Wednesday, February 16, 2011

Can Local Governments be used as agents for Growth?

EXPLAINING LOCAL ECONOMIC DEVELOPMENT IN LATIN AMERICA

Heidi Jane Smith
Florida International University
Prepared for delivery at the 2009
Congress of the Latin American Studies Association
Rio de Janeiro, Brazil June 11-14, 2009

http://lasa.international.pitt.edu/members/congress-papers/lasa2009/files/SmithHeidi.pdf

Abstract
Recent local economic development initiatives in Latin America are a consequence of the decentralization processes currently underway in the region. Specific efforts to promote these policies are driven by a complex set of political and economic factors facing local areas. Some Latin American countries, such as Mexico and Argentina, have started to offer incentives as a way to attract foreign investment. Others have provided promotional advertisements to retain or encourage manufacturing and/or foreign enterprises into their areas. Still others encourage small and medium enterprises to grow by creating a positive policy environment within which to work.

The key issue is how Latin American countries can learn to foster local economic development through the appropriate government structure and incentives practices. Latin American national governments can promote competition by engaging state and local levels of government to create the appropriate programs that are effectively able to retain and expand their economic activity (Wiesner, 2003). This study uses a statistical model to evaluate which factors influence the number of businesses and new business created in a local area. It uses a survey of mayors, city council members and executives from thirteen countries in Latin America to gauge whether they implement pro-business policies to improve their local areas, considering fiscal, administrative and political autonomy, and finally, controlling for municipal environmental factors.

This paper is organized into the following sections. First, it briefly summarizes the development attempts in Latin America and describes why entrepreneurship is key for equitable growth. Second, it will provide a theoretical perspective as to why decentralization is best to promote business friendly policies and ultimately economic development. Finally, this research paper tests the proposed theoretical perspective and provides tentative conclusions.

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