E( eit , ei,t−1 ) 
0, which is unlikely, since both terms contain ei,t−1 . However, the AR (2) test in first
differences is more important, because it detects autocorrelation in levels. The Sargan
test results imply that there is insufficient evidence to reject the null hypothesis that
the instruments are uncorrelated with the error term, which allow for the conclusion
that the set of instruments is suitable for the variables of the estimated models.
The variables common to both cases are the one-year lagged per capita GDP, and
the one-year lagged population density. As for the first, the results reveal the existence
of conditional convergence for both cases, Brazil presenting the fastest speed. These
results replicate the finds of other studies for these countries, such as Silveira-Neto
and Azzoni (2012) and Menezes et al. (2012), for Brazil, and Duncan and Fuentes
(2006), for Chile. The other results are discussed individually for each country in the
next paragraphs.

Footnote 2 continued
panel models for 5-year windows. Although some variables changed significance and, eventually, signs,
the results relevant to this study, that is, lagged income and density, came up almost the same.

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352 P. Aroca et al.

3.3.1 Brazil

Besides the already mentioned lagged income, we have included other controls. As
expected, the share of the public sector in the economy of the region appears with
a negative and significant sign; education, measured by the proportion of the adult
population with a college degree, appears with a positive and significant effect; unem-
ployment in the previous period, other tested variables as population growth and
density of GDP (GDP/km2 ) were not significant. As for the variable of interest to
this study, population density (population/km2 ) showed a negative and significant
sign. Thus, the results indicate that regional growth is converging conditionally in
Brazil, positively influenced by education, and negatively influenced by the presence
of the public sector. The most important evidence for the argument developed in this
article refers to population density, whose influence is negative for the growth of per
capita GDP in the period. This indicates that the level of agglomeration at the regional
level in the Brazilian case is excessive, hampering its growth potential.

3.3.2 Chile

The regression includes lagged per capita GDP (in logarithm), and three control vari-
ables. To control for the level of investment, we have included the foreign direct
investment rate in each region, averaged over the whole period, however it was not
significant. Given the importance of copper production, we have included the lagged
share of copper on the mining production of each region. Finally, to control for the
level of economic activity at the regional level, we have included the logarithm of the
lag of the regional unemployment rate. Besides lagged income and population den-
sity, lagged unemployment was the only significant variable, with a positive sign. The
coefficient associated with population density is negative and significant, a result com-
patible with the growth in per-capita product relative to Santiago in almost all regions
of the country (Cuadrado-Roura and Aroca 2013). As in the Brazilian case, regional
growth is converging conditionally in Chile, positively influenced by the lagged unem-
ployment rate. Given the negative sign for population density, there indications that
the level of agglomeration at the regional level in the Chilean case is also excessive,
limiting national growth.

3.4 Robustness

Before we move forward aggregating the regional results at the national levels, it is
interesting to check whether our models are able to predict the true National Growth
Rate for the countries. Figure 2 shows that the real and predicted growth rates are very
close for both countries.

4 From regional to national: aggregating regional results

In the previous section we have determined the influence of concentration on regional

growth for each country. The focus of the study, however, is on the influence of

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Regional concentration and national economic growth in… 353

Fig. 2 Predicted and observed national GDP growth rates

concentration on growth at the national level. To provide an answer to this question,

we have designed a strategy consisting of using the regional populations changes to
compute the impact on the growth rate. These changes modify the regional rates of
GDP growth, and hence the regional shares in national GDP. As a consequence, they
produce changes in the national GDP growth rate, calculated as the weighted average
of regional GDP. The national growth rate is calculated as a weighted average of the
regional rates of growth.
Let gYit  YYit−1
it
− 1 be the GDP rate of growth of region i in period t. Since the
country is composed of N regions, the growth of rate of the country can be expressed
as:

N
gYt  gYit ∗ Sit−1
i1

where Sit−1  Yit−1 /Yt−1 is the regional share of region i on national GDP in the
previous period. In a similar manner, the population rate of growth for the regions and
the country can be defined as: g Pit and g Pt respectively. The rate of growth of the
GDP per capita of region i in period t can be approximated as gyti  gYti − g Pit and
the national one, as gyt  gYt − g Pt .
Let population density in region i, in period t, be Dit  Pit /Ai , with Ai being the
area of the region, expressed in square kilometers. Let gyit be the dependent variable
in the previously estimated models. The impact of changes in density on the growth
of per capita GDP for region i is δgyit  β ∗ δ ln(Dit−1 ), where beta is estimated in
the previous section, taking into consideration the endogeneity that a model like this
imposes. Since the regional areas are constant, density is changed only by changes in
regional population. Therefore, the impact of changes of concentration on the national
growth is given by gYt  gyt + g Pt , that is, the sum of growth in GDP per capita and
the growth in population.
The model allows to estimate the change in growth of per capita GDP due to changes
in concentration. However, the impact on the national GDP will depend on the sign
of the coefficient β and the change in population occurred in the region, and between

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regions, because changes in population also change g Pit and the share of population
living in region i. The final impact of changes in concentration on the growth of national
GDP can be expressed as:
 N     N 

δgyi δg Pi
δSi
dY  + ∗ Si d Pi + (gyi + g Pi ) ∗ d Pi
δ Pi δ Pi δ Pi
i1 i1

Using the results from the estimation, the results can be written as:

N     N 

δ ln Di δg Pi
δSi
dY  β + ∗ Si d Pi + (gyi + g Pi ) ∗ d Pi
δ Pi δ Pi δ Pi
i1 i1

The first term measures the impact on national growth of the changes in population
in each region, weighted by the size of the region (S i ). The second term captures the
impact on national growth of the changes in the size distribution of the regions. We
will use the first part of the first term to calculated the impact of concentration proxy
by density on the national rate of growth.
In order to establish the effects of regional concentration on national growth for
the two countries, we have calculated the effect on GDP growth in each region of the
actual change in population occurred between 1980 and 2010, and then aggregated
the results to the national level, using the regional shares. This exercise allows us to
determine the effect on national growth of the level of concentration in Chile and in
Brazil.
The results for Chile are presented in Table 2. It shows the changes in GDP growth
rates for the 13 regions and for the country as a whole for three sub-periods. As
it was presented before, Chile has experienced regional concentration of population
over the 1980-2010 period. As the national results indicate, this observed concentration
produced negative impacts on the national GDP growth rate, which varied from − 13.5
to − 8.7%. That is, Chile lost around 1.0% of the GDP growth rate in each year
in the period due to the excessive regional concentration of population. This result
complement the finding of Brülhart and Sbergami (2009) displayed in Fig. 1 and
suggested by the OECD (2009). One improvement of our approach is that it allows
for the verification of the effect in each region and give a size of the cost for excessive
concentration. The national results follow closely the Metro Santiago results, which is
the most important region within the Chilean regional system. This effect is expected,
given the predominant size of that region within the Chilean regional system. The
other important changes, although far away from the ones in Santiago, were regions
V and VIII.
Table 3 present the results for Brazil. As in the Chilean case, the overall effect is
negative, varying from − 8 to − 5.5%. On a yearly basis, the national GDP growth rate
was reduced by some number around 0.6%. Different from the Chilean case, where
the predominance of the metro region of Santiago is paramount, the effects are more
evenly distributed. São Paulo state, the most important state in terms of GDP, accounts
for less than 50% of the total effect, followed by Rio de Janeiro state.

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Table 2 Impacts on GDP growth rates for Chile—population concentration observed. Source: Own calcu-
lation

Region 1980–1991 (%) 1991–2000 (%) 2000–2009 (%)

I − 0.0150 − 0.0185 − 0.0122

II − 0.0090 − 0.0100 − 0.0075
III − 0.0049 − 0.0030 − 0.0019
IV − 0.0394 − 0.0448 − 0.0420
V − 0.5507 − 0.5181 − 0.5017
VI − 0.1700 − 0.1381 − 0.1137
VII − 0.1075 − 0.0810 − 0.0677
VIII − 0.3787 − 0.2523 − 0.1922
IX − 0.0769 − 0.0848 − 0.0627
X − 0.0542 − 0.0669 − 0.0531
XI − 0.0004 − 0.0003 − 0.0003
XII − 0.0006 − 0.0004 − 0.0002
Metro Santiago − 12.0806 − 10.2717 − 7.6463
National − 13.49 − 11.49 − 8.70
Annual − 1.23 − 1.15 − 1.09

The lower intensity of the effect on the Brazilian case and the diminishing trend in
both cases are according the expectation stated earlier, based on the cross-section of
countries presented Brülhart and Sbergami (2009). Since the per capita income level
of Brazil is lower than Chile’s, the intensity in the Chilean case should be stronger.
Another feature is that the negative effect is reduced over time, and that does not fit
the U-shaped argument, since one would expect it to fall, as the countries grew in the
period (Table 4).
An explanation for the Brazilian case is that even though has a positive trend growth
in the whole period, the reduction of the impact of concentration on growth might be
due to the deconcentration process that is taking place in the whole period. Contrary
to the Chilean case, might be because the decline in the growth pace, after the 1997
international crisis. Then, the cost in the growth is lower because the potential of
growth is also lower in that period, which contrast with the Brazilian situation.

5 Conclusions

This work dealt with the idea that regional concentration within a country might impair
national economic growth. For that matter, the recent experiences of Brazil and Chile
were considered. Given that long time-series of GDP and concentration measures
are not available for most countries, and more so for developing countries, we have
used cross sections of within-country regional data. This has allowed us the necessary
degrees of freedom to estimate the relationship between concentration and growth

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Table 3 Impacts on GDP growth rates for Brazil – Population deconcentration observed Source: Own
calculation

States 1980–1991 (%) 1991–2000 (%) 2000–2009 (%)

AL − 0.2038 − 0.1218 − 0.1023

BA − 0.2171 − 0.1102 − 0.0742
CE − 0.2058 − 0.1984 − 0.1721
ES − 0.1362 − 0.1222 − 0.0948
MA − 0.0604 − 0.0467 − 0.0530
MG − 0.2898 − 0.2515 − 0.1760
PB − 0.1136 − 0.0600 − 0.0666
PR − 0.1685 − 0.2061 − 0.1430
PE − 0.3312 − 0.2504 − 0.2395
PI − 0.0202 − 0.0117 − 0.0102
RJ − 2.1021 − 2.0208 − 1.7765
RN − 0.0999 − 0.0721 − 0.0694
RS − 0.2122 − 0.1556 − 0.0650
SC − 0.1862 − 0.1686 − 0.1684
SP − 3.5511 − 3.0221 − 2.1332
SE − 0.0983 − 0.0869 − 0.0779
AM AC RO RR − 0.0089 − 0.0093 − 0.0090
PA AP − 0.0230 − 0.0235 − 0.0255
GO TO − 0.0362 − 0.0426 − 0.0412
MS MT − 0.0139 − 0.0102 − 0.0110
National − 8.08 − 6.99 − 5.51
Annual − 0.73 − 0.70 − 0.69

Table 4 GDP growth rates for Brazil and Chile Source: Own calculation

1980–1991 (%) 1991–2000 (%) 2000–2010 (%)

Brazil 14.76 28.18 31.15

Chile 50.38 53.90 38.24

at the regional level. Given these regional results, we have simulated the effects of
concentration on national growth of each country.
The estimation of growth equations from within-country regional data was based
on a growth model in which growth of per capita income at the regional level is
conditioned on a set of controls that might affect growth. Although these controls varied
between countries, given their specificities and data availability, one common variable
of interest is population density, to represent the regional concentration of economic
activity in the regions. The results show that for Brazil and Chile, population density
has a negative effect on growth at the regional level. These results, referring to within
country regions, tell us little about the effects of concentration on growth at the national

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Regional concentration and national economic growth in… 357

level. The transition from regional to national results was made through simulations
of changes in regional population. Once population changes in the regions, regional
GDP change, changing densities. These new densities were fed into the estimated
growth equations to estimate the new regional per capita GDP levels. Based on these
new levels, a modified national growth level was calculated, as a weighted average of
the regional levels.
The counterfactual simulation maintaining the concentration of 1980 for Brazil and
Chile made possible to estimate the amount of gains/losses associated with concen-
tration in these countries.
As it was mentioned previously, the two countries are located in the per capita
GDP range around the turning point of the concentration-growth curve presented by
Brülhart and Sbergami (2009). As in that study, Brazil and Chile would be located in
the negative part of that curve, the region where diseconomies of agglomeration tend
to be larger than the economies. However, their concentration paths indicate that they
are going through distinct situations: Brazil is living through a period of population
deconcentration, with positive effects on growth. Chile has its growth hampered by
the population concentration process.
The effort of estimating the effects of concentration on national growth from within-
country regional data resulted valuable. We were able to replicate the international
cross-section results presented by Brülhart and Sbergami (2009), locating the countries
studied in the same position on their multi-country concentration-growth curve. But
by using the richness of more detailed data, we were able to calculate the growth-
concentration elasticities, and to estimate the losses observed by each country in the
period analyzed. These results are important to establishing a dialogue with the policy-
making community, for which place-based policies would only be justified on the
social and political mitigation realm, and would produce a national net cost, in terms
of forgone growth. The estimated elasticities for Brazil and Chile present win–win
cases, setting the stage for the implementation of such sort of policy on different
grounds. At least, they indicate that the typical do-nothing option does have a cost.

Acknowledgements The corresponding author acknowledge the support of FONDAP-CONICYT Chile

15130009, FONDECYT Chile 1171230 and RIMISP - IDCR Canada.

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