Person:

Hausmann, Ricardo

In this paper, we collect detailed information on the budget institutions of Latin American countries. We classify these institutions on a "hierarchical"/"collegial" scale, as a function of the existence of constraints on the deficit, and voting rules. We show that "hierarchical" and transparent procedures have been associated with more fiscal discipline in Latin America in the 1980s and early 1990s.

Much of development policy has been based on the search for a short to do list that would get countries moving. In this paper I argue that economic activity requires a large and highly interacting set of public policies and services, which constitute inputs into the production process. This is reflected in the presence, in all countries, of hundreds of thousands of pages of legislation and hundreds of public agencies. Finding out what is the right mix of the public inputs, and more importantly, what is a valuable change from the current provision is as complex as determining what is the right mix of private provision of goods. In the latter case, economists agree that this process cannot be achieved through central planning and that the invisible hand of the market is the right approach, because it allows decisions to be made in a more decentralized manner with more information. I argue that a similar solution is required to deal with the complexity of the public policy mix.

Wyoming is facing two distinct labor market challenges: in the short-term low workforce availability is a constraint while in the long-term job and wage growth have stagnated. Currently, Wyoming’s labor market is characterized by tightness and employers are struggling to fill positions. However, the current tightness of the labor market is not a phenomenon that is specific to Wyoming but instead is prevalent across the country. What sets Wyoming apart is the lack of growth in employment and wages over the long-term. Understanding these differing dynamics is important because policy responses may attempt to address the short-term issue without considering the underlying structural causes of the long-term dynamics. This will likely be ineffective and not lead to lasting change. For lasting change, the structural issues of the long-term dynamic need to be addressed.

An often-discussed solution is to increase the supply of training and education – this has merits in its own right but will not solve the long-term labor market challenge facing Wyoming. Only 38% of all jobs in Wyoming require tertiary education, the second lowest of any US state. Additionally, our analysis shows that the returns to a tertiary degree in Wyoming are significantly below those of its peers. Unsurprisingly, the lack of demand for tertiary-educated workers leads many young Wyomingites with a tertiary degree to leave the state. Overall, however, Wyoming has become an exporter of well-trained young people. Increasing the supply of tertiary education will not address the underlying structural issues facing the labor market.

A main driver of Wyoming’s lagging performance has been the comparatively low labor productivity in the state. Most of Wyoming’s industries have a lower output per worker than the respective national industry and pay lower wages on average. Industries that fall into this category cover 82.8% of all employment in Wyoming. The few industries in which Wyoming is more productive than the rest of the US are mostly related to natural resource extraction. Wage dynamics of occupations in the state exert a similar pattern where STEM-related occupations have not seen much growth, indicating low demand in the state.

To address the long-term issue Wyoming needs to create the conditions for a more complex economy that can use the potential of its human capital instead of excessively relying on its natural resources. The challenge is to attract and grow competitive companies in industries with strong demand. A critical factor in doing so is scale. Many more knowledge-intensive industries tend to develop in places that are larger urban agglomerations. Wyoming should focus on the positive forces of agglomeration to develop these industries and make use of the productive potential it has. Creating the conditions for this includes place-based investments and an enabling regulatory framework. In Wyoming, housing regulations have been an important barrier preventing further agglomerations, but efforts are underway to address this barrier.

In the short-term, solutions that are focused on increasing the available labor pool within the state appear most promising in easing the current constraint. This is especially true when they address structural barriers that could persist after the labor market cools off. Our work documents specific recommendations within the areas of childcare, justice-involved individuals, higher education, and out-of-state workers (Section 3.2) that aim to increase the participation from these labor pools in Wyoming’s workforce. These are labor pools that are significant in size and have underutilized potential in terms of labor force participation within the state.

We show that world trade network datasets contain empirical evidence that the dynamics of innovation in the world economy follows indeed the concept of creative destruction, as proposed by J.A. Schumpeter more than half a century ago. National economies can be viewed as complex, evolving systems, driven by a stream of appearance and disappearance of goods and services. Products appear in bursts of creative cascades. We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years. The opposite – disappearances followed by periods of appearances – is not observed. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e. creative destruction. We find a tendency that more complex products drive out less complex ones, i.e. progress has a direction. Finally we show that the growth trajectory of a country’s product output diversity can be understood by a recently proposed evolutionary model of Schumpeterian economic dynamics.

The comparative advantage of a location shapes its industrial structure. Current theoretical models based on this principle do not take a stance on how comparative advantages in different industries or locations are related with each other, or what such patterns of relatedness might imply about the underlying process that governs the evolution of comparative advantage. We build a simple Ricardian-inspired model and show this hidden information on inter-industry and inter-location relatedness can be captured by simple correlations between the observed patterns of industries across locations or locations across industries. Using the information from related industries or related locations, we calculate the implied comparative advantage and show that this measure explains much of the location’s current industrial structure. We give evidence that these patterns are present in a wide variety of contexts, namely the export of goods (internationally) and the employment, payroll and number of establishments across the industries of subnational regions (in the US, Chile and India). The deviations between the observed and implied comparative advantage measures tend to be highly predictive of future industry growth, especially at horizons of a decade or more; this explanatory power holds at both the intensive as well as the extensive margin. These results suggest that a component of the long-term evolution of comparative advantage is already implied in today’s patterns of production.

This Growth Diagnostic Report was generated as part of a research engagement between the Growth Lab at Harvard University and the Astana International Financial Centre (AIFC) between June 2021 and December 2022. The purpose of the engagement was to formulate evidence-based policy options to address critical issues facing the economy of Kazakhstan through innovative frameworks such as growth diagnostics and economic complexity. This report is accompanied by the Economic Complexity Report that applies findings from this report on economy-wide challenges to growth and diversification in order to formulate attractive and feasible opportunities for diversification.

Kazakhstan faces multifaceted challenges to sustainable and inclusive growth: macroeconomic uncertainty, an uneven economic playing field, and difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets. Underlying Kazakhstan’s transformational growth in the last two decades—during which real GDP per capita multiplied by 2.5x—are two periods that underscore how Kazakhstan’s growth trajectory has been correlated with oil and gas dynamics. The early and mid-2000s characterized by the global commodity supercycle led to an expansion of the economy upwards of 8% annually, with a mild slowdown during the global financial crisis. In 2014, Kazakhstan’s growth slowed with the collapse of commodity prices, and alternative engines of growth have not been strong enough to fend against volatility since. These trends, along with growing uncertainty in the long-run demand of oil and gas, continue to highlight the limitations of relying on natural resources to drive development.

As in the experience of other major oil producers, diversification of Kazakhstan’s non-oil economy is a critical pathway to drive a new era of sustainable and inclusive growth and mitigate the impacts of commodity price shocks on the country’s economy. Kazakhstan’s growth trajectory demonstrates that the country has enough oil to suffer symptoms of Dutch disease, but not enough to position it as a reliable engine of growth in the future. Development of non-oil activities has been a policy objective of the government of Kazakhstan for some time, but previous efforts for target sectors have failed to generate sufficient exports and investments to produce alternative engines of growth. This report characterizes the relationship between growth, industrial policy, and the constraints to diversification in Kazakhstan. It utilizes the growth diagnostics framework to understand why efforts to diversify into non-oil tradables has been challenging. The report proposes a growth syndrome to explain the constraints preventing Kazakhstan from achieving productive diversification and sustainable growth.

Chiapas no sólo es la entidad de menor ingreso per cápita de México, sino también la que menos creció durante la última década. En consecuencia, la brecha que lo separa del resto del país ha venido ampliándose significativamente. Este desempeño contrasta con el entorno de relativa estabilidad macroeconómica e institucional que ha prevalecido durante este período.

El bajo nivel de ingreso de Chiapas es consistente con la incapacidad que exhibe el estado para producir cosas que pueda vender más allá de sus límites. Sus exportaciones per cápita son de las más bajas de México, y están concentradas en una serie de productos primarios agrícolas, que se transan en mercados altamente competitivos de muy bajos márgenes.

¿Cuáles son las razones detrás del pobre desempeño económico de Chiapas? Este documento sigue la metodología de diagnóstico de crecimiento desarrollada por Hausmann, Rodrik y Velasco (2005), adaptándola a un contexto sub-nacional. Nuestro objetivo sigue siendo el mismo: identificar las principales restricciones al crecimiento económico de Chiapas.

De acuerdo con los resultados de nuestro análisis, las principales restricciones al crecimiento del estado no se encuentran en ninguno de los sospechosos habituales. Los bajos niveles de educación en alguna medida están asociados al atraso de Chiapas, pero apenas alcanzan para explicar una pequeña parte de la brecha. La orografía y el clima de Chiapas representan un reto para el levantamiento y mantenimiento de su infraestructura, pero esta última no aparece como la principal restricción al desarrollo de su tejido productivo. Tampoco hay evidencia de fallas en los mercados de crédito. Los bajos niveles de crédito privado en Chiapas están más asociados a la baja productividad de las actividades económicas que allí se realizan, que a cuellos de botella o insuficiencias en la oferta de financiamiento.

Nuestra conclusión es que Chiapas se encuentra en una trampa de (baja) productividad. Su principal problema es que tiene una economía de muy baja complejidad o sofisticación, que refleja sus pocas capacidades productivas. Los sistemas de producción modernos requieren de un número de insumos complementarios que están ausentes en Chiapas. En ese contexto, la diversidad productiva y la inversión privada son bajas, porque los retornos a la inversión son también muy bajos. Dado que la demanda derivada de inversión privada es baja, inhibe el surgimiento de una oferta de insumos complementarios, dando lugar a un problema de coordinación similar al del huevo y la gallina. Resolver este problema de coordinación requiere de la intervención del estado. Algunos de los pocos casos de exportaciones de manufacturas que existen en Chiapas han resultado de intervenciones exitosas del estado para coordinar la existencia de los insumos necesarios para la producción con la demanda por ellos. Esta característica provee el sustento argumental que justifica la creación de las Zonas Económicas Especiales.

En Chiapas, esta situación se ve además agravada por la conjunción de tres factores: (1) altas transferencias gubernamentales, (2) carencia de transporte público y (3) bajo nivel educativo.

Las transferencias gubernamentales traen efectos similares a los que se identifican en la literatura económica de la enfermedad holandesa: encarecer los costos relativos de los bienes transables, inclinando la actividad económica hacia los sectores no-transables. La ausencia de un sistema de transporte público reduce de manera directa el beneficio neto de trabajar en la ciudad si se vive en el campo. Así, se ha establecido un equilibrio dual con diferencias significativas entre remuneraciones a través de todo el rango de profesiones y ocupaciones entre las ciudades y sus comunidades rurales más próximas. Por último, aunque Chiapas ha venido cerrando gradualmente la brecha educativa que lo separa del resto del país, aún existen diferencias significativas. En nuestra opinión, esa brecha se debe a que la decisión de acumular años de escolaridad es en parte endógena a los retornos que se obtienen de la educación. Visto así, las brechas de educación vendrían a ser un espejo de las diferencias en términos de los métodos de producción que predominan en Chiapas, en contraste con el resto del país. Por esa razón observamos que si bien los retornos a la educación son mayores en Chiapas, para cada nivel educativo es más rentable emigrar (a un lugar donde existan otros insumos complementarios que hagan posible una productividad mayor y un mayor salario) que quedarse a trabajar en la entidad. Los emigrantes chiapanecos, aunque son pocos, perciben ingresos similares a los trabajadores con igual nivel de educación en el lugar de destino.

Las implicaciones en términos de política de este diagnóstico apuntan hacia la necesidad de aprovechar el conocimiento que ya existe en los mayores centros poblados de Chiapas y en el resto de México, para promover la diversificación hacia otras actividades más complejas que puedan construir sobre las capacidades ya existentes en la zona. La creación de un sistema de transporte público que vincule a las comunidades rurales que rodean la ciudad podría resolver la restricción de la escasez de mano de obra, a la vez que abre mayores oportunidades de trabajo urbano para los habitantes de comunidades rurales vecinas. Este es un ejemplo típico de la dinámica del huevo y la gallina que predomina en Chiapas, toda vez que se requiere de una escala mínima de operación para la creación de un sistema eficiente de transporte público, que a su vez no será posible en tanto no exista suficiente demanda de transporte.

Nuestra prescripción sugiere que llevemos la montaña a Mahoma, dado que Mahoma no ha ido a la montaña. Es decir, procurar resolver los problemas de coordinación a través de una intervención que acerque las oportunidades de trabajo a donde están los trabajadores, dado que bajo las condiciones actuales a estos últimos no les resulta rentable acercarse a donde están las oportunidades de trabajo. Hay zonas rurales con bajas tasas de participación y altas tasas de pobreza en la vecindad de San Cristóbal de las Casas. Esta también es una región donde existe mucha incertidumbre para la actividad económica privada, toda vez que predomina allí la existencia de territorios ejidales de propiedad comunitaria. Una implicación de nuestro análisis podría ser crear un Parque Industrial alrededor de San Cristóbal, que resuelva la carencia de bienes públicos que ha mantenido alejada la actividad económica privada (inseguridad jurídica, dificultad para conseguir terrenos, conflictividad social), y a la vez acerque a las empresas a donde se encuentra la mano de obra disponible. La experiencia dentro de Chiapas de empresas como Arnecom-Yazaki indica que con períodos cortos de entrenamiento, los trabajadores podrían integrarse a sistemas relativamente modernos y ocuparse de forma productiva.

Esta solución es un escalón sobre el cual se puede entrar en una dinámica sostenida de desarrollo, a través de mejoras sucesivas en la productividad derivada de la transformación productiva y de la adopción progresiva de sistemas de producción más modernos. Para crecer, Chiapas debe empezar por aprender a hacer cosas que ya se producen en el resto de México y pueda vender fuera del estado. A partir de allí, se empezará a crear el tejido económico y el conocimiento asociado a métodos más modernos de producción, y de allí gradualmente se podría desarrollar la capacidad exportadora y pasar a actividades más complejas. Ese proceso requiere de una coordinación entre los diferentes actores, gobierno (nacional y regional), sector privado, y academia, con el objetivo de buscar proactivamente actividades adyacentes, así como identificar y resolver los respectivos cuellos de botella de forma dinámica.

There are two widely-held views on economic growth: 1) it is a natural outcome of getting ‘the basics’ right-- international integration, macroeconomic stability, and contract enforcement; and 2) it is hard, requiring a complete set of first, second, and third generation reforms that have little payoff until they are all implemented. Yet the evidence shows that growth accelerations do not naturally arise from the Washington Consensus basics, nor do they require extensive reform. Instead, accelerations are triggered by a more effective focus on identifying and removing the binding constraints to growth as they arise. This shifts the focus from creating a laundry list of reforms to using diagnostic signals to identify what particular constraints are holding back growth in a particular country at a particular time. Furthermore, growth involves not only coping with government failures, but also eliminating market failures. Therefore it is not just government sins of commission that drive down growth, it is also sins of omission: things that governments are not doing to overcome market failures. In many instances, there are ad hoc solutions that get the job done. Identifying and implementing such solutions requires a dynamic policy process where problems are identified and addressed, overcoming market failures while containing government failures.

Social relations involve both face-to-face interaction as well as telecommunications. We can observe the geography of phone calls and of the mobility of cell phones in space. These two phenomena can be described as networks of connections between different points in space. We use a dataset that includes billions of phone calls made in Colombia during a six-month period. We draw the two networks and find that the call-based network resembles a higher order aggregation of the mobility network and that both are isomorphic except for a higher spatial decay coefficient of the mobility network relative to the call-based network: when we discount distance effects on the call connections with the same decay observed for mobility connections, the two networks are virtually indistinguishable.

Background

Over the past few decades, migration from developing to developed countries was often viewed as 'brain drain', as talented workers were forced out of their home countries due to lack of competitive opportunities. The population that left these countries and settled in the more economically advanced parts of the world have, over time, acquired financial capital and built social networks within host countries. Hence, while the home countries were still suffering from the scarcity of knowhow, significant shares of their populations began to actively engage in more productive economies. It seems that, through migration, developing countries had unexpectedly created significant networks of human and financial capital abroad.

But are these foreign networks transferring knowhow back to their home countries? It turns out that those same reasons that induced the economic migration in the first place, often make it difficult for migrants to engage afterwards. What would happen, however, if a large proportion of these diasporas was forced to return back to their home country - would that lead to knowhow transfer? Our study investigates the impact of such an abrupt return migration wave between Greece and Albania.

Research Insights

The fall of the communist regime in Albania in the early 1990s resulted in mass emigration up until the following decade. Today, about a third of the Albanian-born population resides outside Albania, of which about 40% (some 600,000 Albanians) resided in Greece in 2009. In that year, however, the economic situation in Greece started deteriorating. The Albanians, comprising the largest minority group, were particularly affected - while unemployment rate of Greek nationals reached 27%, the one of Albanian nationals reached 40%. This spurred a wave of return migration that increased Albania’s labor force by 5% between 2011 and 2014 alone. Mainstream economic theory would predict that such shock to the home labor market would increase the unemployment rate and depress average wages at home. Such reasoning is rooted in the assumption that return migrants have the same skillset as the home population and are hence interchangeable. This is not what our main findings suggest. We find that in the regions where the migrants returned, wages of the low-skilled Albanians who never migrated (non-migrants) increased while those of the skilled Albanians remained were more likely to find a job where a higher share of migrants had returned.

What drives these effects on employment and wages? We observe that return migrants are significantly more entrepreneurial and are about three times more likely to employ others vs. non-migrants. This means that return migrants do not rely on existing jobs as much as they rely on own job creation. Moreover, in addition to creating jobs for themselves, they are creating jobs for others, particularly in Albania's large agricultural sector. Here, return migrants bring technologically advanced ideas and create export opportunities which bring about higher incomes.

While these findings spur optimism, a more complete analysis of the costs and benefits of return migration asks for more caution. The return migration did not only create benefits for the non-migrants, it also caused losses. In 2008 remittances to Albania spiked at 11% of GDP and then fell to 8.5% of GDP in 2014. We compared the non-migrants’ gains from return migration in terms of wage growth and employment with the losses resulting from lower remittances. Our estimates of the gains vary, depending on the assumptions, between 0.6 and 1.5% in GDP annually, offsetting between 38 and 94% of the annualized losses in remittances. This suggests that, at least in the short run, the gains of return migration were not larger than the losses induced by it.

Policy Implications

Contrary to what the economic theory would anticipate, the return migration did not depress wages and did not reduce the employment chances of the non-migrants. In fact, aggregate effects on wages and employment are positive, suggesting that return migrants complement, rather than substitute non-migrants on the labor market.

This suggests that the potential for productive cooperation with the diaspora is real and significant and that governments should stay open for and in contact with their migrant communities.

Policymakers could think of their diasporas as potential sources of knowhow and capital that they can mobilize. Programs designed for active collaborations with the diasporas that help governments learn about the level of development, professional interests and needs of the diaspora, seem sensible policies for diaspora engagement to start with. However, these findings do not suggest that governments should invest in programs that encourage return migration, such as return grants. If the economic state of Greece would not have deteriorated, many return migrants and their families would have probably been better off, economically at least, in Greece. Moreover, the entrepreneurship environment in some home countries might be objectively difficult, rendering little return to the skills of the return migrants.