On the cross-city growth drivers of the most vulnerable region of Brazil

Abstract

Purpose The purpose of this paper is discussing on cross-city empirical economic growth, by estimating an unbalanced dynamic panel for the most vulnerable region of Brazil. Design/methodology/approach The authors propose including additional and specific sources of cross-city variation, enabling them to capture the essence and reality of this region. The sample selection is given by the solution of a trade-off on the number of cities and the available explanatory variables. Considering the final choice, the analysis is based on 6,452 observations extracted from a sample of 925 cities between 2009 and 2015. Reconciling the regional growth literature and this availability of observable data, the authors decide to explain cross-city real gross domestic product per capita in log, controlling for its lagged value besides 15 explanatory variables on human capital, financial system, business environment and social infrastructure. Findings This study uses growth drivers on human capital, financial system, business environment and social infrastructure. Considering 6,452 observations for the period from 2009 to 2015, this study finds a significant role played by the levels of education of formal workers, rural financing, real estate financing and FIRJAN indices (health and employment). Research limitations/implications A more comprehensive and complete understanding of cross-city variation, whether in the Northeast, in the North of the country or in other regions, involves the expansion of growth drivers in the model. Certainly, the impact of the industrial sector (not captured by the FIRJAN employment/income index), or programs and initiatives geared to technology, must be significant and positive. Despite the low market share, the insertion of microcredit data for informal, small business owners and more underserved families, can bring insights not measured in this article. Practical implications On financial system and development: The results on the significant and positive coefficient of rural and real estate financing are fundamental in conducting public policies aimed at granting credit. On human capital: The expected and intuitive relevant role of education suggests that good policies that are implementable need to be looked for and replicated to other northeastern cities. The state of Ceará seems to be that benchmark to be followed by the other states. Social implications Another public policy that needs to be strengthened so that the most vulnerable cities can grow is related to the partnership with the private sector in the expansion and maintenance of basic sanitation. In this context, the new Legal Framework for Basic Sanitation is an important step. Its main objective is to universalize and qualify the provision of services in the sector. Theoretically, it seems to be an important advance and this also unlocks the first big wave of investments. Originality/value The analysis aims to contribute to the recent studies on regional growth applied to Brazil. To the best of the authors’ knowledge, this is an innovative contribution, and the main differences between this paper and the others are the sample of cities, the period, the growth model and the estimation technique. For instance, Da Mata et al. (2005, 2007) explore population growth and its implications for economic dynamics and income generation among 123 urban agglomerations between 1970 and 2000. Alves (2021) studied slum growth in contemporary urbanization of households in 272 Brazilian cities from 1991 to 2010.