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11. 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

12. Keeping One's Eye on the Ball: Exploring the Intensity of Sports Activities across Europe

Author:
Stuart Russell, Carla Tokman, Douglas Barrios, and Matt Andrews
Publication Date:
07-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
As described in Russell, Barrios & Andrews (2016), past attempts to understand the sports economy have been constrained by a number of data limitations. For instance, many of these accounts use revenues when value added measures would be more appropriate. Similarly, many accounts use top-down definitions that result in double counting and an inflated estimate of the size of the sports economy. More importantly, past accounts have focused most of their efforts estimating the overarching size of the sports economy. Constrained by aggregated data that groups a wide range of sports-related economic activities together, they primarily discuss the size of the sports-related economic activity. Their focus on answering the question of "How big?" conceals substantial differences between activities. Core sports activities, such as professional sports teams, behave very differently than activities, like sporting goods manufacturing that are closer to the periphery of the sports economy. Likewise, there are even important differences amongst core sports activities. Professional sports teams are very different than fitness facilities, and they might differ in different respects. Guerra (2016) demonstrates that, when detailed, disaggregated data are available, the possibilities to analyze and understand the sports are greatly increased. For instance, Guerra (2016) were able to conduct skills-based analyses, magnitude analyses, employment characterizations, geographic distribution analyses, and calculations of the intensity of sports activities. The sector disaggregation, spatial disaggregation, and database complementarity present in the Mexico data used in that paper therefore enables a more detailed and nuanced understanding of sports and sports-related economic activity. Data with characteristics similar to those found in Mexico are few and far between. We have, unfortunately, been unable to completely escape such data limitations. However, we have compiled and analyzed a large array of employment data on sports-related economic activities in Europe. In the paper that follows, we describe our analyses of these data and the findings produced. Section 1 begins with a discussion of employment in sports and an explanation of why we chose this variable for our analyses. Section 2 provides an overview of the data used in this paper particularly focusing on the differences between it and the Mexico data discussed in Guerra (2016). It also describes the methodology we use. We analyze these data using one of two related measures to understand the intensity of sports-related activities across different geographic areas in countries. We also construct measures at the level of a single country in order to compare across entire economies. At the international level, we adopt the revealed comparative advantage (RCA) measure that Balassa (1965) first developed to analyze international trade. Within specific countries, however, we use a population-adjusted version of the RCA measure known as RPOP. Section 3 presents the most relevant findings and Section 4 discusses their limitations. Section 5 concludes with the lessons learned and avenues for future research. While there are limitations on these analyses, they can give policymakers a better understanding of the distribution and concentration of sports across space. Such information can serve as an important input for sports-related investment decisions and other sports-related policies.
Topic:
Employment, Sports, Economy, and International Development
Political Geography:
Europe, Central America, and European Union

13. Getting the Ball Rolling: Basis for Assessing the Sports Economy

Author:
Stuart Russell, Douglas Barrios, and Matt Andrews
Publication Date:
07-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Data on the sports economy is often difficult to interpret, far from transparent, or simply unavailable. Data fraught with weaknesses causes observers of the sports economy to account for the sector differently, rendering their analyses difficult to compare or causing them to simply disagree. Such disagreement means that claims regarding the economic spillovers of the industry can be easily manipulated or exaggerated. Thoroughly accounting for the industry is therefore an important initial step in assessing the economic importance of sports-related activities. For instance, what do policymakers mean when they discuss sports-related economic activities? What activities are considered part of the "sports economy?" What are the difficulties associated with accounting for these activities? Answering these basic questions allows governments to improve their policies. The paper below assesses existing attempts to understand the sports economy and proposes a more nuanced way to consider the industry. Section 1 provides a brief overview of existing accounts of the sports economy. We first differentiate between three types of assessments: market research accounts conducted by consulting groups, academic accounts written by scholars, and structural accounts initiated primarily by national statistical agencies. We then discuss the European Union’s (EU) recent work to better account for and understand the sports economy. Section 2 describes the challenges constraining existing accounts of the sports economy. We describe two major constraints - measurement challenges and definition challenges - and highlight how the EU's work has attempted to address them. We conclude that, although the Vilnius Definition improves upon previous accounts, it still features areas for improvement. Section 3 therefore proposes a paradigm shift with respect to how we understand the sports economy. Instead of primarily inquiring about the size of the sports economy, the approach recognizes the diversity of sports-related economic activities and of relevant dimensions of analysis. It therefore warns against attempts at aggregation before there are better data and more widely agreed upon definitions of the sports economy. It asks the following questions: How different are sports-related sectors? Are fitness facilities, for instance, comparable to professional sports clubs in terms of their production scheme and type of employment? Should they be understood together or treated separately? We briefly explore difference in sports-related industry classifications using data from the Netherlands, Mexico, and the United States. Finally, in a short conclusion, we discuss how these differences could be more fully explored in the future, especially if improvements are made with respect to data disaggregation and standardization.
Topic:
Development, Sports, Economy, and Economic Policy
Political Geography:
Europe and European Union

14. Bringing Home the Gold? A Review of the Economic Impact of Hosting Mega-Events

Author:
Douglas Barrios, Stuart Russell, and Matt Andrews
Publication Date:
07-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
There is perhaps no larger sports policy decision than the decision to host or bid to host a mega-event like the FIFA World Cup or the Summer Olympics. Hosts and bidders usually justify their decisions by touting their potential impact. Many organizers and promoters either fund or widely disseminate ex-ante studies that tend to highlight the positive effects of the event. For instance, the consultancy firm Ernst & Young produced a 2010 report prior to the 2014 World Cup in Brazil that painted an optimistic picture of the event’s potential legacy. It estimated that an additional R$ 142.39 billion (4.91% of 2010 GDP) would flow through the Brazilian economy over the 2010-2014 period, generating 3.63 million jobs per year, R$ 63.48 billion (2.17% of 2010 GDP) of income for the population and additional tax collection of R$ 18.13 billion (0.62% of 2010 GDP) for the local, state and federal governments. Ernst & Young estimated that during the same period 2.98 million additional visitors would travel to Brazil, increasing the international tourist inflow up to 79%. Such results, if true, would clearly attractive for governments considering a bid, but these expected impacts don’t always materialize. Moreover, hosting mega-events requires significant investments - and the cost of these investments is rising. Zimbalist notes emerging economies like China, Brazil, and South Africa have increasingly perceived "mega-events as a sort of coming-out party signaling that [they are] now a modernized economy, ready to make [their] presence felt in world trade and politics" (Zimbalist 2015). Their intentions may be noble, but the intention of using mega-events as a "coming-out party" means developing countries hoping to host them need to make massive investments. They are confronted by significant obstacles in that they lack sufficient stadiums, accommodations, transportation systems, and other sports-related infrastructure. As a result, each of the mega-events hosted by emerging economies has been exorbitantly expensive. The 2014 World Cup cost Brazil between USD 15 billion and USD 20 billion, while Beijing reportedly spent USD 40 billion prior to the 2008 Summer Olympic (Zimbalist 2015). Additionally, as the debt-ridden 1976 Summer Olympics in Montreal demonstrates, expensive mega-events are not limited to emerging economies alone. Flyvbjerg and Stewart have even shown that every Olympics since 1960 has gone over budget (Flyvbjerg and Stewart 2012). Such incredible figures, in terms of both costs and benefits, beget the question: are mega-events worth it? Which type of reports should governments focus their attention on? What economic consequences should a government reasonably expect? With such high stakes, policymakers need to choose wisely. We attempt to answer these questions and aid the decisions of policymakers by providing a concise review of the rich academic literature on mega-events. For the purposes of this paper, we mainly focus on the Summer Olympic Games and the FIFA World Cup as mega-events. However, we also leverage information regarding events like the Winter Olympic Games, the UEFA football championships, and the Commonwealth Games. These events are organized on a smaller scale than the previous two, but they might provide some insights on how to best understand mega-events. We focus on claims surrounding the direct or indirect mechanisms that facilitate the impact that ex-ante studies predict. We provide a review of these claims and their validity according to the existing literature. Section 1 focuses on the argument that mega-events lead to increased economic activity in the host economy. Specifically, we evaluate whether or not mega-events leads to access to previously inaccessible funds and increased investments. These investments could theoretically come from supranational organizations, private stakeholders, or public stakeholders. We also consider whether or not these new expenditures and investments have the multiplicative effect that many ex-ante studies assume they have. We finally investigate if the economic activity surrounding mega-events leads to increased revenues and tax collection for host governments. Overall, the existing academic literature suggests that any increased economic activity resulting from the event is routinely dwarfed by additional public budgetary commitments. Moreover, the arguments regarding multiplicative effects and increased revenues also tend to be exaggerated. Section 2 shifts the focus to the potential impact of mega-events on a specific industry: tourism. We explore the effect of mega-events on the number of tourists visiting the host region and their spending habits. We explore this channel both for analyses specific to a single mega-event and for cross-country evaluations incorporating many events. Next, we consider the impact of a mega-event on a region’s brand and image in the international community with the idea of testing if hosting the competition will impact future tourism. Finally, we consider if mega-events lead to increases in the capacity of a city or country to welcome future tourists as a result of improved airport infrastructure, accommodations, and/or transportation systems. As was true in Section 1, the academic literature suggests that the claims of many ex-ante studies are misleading. Our review finds that there is some evidence for increases in tourist arrivals to certain events, but those increases are far smaller than what is generally predicted beforehand. These effects are also usually dependent on factors, such as the timing of the competition, that are specific to the host region and the event itself. Section 3 briefly discusses other potential qualitative and social impacts of mega-events such as international business relations, crime reduction, and the "feel-good effect." In the penultimate section, Section 4, we discuss how these conclusions should impact the decision-making of policymakers. Finally, in a short conclusion, we summarize the findings of our review.
Topic:
Infrastructure, Sports, Economy, Olympics, and World Cup
Political Geography:
China, South Africa, Brazil, and Global Focus

15. Classifying Exchange Rate Regimes: 15 Years Later

Author:
Eduardo Levy-Yeyati and Federico Sturzenegger
Publication Date:
06-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Levy Yeyati and Sturzenegger (2001, 2003, 2005) proposed an exchange rate regime classification based on cluster analysis to group countries according to the relative volatility of exchange rates and reserves, thereby shifting the focus from a de jure to de facto approach in the empirical analysis of exchange rate policy. This note extends the classification through 2014 and broadens the country sample, increasing the number of classified country-year observations from 3335 to 5616. Based on this extension, the note documents the main stylized facts in the 2000s, including the behavior of exchange rate policy around the global financial crisis, and the prevalence of floating regimes.
Topic:
Economy, Global Political Economy, Global Financial Crisis, and Exchange Rate Policy
Political Geography:
Global Focus and Global Markets

16. Bounding the Price Equivalent of Migration Barriers

Author:
Michael Clemens, Claudio E. Montenegro, and Lant Pritchett
Publication Date:
03-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Large international differences in the price of labor can be sustained by differences between workers, or by natural and policy barriers to worker mobility. We use migrant selection theory and evidence to place lower bounds on the ad valorem equivalent of labor mobility barriers to the United States, with unique nationally-representative microdata on both U.S. immigrant workers and workers in their 42 home countries. The average price equivalent of migration barriers in this setting, for low-skill males, is greater than $13,700 per worker per year. Natural and policy barriers may each create annual global losses of trillions of dollars.
Topic:
Labor Issues, Immigration, Economy, and Borders
Political Geography:
North America and United States of America

17. The New Economic Case for Migration Restrictions

Author:
Michael Clemens and Lant Pritchett
Publication Date:
02-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
For decades, migration economics has stressed the effects of migration restrictions on income distribution in the host country. Recently the literature has taken a new direction by estimating the costs of migration restrictions to global economic efficiency. In contrast, a new strand of research posits that migration restrictions could be not only desirably redistributive, but in fact globally efficient. This is the new economic case for migration restrictions. The case rests on the possibility that without tight restrictions on migration, migrants from poor countries could transmit low productivity ("A" or Total Factor Productivity) to rich countries—offsetting efficiency gains from the spatial reallocation of labor from low to high-productivity places. We provide a novel assessment, proposing a simple model of dynamically efficient migration under productivity transmission and calibrating it with new macro and micro data. In this model, the case for efficiency-enhancing migration barriers rests on three parameters: transmission, the degree to which origin-country total factor productivity is embodied in migrants; assimilation, the degree to which migrants’ productivity determinants become like natives’ over time in the host country; and congestion, the degree to which transmission and assimilation change at higher migrant stocks. On current evidence about the magnitudes of these parameters, dynamically efficient policy would not imply open borders but would imply relaxations on current restrictions. That is, the new efficiency case for some migration restrictions is empirically a case against the stringency of current restrictions.
Topic:
Economics, Migration, Labor Issues, and Economy
Political Geography:
Global Focus

18. Off Pitch: Football’s financial integrity weaknesses, and how to strengthen them

Author:
Matt Andrews and Peter Harrington
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Men’s professional football is the biggest sport in the world, producing (by our estimate) US $33 billion a year. All is not well in the sector, however, with regular scandals raising questions about the role of money in the sport. The 2015 turmoil around FIFA is obviously the most well known example, creating a crisis in confidence in the sector. This study examines these questions, and the financial integrity weaknesses they reveal; it also offers ideas to strengthen the weaknesses. The study argues that football’s financial integrity weaknesses extend far beyond FIFA. These weaknesses have emerged largely because the sector is dominated by a small elite of clubs, players and owners centered in Europe’s top leagues. The thousands of clubs beyond this elite have very little resources, constituting a vast base of ‘have-nots’ in football’s financial pyramid. This pyramid developed in recent decades, fuelled by concentrated growth in new revenue sources (like sponsorships, and broadcasting). The growth has also led to increasingly complex transactions—in player transfers, club ownership and financing (and more)—and an expansion in opportunities for illicit practices like match-fixing, money laundering and human trafficking. We argue that football’s governing bodies – including FIFA – helped establish this pyramid. We explore the structural weaknesses of this pyramid by looking at five pillars of financial integrity (using data drawn from UEFA, FIFA, clubs, primary research, and interviews). In the first pillar of Financial Transparency and Literacy we find that a vast majority of the world’s clubs and governing bodies publish no financial data, leaving a vast dark space with no transparency. In the second pillar of Financial Sustainability we estimate that a majority of global clubs and governing bodies are at ‘medium to high risk’ of financial failure. We find, additionally, that European tax debts have grown despite Financial Fair Play, and confederations and FIFA contribute to a pattern of weak Fiscal Responsibility. We then create a new metric of Financial Concentration and find that the football sector is at ‘high risk’ of over-concentration, which poses existential questions for many clubs and even leagues. In the final pillar of Social Responsibility and Moral Reputation, we find that football’s governing bodies face a crisis of legitimacy stemming from a failure to tackle moral turpitude, set standards and regulate effectively. We suggest a set of reforms to re-structure FIFA in particular, separating its functions and stressing its regulatory role.
Topic:
Crime, Sports, Economy, and World Cup
Political Geography:
Europe, Global Focus, and European Union

19. Has Sweden injected realism into public financial management reforms in partner countries?

Author:
Matt Andrews
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Public financial management (PFM) reform is a common part of many development initiatives. It generally involves promoting "good practices" in developing countries, embedded in frameworks like the Public Expenditure and Financial Accountability (PEFA) assessment (PEFA 2006). These include multi-year budgeting, competitive procurement, modern internal audit, and more. Such practices have proved effective in selected contexts and promise solutions to common problems in governments. Unfortunately, a growing literature shows that many governments do not solve their problems after years of adopting such solutions. Data reveal that governments commonly produce new laws that are not enforced and budgets that are not effectively executed, and suffer from weak capacities in distributed units (like line ministries and local governments) after many finished projects (Andrews 2006, 2011, 2013; Porter et al. 2011; Wescott 2009). Studies tie these limits to a lack of realism in reform design and implementation (Andrews 2013; Andrews, Pritchett and Woolcock 2012; Booth 2011; Levy 2013; World Bank 2012). They argue, essentially, that reforms commonly fail to allow for necessary adaptation of external ideas to the realities in targeted contexts, often because the reform processes focus too narrowly on introducing the external good practice in principle and pay little attention to the practical difficulties of doing so in practice. Studies suggest, for instance, that such reforms pay insufficient attention to the political and administrative difficulties of effecting change, and that these difficulties commonly undermine reform results. Where studies see more effective and far reaching reform they often find that the externally nominated "good practices" are fitted to the targeted context through more adaptive processes that emphasize the real and practical issues of doing reform (like building reform support, testing and adjusting reform designs, and continually matching solutions and capacity realities and needs) (Andrews 2015; Andrews et al. 2014; Cabri 2014; Levy 2013). These studies call for approaches that allow more realism in reform processes in developing countries, especially those supported by multilateral and bilateral donors. They do so knowing that similar calls have been made before; and that there are already many examples of such realism in the development community. There is, however, a challenge to identify these examples and describe what such processes look like in practice. This search leads quickly to a focus on bilateral donors. A small and interesting set of work suggests that such donors might have a comparative advantage in introducing more realism to PFM-type reforms in developing countries, given their own country’s recent experiences with doing such reforms. The argument is simply that development agencies from these countries can leverage the real experiences with doing reform in their own contexts when engaging with reformers in developing countries. They can, for instance, access experienced reformers to share lessons on issues like building demand for change, establishing political support for reform, and adapting reform ideas to context. Such lessons are often learned best through experience and remain tacit in those who have been through the experience. Bilateral agencies arguably have an advantage in accessing such people and their lessons, and can more effectively incorporate this valuable knowledge into their reform support than multilateral agencies. This paper offers a novel analysis of this theory, asking whether Swedish development agencies working in the PFM field have leveraged the potential comparative advantage of the country’s own experience in supporting reform. The country’s own reforms have resulted in effective Sweden-specific adaptations of many of the good practices being promoted in developing countries today (including multi-year budgeting and modern accounting and audit). Academic descriptions of these reforms emphasize the processes by which they were adopted and the realism involved in such, and suggest the presence of many applied and tacit lessons one could see as valuable in developing countries (about testing reform ideas, for example, progressing gradually in reform processes, creating an urgent pressure for change, and building support for reform). The question asked here is whether Swedish development agencies bring these lessons into their support for PFM work, building on a potential advantage to promote realism in reform.
Topic:
Reform, Finance, Economy, International Development, and Institutions
Political Geography:
Europe, Sweden, and European Union

20. Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt

Author:
Ishac Diwan, Philip Keefer, and Marc Schiffbauer
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Using an original database of 469 politically connected firms under the Mubarak regime in Egypt, we explore the economic effects of cronyism. Previous research has shown that cronyism is lucrative. We address numerous questions raised by this research. First, do crony firms receive favorable regulatory treatment? We find that they do: connected firms are more likely to benefit from trade protection, energy subsidies, access to land, and regulatory enforcement. Second, does regulatory capture account for the high value of connected firms? In our sample, connected firms exhibit superior corporate performance relative to unconnected firms and this is systematically related to regulatory capture. Energy subsidies and trade protection, for example, account for the higher profits of politically connected firms. Third, do crony firms hurt growth? We exploit a natural experiment setting to show that the entry of politically connected firms into previously unconnected sectors slows employment growth and skews the distribution of employment towards less productive smaller firms.
Topic:
Economics, Economy, Business, Networks, and Cronyism
Political Geography:
Middle East, North Africa, and Egypt