Tariffs and manufacturing location in Argentina

Strong concentration of population and economic activity in a few metropolitan areas is a pervasive feature in several developing countries. Theoretical analyses within the so-called new economic geography have suggested that this phenomenon can be related to trade policies. However, no theoretical consensus has been reached concerning the direction of this effect. Just a few empirical studies have attempted to explore this link. In this paper we exploit the cross-sectoral pattern of tariff protection to explicitly assess to what extent trade policy explains observed geographical concentration of industries in Argentina. This country is an interesting case because economic activities have been traditionally concentrated around the Great Buenos Aires area, while at the same time tariffs have been high on average and have displayed a large cross-sectoral variation over the last decades. The econometric evidence suggests that trade policy has had indeed a significant impact on manufacturing location. In particular, lower sectoral tariffs have been associated with de-concentration of industries out of the area surrounding Buenos Aires.