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1. Housing in Wyoming: Constraints and Solutions

Author:
Thảo-Nguyên Bùi, Tim Freeman, Ricardo Hausmann, Farah Kaddah, Lucas Lamby, Tim O'Brien, and Eric Protzer
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Quantitative evidence supports the contention that Wyoming’s housing market is constrained, to a greater degree than many other parts of the US. Prices are persistently above expectations given economic fundamentals in most parts of the state, and the supply of new housing in Wyoming is on average less responsive to price increases than in other US counties. This has undermined natural population growth and contributed to a low amount of population density close to city centers in Wyoming, as compared to other US cities with comparable population levels. Importantly, this phenomenon is not simply the result of pandemic-era economic frictions. The evidence shows that these constraints have durably persisted in Wyoming. This housing constraint weighs heavily on the broader Wyoming’s economy, and chokes off growth in new industries that could add to the Wyoming economy beyond its natural resource base. Businesses consistently report a lack of access to workforce as a leading problem that ultimately results from a lack of housing. Some businesses have even tried to create their own housing for employees, and news reports abound of teachers and nurses who secure jobs in Wyoming communities but then have to leave because they cannot find housing. Key problems behind Wyoming’s housing constraints include excessive regulations concerning housing density and insufficient investment in arterial infrastructure. For example, there is evidence that over-regulated minimum lot sizes in Wyoming are blocking the creation of supply to match free-market demand for houses with smaller amounts of land. Other areas of over-regulation include those concerning allowable housing types, building height, parking spaces per dwelling, and the housing approval process itself. This may be seen as surprising given Wyoming’s reputation as a low-regulation state, but Wyoming maintains restrictions that other states and countries have discarded as outdated and highly counterproductive. Besides outright restrictions on housing development, we find that the most common cost driver undermining the housing development has to do with low public investment in needed arterial infrastructure, especially water systems. Land supply as well as material and construction costs are not primary constraints to housing development across the state, but may matter for select communities. We suggest a portfolio of policy changes for the state of Wyoming to explore in order to solve its housing constraints. One category of changes is regulatory, and focuses on deregulation, reducing bureaucratic overhead, and shifting from veto-cratic to democratic housing approval procedures. Another category is focused on investment on infrastructure to support housing, and exploration of state-local funding structures to facilitate continuous infrastructure improvement. If implemented, these changes will not only help to solve Wyoming’s housing constraints but also facilitate housing development in a way that combats urban sprawl, and in doing so protects open spaces outside of cities that Wyomingites value.
Topic:
Development, Economics, Public Policy, and Housing
Political Geography:
North America and United States of America

2. Growth Through Inclusion in South Africa

Author:
Ricardo Hausmann, Tim O'Brien, Andrés Fortunato, Alexia Lochmann, and Kishan Shah
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
It is painfully clear that South Africa is performing poorly, exacerbating problems such as inequality and exclusion. The economy’s ability to create jobs is slowing, worsening South Africa’s extreme levels of unemployment and inequality. South Africans are deeply disappointed with social progress and dislike the direction where the country seems to be heading. Despite its enviable productive capabilities, the national economy is losing international competitiveness. As the economy staggers, South Africa faces deteriorating social indicators and declining levels of public satisfaction with the status quo. After 15 years, attempts to stimulate the economy through fiscal policy and to address exclusion through social grants have failed to achieve their goals. Instead, they have sacrificed the country's investment grade, increasing the cost of capital to the whole economy, with little social progress to show for it. The underlying capabilities to achieve sustained growth by leveraging the full capability of its people, companies, assets, and knowhow remain underutilized. Three decades after the end of apartheid, the economy is defined by stagnation and exclusion, and current strategies are not achieving inclusion and empowerment in practice. This report asks the question of why. Why is the economy growing far slower than any reasonable comparator countries? Why is exclusion so extraordinarily high, even after decades of various policies that have aimed to support socio-economic transformation? What would it take for South Africa to include more of its people, capabilities, assets, and ideas in the functioning of the economy, and why aren’t such actions being undertaken already? The Growth Lab has completed a deep diagnostic of potential causes of South Africa’s prolonged underperformance over a two-year research project. Building on the findings of nine papers and widespread collaboration with government, academics, business and NGOs, this report documents the project’s central findings. Bluntly speaking, the report finds that South Africa is not accomplishing its goals of inclusion, empowerment and transformation, and new strategies and instruments will be needed to do so. We found two broad classes of problems that undermine inclusive growth in the Rainbow Nation: collapsing state capacity and spatial exclusion.
Topic:
Inequality, Economic Growth, Unemployment, and Inclusion
Political Geography:
Africa and South Africa

3. What Will It Take for Jordan to Grow?

Author:
Tim O'Brien, Thảo-Nguyên Bùi, Ermal Frasheri, Fernando Garcia, Eric Protzer, Ricardo Villasmil, and Ricardo Hausmann
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This report aims to answer the critical but difficult question: "What will it take for Jordan to grow?" Though Jordan has numerous active growth and reform strategies in place, they do not clearly answer this fundamental question. The Jordanian economy has experienced more than a decade of slow growth. Per capita income today is lower than it was prior to the Global Financial Crisis as Jordan has experienced a refugee-driven population increase. Jordan’s comparative advantages have narrowed over time as external shocks and responses to these shocks have changed the productive structure of Jordan’s economy. This was a problem well before the country faced the COVID-19 pandemic. The Jordanian economy has lost productivity, market access, and, critically, the ability to afford high levels of imports as a share of GDP. Significant efforts toward fiscal consolidation have further constrained aggregate demand, which has slowed non-tradable activity and the ability of the economy to create jobs. Labor market outcomes have worsened over time and are especially bad for women and youth. Looking ahead, this report identifies clear and significant opportunities for Jordan to strengthen new engines of export growth that would enable better overall job creation and resilience, even amidst the continued unpredictability of the pandemic. This report argues that there is need for a paradigm shift in Jordan’s growth strategy to focus more direct attention and resources on activating “agents of change” to accelerate the emergence of key growth opportunities, and that there are novel roles that donor countries can play in support of this.
Topic:
Foreign Direct Investment, Economy, Economic Growth, Trade, COVID-19, Labor Market, Inclusion, and Green Jobs
Political Geography:
Middle East and Jordan

4. A Survey of Importers: Results of a Survey Conducted in Collaboration with the Ethiopian Economics Association

Author:
Ricardo Hausmann, Tim O'Brien, Tim Cheston, Nikita Taniparti, and Ibrahim Worku Hassen
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Ethiopia suffers from a chronic shortage of foreign exchange (forex).[1] The resulting lack of access to imports prevents firms from accessing imported inputs required for production. This creates a vicious cycle as exporters are constrained by this same problem, which further reduces overall supply of foreign exchange in the Ethiopian economy. The inability to reliably access foreign exchange for imports affects firm decisions on sourcing, capacity, and output. While the cost of this constraint is known to be high on the Ethiopian economy and firms are known to use a range of measures to attempt to bypass this constraint, quantitative assessments of the problem and response actions by firms are limited. It is in this context that an importer survey was conducted with the goal of informing policy decisions. A total of 202 firms with an active importing license were interviewed in March-April 2022. These firms were randomly sampled from firms registered with an importer license. All firms interviewed reported that they were operating below capacity, often well below capacity. Foreign exchange shortages were the main reason respondent firms cited for not operating at full capacity (63% of firms reporting this as their biggest constraint). Forex shortages far surpass the second and third reasons cited for not operating at full capacity — constraints due to the conflict (13%) and COVID-19 restrictions (11%). Firms operating below capacity cited forex shortages as the main constraint, regardless of whether they imported or not in the previous year. This was the most pressing constraint reported by firms of all sizes and sectors surveyed. It was the most pressing constraint faced by exporters and by foreign-owned firms as well as non-exporters and domestic firms. Amongst the total sample of firms with a renewed importer license, more than one-third of respondent firms (37%) had not imported in FY2020-21. Overall, 74% of firms reported experiencing challenges in accessing forex. Access to forex was reported as most challenging for manufacturing firms and smaller firms but impacted all sectors and firm sizes. The losses attributed to forex scarcity at the firm level were largest for agricultural firms, for micro-firms, and for firms that did not import at all in the previous year. In general, the larger the firm sales, the higher the likelihood that they were able import. The survey found different types of imports for different sectors. Manufacturing firms imported a large share semi-finished goods as imports as compared to agricultural firms that primarily imported finished goods. The survey results find that foreign exchange shortages and an inability to import are most severe for the manufacturing and agriculture sectors, small and micro-sized firms, and all non-exporters. However, the constraint is also the top problem facing all firm types in the survey, including exporters and foreign-owned firms. The primary means of accessing foreign exchange where it did occur was through specialized forex accounts or ‘diaspora’ accounts. The second most common means of accessing foreign exchange was through retention accounts available to exporters. The black market featured in many responses, but questions across the survey suggest that self-reported use of the black market by survey participants is underreported versus actual usage. The ability to source foreign exchange differed significantly by firm size. Exporting firms primarily used retention account earnings, as compared to non-exporters, which relied more on forex accounts. For faster access to forex, most firms reported that they approach banks, followed by turning to the black market. Friends and family abroad also served as a source of forex for one-quarter of firm respondents, and that foreign exchange was often used immediately. Foreign exchange access from banks is nevertheless a major pain point for firms. Most firms (55%) requested forex from a bank in the past year. On average, fulfilled forex requests took three months to be processed when they were fulfilled, but many firms reported that they have an unfulfilled request that has been in the system for more than a year. These firms are especially likely to report foreign exchange access as their top challenge. The survey finds that individual firms do not tend to use both official and black-market foreign exchange sources but rather tend to access all their forex at the (lower) official rate or all at the (higher) black-market. Large firms import most of their products at the official rate. By contrast, most small and micro firms import through other means. Manufacturing firms are also more likely to import all their production through other means and outside of the banking system. Non-exporting firms tended to import through other means than the official rate and outside of the banking system at a higher prevalence than exporting firms. The survey gleaned new insights on the implicit exchange rate that firms face as they navigate official and black-market channels of foreign exchange access. The survey does not allow for a precise estimate of the transaction-weighted exchange rate facing the economy but finds firm-level estimates align with previous macro-level estimates. The implicit exchange rate was higher for non-exporting firms, which show a greater willingness to pay a higher exchange rate to access imports. This signals the importance of the retention account for exporters to guarantee an import price closer to the official exchange rate. When asked about the maximum rate firms would pay to guarantee access to forex, some groups of firms were willing to pay higher amounts, including all non-exporters, firms that imported in the past year, and those that declared forex access a challenge. When compared to the implied rate they paid in the past year, many firms are willing to pay more than the implied rate to guarantee access to forex. Firm perspectives on policy changes to the exchange rate underscored challenges faced by policymakers. Current policy has been one of a crawling peg, with changes within the last several years to increase the rate of devaluation. The survey asked respondents about their support for faster devaluation, for a one-off movement to unify the official rate with the black-market rate, or about alternative exchange rate systems such as a floating exchange rate. Most respondents (71%) opposed maintaining the current regime, yet no option received majority support. Most firms appear to want both a stronger exchange rate and easier access to foreign exchange despite a tradeoff between these two priorities. The largest share of support for policy change was to adjust the exchange rate such that the official rate matches the black-market rate.
Topic:
Development, Economics, Imports, and Collaboration
Political Geography:
Africa and Ethiopia

5. Development in a Complex World: The Case of Ethiopia: A Compendium of Project Research on Advancing Economic Diversification in Ethiopia

Author:
Ricardo Hausmann, Tim O'Brien, Tim Cheston, Ibrahim Worku Hassen, and Can Soylu
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This research compendium provides an explanation of Ethiopia’s fundamental economic challenge of slowing economic growth after an exceptional growth acceleration — a challenge that has been compounded by COVID-19, conflict, and climate change impacts. Ethiopia has experienced exceptional growth since the early 2000s but began to see a slowdown in the capacity of the economy to grow, export, and produce jobs since roughly 2015. This intensified a set of macroeconomic challenges, including high, volatile, and escalating inflation. This compendium identifies a path forward for more sustainable and inclusive growth that builds on the government’s Homegrown Economic Reform strategy. It includes growth diagnostics and economic complexity research as well as applications to unpack interacting macroeconomic distortions and inform diversification strategies. Drawing on lessons from past success in Ethiopia and new constraints, this compendium offers insights into what the Government of Ethiopia and the international community must do to unlock resilient, post-conflict economic recovery across Ethiopia. The research across the chapters of this compendium was developed during the Growth Lab’s research project in Ethiopia from 2019 to 2022, supported through a grant by the United States Agency of International Development (USAID). This research effort, which was at times conducted in close collaboration with government and non-government researchers in Ethiopia, pushed the boundaries of Growth Lab research. The project team worked to understand to intensive shocks faced by the country and enable local capability building in the context of limited government resources in a very low-income country. Given the value of this learning, this compendium not only discusses challenges and opportunities in Ethiopia in significant detail but also describes how various tools of diagnostic work and economic strategy-building were used in practice. As such, it aims to serve as a teaching resource for how economic tools can be applied to unique development contexts. The compendium reveals lessons for Ethiopian policymakers regarding the country’s development path as well as numerous lessons that the development community and development practitioners can learn from Ethiopia.
Topic:
Development, Economic Growth, Diversification, and Structural Transformation
Political Geography:
Africa and Ethiopia

6. Growth Perspective on Western Australia

Author:
Ricardo Hausmann, Douglas Barrios, Ana Grisanti, Semiray Kasoolu, Tim O'Brien, Eric Protzer, Rushabh Sanghvi, Nikita Taniparti, and Jorge Tapia
Publication Date:
04-2021
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia. As its name implies, this Growth Perspective Report aims to provide a set of perspectives on the process of economic growth in WA that provide insights for policymakers toward improving growth outcomes. This Growth Perspective Report describes both the economic growth process of Western Australia — with a focus on the past two decades — and identifies several problematic issues with the way that growth has been structured. In particular, this report traces important ways in which policies applied during the boom and subsequent slowdown in growth over the last twenty years have exacerbated a number of self-reinforcing negative externalities of undiversified growth. The report analyzes three key channels through which negative externalities have manifested: labor market imbalances, pro-cyclicality of fiscal policy, and a misalignment of public goods. The report includes sections on each of these channels, which provide perspectives on the ways in which they have hampered the quality of growth and explore the reasons why problematic externalities have become self-reinforcing. In some cases, new issues have emerged in the most recent iteration of WA’s boom-slowdown cycle, but many issues have roots in the long-term growth history of WA.
Topic:
Development, Employment, Economic Growth, and Diversification
Political Geography:
Australia

7. Western Australia Research Findings and Policy Recommendations

Author:
Ricardo Hausmann, Douglas Barrios, Ana Grisanti, Semiray Kasoolu, Tim O'Brien, Eric Protzer, Rushabh Sanghvi, Nikita Taniparti, and Jorge Tapia
Publication Date:
04-2021
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia. This report is organized in six sections, including this brief introduction. Section 2 is an Executive Summary. Section 3 explains the methodologies of Growth Diagnostics and Economic Complexity, including its theoretical foundations and main concepts. Section 4 describes the main findings of the Economic Complexity Report, including a characterization of Western Australia’s complexity profile. This is done at the state, regional, and city levels. Additionally, this section identifies diversification opportunities with high potential and organizes them into groupings to capture important patterns among the opportunities. This section also contextualizes the opportunities further by identifying relevant viability and attractiveness factors that complement the complexity metrics and consider local conditions. Section 5 highlights the main findings of the Growth Perspective Report. This section describes the economic growth process of Western Australia — with a focus on the past two decades — and identifies several issues with the way that growth has occurred. This section highlights three key channels through which negative externalities have manifested: labor market imbalances, pro-cyclicality of fiscal policy, and a misalignment of public goods. The section provides perspectives on the ways in which each of these channels have hampered the quality of growth and explores the deep-rooted factors that underpin these adverse dynamics. Section 6 introduces a policy framework that can be leveraged by WA to capitalize on revealed diversification opportunities and address the factors that impact the quality of the growth process of the state.
Topic:
Economics, Economic Growth, Diversification, and Job Creation
Political Geography:
Australia

8. A Roadmap for Investment Promotion and Export Diversification: The Case for Jordan

Author:
Ricardo Hausmann, Patricio Goldstein, Ana Grisanti, Tim O'Brien, Jorge Tapia, and Miguel Ajgel Santos
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Jordan faces a number of pressing economic challenges: low growth, high unemployment, rising debt levels, and continued vulnerability to regional shocks. After a decade of fast economic growth, the economy decelerated with the Global Financial Crisis of 2008-09. From then onwards, various external shocks have thrown its economy out of balance and prolonged the slowdown for over a decade now. Conflicts in neighboring countries have led to reduced demand from key export markets and cut off important trade routes. Foreign direct investment, which averaged 12.7% of gross domestic product (GDP) between 2003-2009, fell to 5.1% of GDP over the 2010-2017. Regional conflicts have interrupted the supply of gas from Egypt – forcing Jordan to import oil at a time of record prices, had a negative impact on tourism, and also provoked a massive influx of migrants and refugees. Failure to cope with 50.4% population growth between led to nine consecutive years (2008-2017) of negative growth rates in GDP per capita, resulting in a cumulative loss of 14.0% over the past decade (2009-2018). Debt to GDP ratios, which were at 55% by the end of 2009, have skyrocketed to 94%. Over the previous five years Jordan has undertaken a significant process of fiscal consolidation. The resulting reduction in fiscal impulse is among the largest registered in the aftermath of the Financial Crises, third only to Greece and Jamaica, and above Portugal and Spain. Higher taxes, lower subsidies, and sharp reductions in public investment have in turn furthered the recession. Within a context of lower aggregate demand, more consolidation is needed to bring debt-to-GDP ratios back to normal. The only way to break that vicious cycle and restart inclusive growth is by leveraging on foreign markets, developing new exports and attracting investments aimed at increasing competitiveness and strengthening the external sector. The theory of economic complexity provides a solid base to identify opportunities with high potential for export diversification. It allows to identify the existing set of knowhow, skills and capacities as signaled by the products and services that Jordan is able to make, and to define existing and latent areas of comparative advantage that can be developed by redeploying them. Service sectors have been growing in importance within the Jordanian economy and will surely play an important role in export diversification. In order to account for that, we have developed an adjusted framework that allows to identify the most attractive export sectors including services. Based on that adjusted framework, this report identifies export themes with a high potential to drive growth in Jordan while supporting increasing wage levels and delivering positive spillovers to the non-tradable economy. The general goal is to provide a roadmap with key elements of a strategy for Jordan to return to a high economic growth path that is consistent with its emerging comparative advantages.
Topic:
Government, International Trade and Finance, Finance, and Economy
Political Geography:
Middle East and Jordan

9. Female Labor in Jordan: A Systematic Approach to the Exclusion Puzzle

Author:
Semiray Kasoolu, Ricardo Hausmann, Tim O'Brien, and Miguel Ajgel Santos
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Women in Jordan are excluded from labor market opportunities at among the highest rates in the world. Previous efforts to explain this outcome have focused on specific, isolated aspects of the problem and have not exploited available datasets to test across causal explanations. We develop a comprehensive framework to analyze the drivers of low female employment rates in Jordan and systematically test their validity, using micro-level data from Employment and Unemployment Surveys (2008-2018) and the Jordanian Labor Market Panel Survey (2010-2016). We find that the nature of low female inclusion in Jordan’s labor market varies significantly with educational attainment, and identify evidence for different factors affecting different educational groups. Among women with high school education or less, we observe extremely low participation levels and find the strongest evidence for this phenomenon tracing to traditional social norms and poor public transportation. On the higher end of the education spectrum – university graduates and above – we find that the problem is not one of participation, but rather of unemployment, which we attribute to a small and undiversified private sector that is unable to accommodate women’s needs for work and work-family balance.
Topic:
Education, Gender Issues, Political Economy, Labor Issues, Women, and Inequality
Political Geography:
Middle East and Jordan

10. Jordan: The Elements of a Growth Strategy

Author:
Ricardo Hausmann, Tim O'Brien, Miguel Angel Santos, Ana Grisanti, Semiray Kasoolu, Nikita Taniparti, Jorge Tapia, and Ricardo Villasmil
Publication Date:
02-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
In the decade 1999-2009, Jordan experienced an impressive growth acceleration, tripling its exports and increasing income per capita by 38%. Since then, a number of external shocks that include the Global Financial Crisis (2008-2009), the Arab Spring (2011), the Syrian Civil War (2011), and the emergence of the Islamic State (2014) have affected Jordan in significant ways and thrown its economy out of balance. Jordan’s debt-to-GDP ratio has ballooned from 55% (2009) to 94% (2018). The economy has continued to grow amidst massive fiscal adjustment and balance of payments constraints, but the large increase in population – by 50% between 2008 and 2017 – driven by massive waves of refugees has resulted in a 12% cumulative loss in income per capita (2010-2017). Moving forward, debt sustainability will require not only continued fiscal consolidation but also faster growth and international support to keep interest payments on the debt contained. We have developed an innovative framework to align Jordan’s growth strategy with its changing factor endowments. The framework incorporates service industries into an Economic Complexity analysis, utilizing the Dun and Bradstreet database, together with an evaluation of the evolution of Jordan’s comparative advantages over time. Combining several tools to identify critical constraints faced by sectors with the greatest potential, we have produced a roadmap with key elements of a strategy for Jordan to return to faster, more sustainable and more inclusive growth that is consistent with its emerging comparative advantages.
Topic:
Labor Issues, Women, GDP, International Development, and Economic Growth
Political Geography:
Middle East and Jordan