Abstract

This study analyzes the National Regional Development Fund (Fondo Nacional de Desarrollo Regional – fndr), the main instrument for territorial development and compensation in Chile. It identifies three design issues that hinder its purpose. Firstly, it is shown that the distribution criteria result in investment centralization in regions with higher demographic concentration. Secondly, the evidence suggests that the fndr promotes regional fragmentation, as it increases the relative percentage in the allocation of the original territory following the division of territories. Finally, it is demonstrated that discretion in fund allocation at the intra-regional level generates additional incentives for fragmentation, as it favors distribution in the larger municipalities of each territory. This study offers suggestions for improving the instrument’s design to increase its consistency and confront the incentives for territorial fragmentation.