How can countries support economic growth and improve living standards across all regions?

What happens when people and economic activity are concentrated in just a few cities within a country? From an economic perspective, we know this concentration can be positive overall – living conditions can improve, poverty rates can decline, companies can learn from each other, and connections can be built between employees and firms.

But what happens to those people who get stuck in poor regions where there are no opportunities? It becomes more difficult for them to access jobs and have a good quality of life. Discontent then often ferments, and civil unrest erupts.

To ensure that opportunities reach all corners of a country and all citizens within its borders, a Territorial Development approach is necessary when designing public policy . This means applying differentiated policies, to differentiated needs – highlighting the importance of programs that take into account the interdependence between different sectors (for example matching investments in road paving with the location of schools) and the relationships between the different government levels.

To apply this territorial approach, the first step is to assess the development landscape along three key dimensions:

• Scale, because people and firms often concentrate in just a few places, proving that proximity is valuable.
• Specialization, because when places are better connected, they can either specialize in what they produce best, or diversify and innovate, both of which allow the benefits of concentration to be spatially spread out.
• Convergence, because spatial concentration of people and firms can be harnessed to improve living conditions everywhere, enabling the convergence of living standards across the territory.

Analyzing these three dimensions in a country can then help policy makers identify and prioritize policies that support economic growth while improving living standards in all territories. The challenge for policy makers is to reconcile these two objectives.

But how can they do this? Our report “Territorial Development in Argentina” (Volume 1 – Diagnosing Key Bottlenecks as the First Step Toward Effective Policy and Volume 2 – Using Differentiated Policies to Reduce Disparities and Spur Economic Growth) addresses this question.

It diagnoses Argentina’s performance in those three dimensions using a wide range of indicators; identifies the main bottlenecks to reconciling the objectives of supporting economic growth while improving living standards; and extracts main lessons from instruments used in more than 20 countries to reduce territorial inequalities.

These instruments include the introduction of institutional frameworks in Australia and the European Union that empower subnational governments to choose the policy instruments that better aligned with their needs; financial performance-based instruments to improve service delivery and strengthen local capacity in the United Kingdom; or funding mechanisms with clear objectives to promote investments in basic infrastructure in Peru or to achieve convergence and growth in the European Union.

While the inventory of instruments is by no means exhaustive, it highlights the most commonly used tools to promote territorial development and it assesses their strengths and weaknesses to extract main lessons that can inform policy decisions. Once the main bottlenecks to promote economic growth and convergence of living standards are identified, we can then design the appropriate instrument to use in the right context.

Our study of these international cases points to the importance of three pillars to enable territorial development: efficient and effective institutions, strong capacities, and alignment of financing to meet responsibilities . A comprehensive Territorial Development Program can bring these together by helping to build better institutions; and providing the framework for subnational governments to take the lead in designing and implementing solutions in their territories, while coordinating investments from different sectors – ultimately enabling the benefits of development to reach everyone, everywhere.