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Begin New Search Topic Economic growth Publishing Institution The John F. Kennedy School of Government at Harvard University

11. Learning to Target for Economic Diversification: PDIA in Sri Lanka

Author:
Matt Andrews and Peter Harrington
Publication Date:
01-2017
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Many countries, like Sri Lanka, are trying to diversify their economies but often lack the capabilities to lead diversification programs. One of these capabilities relates to targeting new sectors to promote and pursue through a diversification policy: countries know they are ‘doomed to choose’ sectors to target,1 but lack effective capabilities to do the targeting. This paper narrates a recent (and ongoing) initiative to establish this kind of capability in Sri Lanka. The initiative adopted a Problem Driven Iterative Adaptation (PDIA) process, where a team of Sri Lankan officials worked with Harvard Center for International Development (CID) facilitators to build capabilities. The paper tells the story of this process, providing documented evidence of the progress over time and describing the thinking behind the PDIA process. It shows how a reliable targeting mechanism can emerge in a reasonably limited period, when a committed team of public officials are effectively authorized and engaged. The paper will be of particular interest to those thinking about targeting for diversification and to those interested in processes (like PDIA) which are focused on building state capability and fostering policy implementation in public contexts.
Topic:
Development, Economics, Economic growth, and Economic Policy
Political Geography:
South Asia and Sri Lanka

12. Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia

Author:
Michele Coscia, Timothy Cheston, and Ricardo Hausmann
Publication Date:
02-2017
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.
Topic:
Development, Economics, Science and Technology, Economic growth, and Institutions
Political Geography:
Colombia and South America

13. Special Economic Zones in Panama: Technology spillovers from a labor market perspective

Author:
Ricardo Hausmann, Juan Obach, and Miguel Angel Santos
Publication Date:
10-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Special Economic Zones (SEZ) have played an important role in Panama's successful growth story over the previous decade. SEZ have attracted local and foreign investment by leveraging a business-friendly environment of low transaction costs, and created many stable, well-paid jobs for Panamanians. Beyond that, SEZ shall be assessed as place-based policy by their capacity to boost structural transformations, namely attracting new skills and more complex know-how not to be found in the domestic economy. The aim of this paper is to evaluate the three largest SEZ in Panama: Colon Free Zone, Panama-Pacific, and City of Knowledge. Our results suggest that SEZ have been successful as measured by static indicators, such as foreign investment, job creation and productivity. We also find that SEZ have boosted inflows of high-skill immigrants, who are most likely generating positive knowledge spillovers on Panamanians productivity and wages. However, significant legal instruments and institutional designs are preventing Panama from taking full advantage of the skill variety hosted at the SEZ. Complex immigration processes inhibiting foreigners from transitioning out of the SEZ, a long list of restricted professions and even citizenships considered as a national security concern, are hindering the flow of knowledge, keeping the benefits coming from more complex multinational companies locked inside the gates of SEZ.
Topic:
Business, Economic growth, Investment, and Special Economic Zones
Political Geography:
Central America and Panama

14. Shifting Gears: A Growth Diagnostic of Panama

Author:
Ricardo Hausmann, Luis Espinoza, and Miguel Angel Santos
Publication Date:
10-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Leveraging on the Canal, Panama has a developed a major comparative advantage in the exportable services sector. In turn, the stellar growth in this sector has spurred the demand for construction, which has been key to promote upward social mobility and increase labor productivity. But there are signs that this sector is receding, incapable of sustaining growth rates that are higher than the rest of the economy. This threatens to undo some of the progress made in terms of reducing income inequality and poverty in the country, and have the potential to stir social unrest. To face these new challenges, Panama must increase its stock of human capital by improving the quality of education, which is among the lowest in the world. Meanwhile, the country must open up to high-skilled immigration by removing harmful restrictions. To fully profit from immigration, it is equally important to maximize the diffusion of these skills and promote know- how spill overs through adequate policy. Finally, Panama must strengthen its institutions and reduce red tape and corruption, which most firms currently consider the most binding constraint to growth.
Topic:
Development, Immigration, Infrastructure, Economic growth, Institutions, and Human Capital
Political Geography:
Central America and Panama

15. Panama beyond the Canal: Using Technological Proximities to Identify Opportunities for Productive Diversification

Author:
Ricardo Hausmann, Jose Ramon Morales, and Miguel Angel Santos
Publication Date:
10-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The economy of Panama has thrived for more than a decade, based on a modern service sector on the activities surrounding the Canal. Panama has inserted its economy into global value chains, providing competitive services in logistics, ship handling, financial intermediation, insurance, communication and trade. The expansion of the modern service sector required significant non-residential construction, including office buildings, commercial outlets, warehouses, and even shopping malls. Large public infrastructure projects such as the expansion of the Canal, the Metro, and Tocumen airport, have provided an additional drive and paved the road for productive diversification. But productive diversification does not spread randomly. A country diversifies towards activities that demand similar capacities than the ones already in place. Current capabilities and know-how can be recombined and redeployed into new, adjacent activities, of higher value added. This report identifies productive capabilities already in place in Panama, as signaled by the variety and ubiquity of products and services that is already able to manufacture and provide competitively. Once there, we move on to identifying opportunities for productive diversification based on technological proximity. As a result, we provide a roadmap for potential diversification opportunities both at the national and sub-national level.
Topic:
Development, Infrastructure, Economy, Economic growth, and Diversification
Political Geography:
Central America and Panama

16. Towards a Prosperous and Productive Chiapas: Institutions, Policies, and Public-Private Dialog to Promote Inclusive Growth

Author:
Ricardo Hausmann, Timothy Cheston, Miguel Angel Santos, and Carlo Pietrobelli
Publication Date:
03-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Since the Zapatista revolution of January 1994, enormous amount of resources coming from the federal government have poured over Chiapas. The gap in years and quality of education has been reduced significantly; and road, port and airport infrastructure have undergone a dramatic transformation. And yet, the income gap between Chiapas and the rest of Mexico has only widened. To understand why, a multi-disciplinary team of twelve experts have devoted significant time and resources to study different aspects of the development dynamic of Chiapas. As a result, 5 base documents have been published analyzing Chiapas: Complexity profile, Growth Diagnostic, Institutional Diagnostic, Poverty profile, and Pilot of productive dialogs and inclusive growth in an indigenous community. This report resumes the findings from these and articulates their corresponding recommendations into a policy plan. According to our hypothesis, Chiapas is wedged in a low productivity trap. A modern production system, responsible for productivity increases, income and development elsewhere in the world, requires a number of complementary inputs or capacities that are absent in Chiapas. As a result, its economy consists of a few primary products of little or no technological sophistication, and a vibrant service industry fueled by public expenditure in its larger cities. In this situation, there are no incentives to acquire additional education or skills because there is no demand for them in the economy. As we have proved, the few that manage to emigrate earn salaries elsewhere in Mexico slightly above other migrants with similar qualifications. As it turns out, it is not about the Chiapanecos, it is about Chiapas. To overcome the current dilemmas and spark the engine of growth, Chiapas needs to resolve its issues of coordination, connectivity and gradually promote economic activities of higher complexity. Yazaki, one of the few manufacturers present in Chiapas, is an example of the role of the state in helping the economy to overcome the chicken-and-egg dilemmas, providing the public goods required - in an initial push – by a more complex economy. Our recommendations are based in identifying the productive capabilities embedded within the current productive structure of Chiapas four largest urban agglomerations, and leveraging on them to board on different potential, more complex industries that use a similar base of knowledge. To conquer those industries and diversify its economy, Chiapas needs a public-private agency empowered to iteratively solve the issues and bottlenecks these potential industries face in each particular place. Public transport and housing policy can be used as means to incorporating the surrounding communities into the increasingly modern economies of urban centers. Special economic zones and agro-industrial parks can be used to spur productivity in those areas where labor and appropriability are the most binding constrains.
Topic:
Development, Poverty, Infrastructure, Income Inequality, Economic growth, and Institutions
Political Geography:
Central America, Mexico, and Chiapas

17. Moving to the Adjacent Possible: Discovering Paths for Export Diversification in Rwanda

Author:
Ricardo Hausmann and Jasmina Chauvin
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? We analyze Rwanda's historical growth and trade performance and find that Rwanda's high transportation costs and limited productive knowledge have held back greater export development and have resulted in excessive rural density. Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country's exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identify more than 100 tradable products that lie at Rwanda's knowledge frontier, are not intensive in Rwanda's scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. We illustrate an approach that can be applied to other settings in order to identify opportunities for export diversification that take seriously local constraints and external market opportunities.
Topic:
Economic growth, Commodities, Diversification, and Economic Complexity
Political Geography:
Africa and Rwanda

18. How should Uganda grow?

Author:
Ricardo Hausmann, Brad Cunningham, John Matovu, Rosie Osire, and Kelly Wyett
Publication Date:
01-2014
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
ncome per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanization rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low-productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them. These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialization in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed. The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyze what those new industries might be for Uganda. To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighboring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradable industries.
Topic:
Development, Humanitarian Aid, Science and Technology, and Economic growth
Political Geography:
Uganda and Africa