|
We outline policy recommendations to overcome or mitigate the most important binding constraints that are preventing Loreto, in Peruvian Amazonia, from developing sustainable and inclusive employment and economic growth.We rely on highly granular databases to map the productive ecosystem of Loreto. The state has significant knowledge agglomeration and productive capabilities that are consistent with higher levels of income, productivity, and wages. The costs imposed by its remote location have discouraged imports, and instead, encouraged local entrepreneurs to meet local demand. This dynamic makes it more necessary to promote a strategy to remove the most binding constraints to sustainable development and boost the competitiveness of the industries that are already in Loreto, as well as those that could be developed with the current stock of productive capacities and know-how of the department. Our research-based policy recommendations contain elements to reduce or mitigate the identified limiting constraints and suggest institutional devices that can facilitate coordination in the design, execution, evaluation, and adoption of productive development policies. In terms of addressing water connectivity as a binding constraint, our recommendations focus on the promotion of more efficient, predictable, and unobstructed means of moving goods by the existing waterways, considering the high environmental and economic costs of the other alternatives.With regards to electricity, Loreto’s current arrangements depend on one of the most expensive, volatile, and polluting sources of power generation: diesel and residual fuel plants. In this context, providing cheap renewable energy sources can play a strategic role in the region's sustainable development. The provision of energy at significantly lower costs has the potential to benefit the rest of the country (if the transfers that currently support the electricity subsidy in Loreto decrease), the private sector in Loreto (if all the savings derived from the change in provision are transferred to the energy rate), or to the government of Loreto (if the current subsidy is maintained and transferred to the regional government). In all cases, there seem to be enough benefits to promote Paretian arrangements among the relevant actors, a necessary condition to promote their active participation and materialize the opportunity.The last binding constraint to growth in Loreto identified in this research is the limited capacity of the State to resolve coordination and information failures associated with the process of self-discovery. Our findings suggest that Loreto tends to diversify less into nearby industries than the other regions of Peru, indicating that it is less able to circumvent coordination and information failures. This lack of capabilities translates into a slower process of self-discovery and might explain why Loreto has not been able to leverage its agglomeration of productive know-how to develop new industries with higher value-added.A relatively small number of thematic areas and industries need to be prioritized to strengthen state capacity and solve coordination dilemmas- Because Loreto’s binding constraints impact the 55 identified industries with high potential differentially, we focus on a process to narrow down the list of priority industries. The process subjects the 55 industries to various filters that include industry-level dependency on the identified constraints, in addition to other factors including viability, attractiveness, and compatibility with environmental considerations. The latter is a special consideration due to the geographical location of Loreto, the fact that the Peruvian Amazonia is one of the largest reserves of biodiversity in the world, and the importance of its environmental services to the planet.We recommend a number of policies and institutional devices to strengthen the capacity of the State to resolve coordination and information failures, accelerate the emergence of new sectors and promote the structural transformation of Loreto's economy. Our recommendations are based on existing structures, seek to optimize their operation and create subunits dedicated exclusively to Loreto
|
