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The rural economy and economic development

The three types of rural regions in Chile

There are three distinct types of rural regions in Chile, as in many OECD member countries, each with different characteristics, challenges and policy needs (Figure 2.1). In a modern industrial democracy, rural regions should play an important complementary role to urban regions. This means that the development path of most rural regions is not to become an urban metropolis, but instead to provide goods and service that are best produced in a rural setting to the national and international markets. However, the role of rural regions changes as the national economy moves through various stages of development. For this reason, it is important to understand the different types of rural territory. In all three types of region, the rural territory provides a complementary role to urban activities. The main difference is where the main source of economic dynamism is located. In metropolitan regions it is clearly in the city, whereas in small remote regions it is in the rural area. The vast majority of rural territory falls in an intermediate situation where the urban and rural components of a region are more balanced in capacity and three are very large potential gains from co-ordination.

  • 1. Rural regions within a functional urban area (FUA) - these types of rural regions are part of the catchment area of the urban core and their development is fully integrated into the metropolitan strategy. The main challenges of these types of rural regions are accessibility of services within the FUA, matching of skills to the wide range of supply and managing land-use policy brought by increasing pressures of the urban core.
  • 2. Rural regions close to cities - the main challenges in these types of regions are: improving two-way connectivity and accessibility between the cities and rural territory, building short supply chains that link urban and rural firms, balancing population growth while preserving quality of life and green spaces, and enhancing the provision of secondary goods and services.
  • 3. Remote rural regions - in these types of regions, rural areas depend to a great extent on the primary activities of the area. Growth comes from building upon areas of absolute and comparative advantage, improving connectivity to export markets, matching skills to areas of comparative advantage and improving the provision of essential services (e.g. tourism).

Figure 2.1. Three types of rural regions in Chile

In order to attain potential synergies, there is a need to better define urban and rural areas in Chile. While it is clear that urban policy applies in urban areas and rural policy to rural areas, it is the intersecting fringes of urban and rural areas and mixed territories that lead to problems. In Chile this is particularly important given the high degree, and increasing trend, of population concentration in cities and the growing importance of rural areas close to cities. Recognising and defining these mixed spaces with high interactions can facilitate better co-ordination of urban and rural policies. Furthermore, the marked differences in the proportions of rural and urban within Chilean regions are one reason why a single regional policy is unlikely to be successful. There is a need to adapt this balance to each region and to differentiate among the different types of rural regions. This reinforces the importance for the Chilean government to be precise in identifying what is rural and what is urban, as suggested in Chapter 1.

The OECD has recently examined how rural and urban territories interact in a variety of circumstances and the topic was the focus of the 9th OECD Rural Conference in Bologna, Italy (OECD, 2013c). As is shown in Box 2.2, there is a high degree of interaction between rural and urban populations in all types of regions. The role of rural varies with the size of the region and, in particular, the size of the dominant urban centre. In each situation, a well-functioning co-operation between urban and rural improves the two-way flow of people, goods and services between urban and rural, making both better off. Conversely, in regions where co-operation does not happen, it is easy to identify lost opportunities.

In Chile, the wide diversity of natural assets and resources in rural areas and big differences in the size of urban population centres lead to a huge differences among regions in the types and strengths of urban and rural interactions. These differences require a highly flexible rural policy approach to facilitate stronger regional growth. In a modern industrialised democracy with a complex national economy, it is important to move beyond seeing rural and urban as a simple dichotomy. The Rural Urban Project/RURBAN (OECD, 2013b) of the OECD starts from the recognition that urban and rural are different, but recognises that irrespective of the size of the region, there are important connections between rural and urban in the form of: labour market flows, business interactions, managing the delivery of public services, organising transport and utility connections, and co-ordinating government decisions. Where these are well managed, both urban and rural territories within a region have better growth and a higher quality of life. As Chapter 1 points out, clearly an important part of this process is having appropriate definitions of rural and urban.

Box 2.2. Urban and rural linkages vary among types of regions

The OECD has recently completed a study of the types of relations that exist between rural and urban areas where they come together at the peri-urban fringe. The review looks at a variety of interactions including: labour flows, housing choices, public service linkages, environmental service linkages and government co-operation. Because the nature of these linkages varies a lot by the size and type of urban agglomeration, three broad situations were examined. The first is where there is a large primate city that dominates a surrounding hinterland. The second is a less-populated intermediate region where there is typically a system of cities that collectively form a polycentric urban core. The third is an even smaller population region where there are no cities of significant size and most urban places are tightly connected to a surrounding rural economy.

In highly urbanised regions there are typically large internal commuting flows, often from lower cost housing rural suburbs outside the urban core into the core for work, but in some cases in both directions. In some cities, like London, higher income individuals may live in peri-urban areas and commute to the core while lower income individuals live in relatively cheap urban housing and work in lower paying sectors that locate within the region but outside the core. Rural residents clearly benefit from access to business and public services in the urban core and from the greater variety of retail establishments. On the other hand, urban residents value the green space and other environmental amenities available in nearby rural areas. These ecological corridors contribute positively to the quality of life of urban residents. Crucially, both urban and rural parts of the region perform better if there is relatively strong collaboration between local governments.

In intermediate regions, the balance of contribution to the local economy from urban and rural territories is more equal. Because there is no single dominant urban centre there is often a degree of specialisation among urban places and nearby rural areas. For example, some places will be manufacturing centres, others provide higher education or healthcare, and other may host major retail centres. The result can be an agglomeration that provides a high quality life for all. However, this is the ideal outcome. In other intermediate regions there is little co-operation and places seek to be self-sufficient. In these situations, duplication and inefficiencies can make both rural and urban regions worse off.

In the most rural regions there are only small urban centres that provide a limited variety of goods and services. A major role of these urban places is to act as market towns for a surrounding rural economy. If the industries for the rural territory are successful, the urban area is also successful, but without a strong rural economy there is little economic activity in the urban areas. These regions are typically specialised in natural resource extraction and first-stage processing. The towns can provide housing both for workers who leave for a rural location to work on a farm or in a mine and they can be the site for processing activities such as a fruit and vegetable packing plant or an ore-refining facility.

In OECD countries, the majority of the rural population lives in relatively close proximity to urban centres, but the Rurban study demonstrates that while they live near a city and are influenced by it, their lifestyle and economic role differs from those of city residents. Rural and urban areas have complementary functions, but the nature of these functions varies with the size of the urban region.

A revised definition can also better capture the growth potential and importance of rural areas. Revising the current rural definition is highly connected to forming a coherent vision for the development of rural areas and taking advantage of their growth potential. The current definition defines rural areas as very low populated areas with low socio-economic indicators (e.g. human capital), or simply stated, it associates rural with economic and social decline. This definition goes counter to the significant wealth produced in these areas in Chile, which drive export growth.

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