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1. 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

2. India’s Great Slowdown: What Happened? What’s the Way Out?

Author:
Arvind Subramanian and Josh Felman
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We examine the pattern of growth in the 2010s. Standard explanations cannot account for the long slowdown, followed by a sharp collapse. Our explanation stresses both structural and cyclical factors, with finance as the distinctive, common element. In the immediate aftermath of the Global Financial Crisis (GFC), two key drivers of growth decelerated. Export growth slowed sharply as world trade stagnated, while investment fell victim to a homegrown Balance Sheet crisis, which came in two waves. The first wave—the Twin Balance Sheet crisis, encompassing banks and infrastructure companies—arrived when the infrastructure projects started during India’s investment boom of the mid-2000s began to go sour. The economy nonetheless continued to grow, despite temporary, adverse demonetization and GST shocks, propelled first by income gains from the large fall in international oil prices, then by government spending and a non-bank financial company (NBFC)-led credit boom. This credit boom financed unsustainable real estate inventory accumulation, inflating a bubble that finally burst in 2019. Consequently, consumption too has now sputtered, causing growth to collapse. As a result, India is now facing a Four Balance Sheet challenge—the original two sectors, plus NBFCs and real estate companies—and is trapped in an adverse interest-growth dynamic, in which risk aversion is leading to high interest rates, depressing growth, and generating more risk aversion. Standard remedies are unavailable: monetary policy is stymied by a broken transmission mechanism; large fiscal stimulus will only push up already-high interest rates, worsening the growth dynamic. The traditional structural reform agenda—land and labour market measures—are important for the medium run but will not address the current problems. Addressing the Four Balance Sheet problem decisively will be critical to durably reviving growth. Raising agricultural productivity is also high priority. And even before that, a Data Big Bang is needed to restore trust and enable better policy design.
Topic:
International Trade and Finance, Economy, Global Political Economy, Economic growth, and Global Financial Crisis
Political Geography:
South Asia and India

3. Employment Structure and the Rise of the Modern Tax System

Author:
Anders Jensen
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This paper shows how the increase in information trails through the long-run transition from self-employment to employee-jobs explains the rise of the modern income tax system. I construct a new database which covers 100 household surveys across countries at different income levels and 140 years of historical data within the US (1870-2010). Using these data, I first establish four new stylized facts: 1) within country, the share of employees increases over the income distribution, and increases at all levels of income as a country develops; 2) the income tax exemption threshold moves down the income distribution as a country develops, tracking employee growth; 3) the employee share above the exemption threshold is maximized and remains constantly high; 4) decreases in the exemption threshold are strongly associated with increases in tax collection. These findings are consistent with a model where a high employee share is a necessary condition for effective taxation and where the rise in income covered by information trails through increases in employee share drives expansion of the income tax base. To provide a causal estimate of employee share on income tax systems, I study a state-led US development program implemented in the 1950s-60s which increased the level of employee share. The identification strategy exploits within-state changes in court-litigation status which generate quasi-experimental variation in the effective implementation date of the program. I find that the exogenous increase in employee share is associated with an expansion of the state income tax base and an increase in state income tax revenue.
Topic:
Political Economy, Finance, Economy, International Development, and Tax Systems
Political Geography:
North America and United States of America

4. The Challenges of Universal Health Insurance in Developing Countries: Evidence from a Large-scale Randomized Experiment in Indonesia

Author:
Abhijit Banerjee, Amy Finkelstein, Rema Hanna, Benjamin A. Olken, Arianna Ornaghi, and Sudarno Sumarto
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
To assess ways to achieve widespread health insurance coverage with financial solvency in developing countries, we designed a randomized experiment involving almost 6,000 households in Indonesia who are subject to a nationally mandated government health insurance program. We assessed several interventions that simple theory and prior evidence suggest could increase coverage and reduce adverse selection: substantial temporary price subsidies (which had to be activated within a limited time window and lasted for only a year), assisted registration, and information. Both temporary subsidies and assisted registration increased initial enrollment. Temporary subsidies attracted lower-cost enrollees, in part by eliminating the practice observed in the no subsidy group of strategically timing coverage for a few months during health emergencies. As a result, while subsidies were in effect, they increased coverage more than eightfold, at no higher unit cost; even after the subsidies ended, coverage remained twice as high, again at no higher unit cost. However, the most intensive (and effective) intervention – assisted registration and a full one-year subsidy – resulted in only a 30 percent initial enrollment rate, underscoring the challenges to achieving widespread coverage.
Topic:
Government, Health, Health Care Policy, and Economy
Political Geography:
Indonesia and Southeast Asia

5. Norms, Enforcement, and Tax Evasion

Author:
Timothy Besley, Anders Jensen, and Torsten Persson
Publication Date:
09-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This paper studies individual and social motives in tax evasion. We build a simple dynamic model that incorporates these motives and their interaction. The social motives underpin the role of norms and is the source of the dynamics that we study. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the UK, which led to widespread evasion. The evidence is consistent with the model’s main predictions on the dynamics of evasion.
Topic:
Political Economy, Economy, Financial Crimes, and Tax Systems
Political Geography:
United Kingdom, Europe, and Global Focus

6. The politics of hope: a nation’s patience tested

Author:
Ali Tehrani and Azadeh Pourzand
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
Harvard Journal of Middle Eastern Politics and Policy
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Winter 2019 marked the 40th anniversary of the 1979 Islamic Revolution in Iran. The anniversary celebrations occurred in the midst of a difficult era of socio-economic turmoil, the return ofَ U.S. sanctions, and deepening political infighting in the Islamic Republic. Tensions between the government and the people are especially high. The tectonic plates of social change have been shifting below the surface in Iran over the past two decades, with major discontent erupting in the past year. While the country’s political facade appears largely unchanged, tensions and fragmentations among the ruling elite have deepened. Economic conditions are fast deteriorating for the average citizen, while political repression remains a harsh reality. Iran’s citizens, who have clung to hope and the possibility for change through decades of domestic repression and isolation from the global economy, struggle to remain hopeful. Collective fatigue stemming from years of isolation from the global economy, as well as domestic economic hardship, compounds the disappointment Iranians feel from unfulfilled political promises. The Iranian government has repeatedly failed to carry out promised reforms; in recent years alone, President Hassan Rouhani has proven unable to carry out his promises to “open up Iran politically, ease rigid social restrictions and address human rights abuses.” As this situation continues, Iran risks despair and chaos.
Topic:
Government, Politics, Social Movement, Sanctions, Nuclear Power, Reform, Economy, and Memory
Political Geography:
Iran and Middle East

7. Going nowhere alone: US sanctions on Iran and the afterlife of the JCPOA

Author:
Fridtjof Falk
Publication Date:
01-2018
Content Type:
Journal Article
Journal:
Harvard Journal of Middle Eastern Politics and Policy
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
On November 5th, 2018, the Trump administration re-imposed severe sanctions on Iran. These sanctions, which President Obama called the “toughest sanctions ever faced by the Iranian government,” were lifted by the 2015 Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Deal. The JCPOA was signed with a view to blocking Iran’s alleged pursuit of nuclear weapons, allowing international inspectors into Iran in return for sanctions relief. Withdrawing the United States (US) from the deal was a prominent promise of Donald Trump leading up to the presidential elections of 2016. In a May 2018 speech that described the deal as rooted in “fiction,” President Trump made good on his promise to leave the JCPOA and to move to unilaterally re-impose sanctions on Iran.
Topic:
International Relations, Nuclear Weapons, Treaties and Agreements, Sanctions, Nuclear Power, and Economy
Political Geography:
Europe, Iran, Middle East, North America, and United States of America

8. Learning to Improve the Investment Climate for Economic Diversification: PDIA in Action in Sri Lanka

Author:
Matt Andrews, Duminda Ariyasinghe, Amara S. Beling, Peter Harrington, Tim McNaught, Fathima Nafla Niyas, Anisha Pooblan, Mahinda Ramanayake, H. Senavirathne, Upatissa Sirigampala, Renuka M. Weerakone, and W. A. F. Jayasiri Wijesooriya
Publication Date:
10-2017
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 preparing the investment climate in the country. Many governments tackle this issue by trying to improve their scores on ‘Doing Business Indicators’ which measure performance on general factors affecting business globally (like how long it takes to open a business or pay taxes). Beyond these common indicators, however, investors face context specific challenges when working in countries like Sri Lanka that are not addressed in global indicators. Governments often lack the capabilities to identify and resolve such issues. This paper narrates a recent initiative to establish these capabilities 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 over a six-month period. The paper tells the story of this process, providing documented evidence of the progress over time (and describing thinking behind the PDIA process as well). The paper will be of interest to those thinking about the challenges associated with creating a climate that is investor or business friendly and to those interested in processes (like PDIA) focused on building state capability and fostering policy implementation.
Topic:
Economy, Business, Global Political Economy, and State
Political Geography:
South Asia and Sri Lanka

9. Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment

Author:
Ricardo Hausmann and Ljubica Nedelkoska
Publication Date:
01-2017
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
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.
Topic:
Development, Migration, Labor Issues, Developing World, and Economy
Political Geography:
Europe, Eastern Europe, Greece, and Albania

10. Tunisia: “Unemployment has killed me”

Author:
JMEPP
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
Harvard Journal of Middle Eastern Politics and Policy
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The Tunisian revolution of 2010-11 has been understood as a point of rupture after years of worsening job prospects and living standards in the country. Some have claimed it highlighted the inefficacy of Tunisia’s development policies, while other studies saw a link between high rates of literacy, lack of economic opportunities, and protests against the state. One should, however, be cautious of taking an economically deterministic approach to Tunisia’s uprising. Many countries whose citizens are mired in deep poverty and rampant unemployment are not in a state of revolt. Other factors such as pre-existing social networks (like trade unions and family ties) also play a major role in shaping political events. Furthermore, economic statistics in North African countries, such as Tunisia, are often manipulated for political reasons.
Topic:
Politics, Poverty, Popular Revolt, Reform, Economy, and Protests
Political Geography:
Middle East, North Africa, and Tunisia