Technological improvement is the most important cause of long-term economic growth. In standard growth models, technology is treated in the aggregate, but an economy can also be viewed as a network in which producers buy goods, convert them to new goods, and sell the production to households or other producers. We develop predictions for how this network amplifies the effects of technological improvements as they propagate along chains of production, showing that longer production chains for an industry bias it toward faster price reduction and that longer production chains for a country bias it toward faster growth. These predictions are in good agreement with data from the World Input Output Database and improve with the passage of time. The results show that production chains play a major role in shaping the long-term evolution of prices, output growth, and structural change.

Media release: New study finds economic progress is aided by longer supply chains and deeper networks

Populist upheavals like Trump, Brexit, and the Gilets Jaunes happen when the system really is rigged. Citizens the world over are angry not due to income inequality or immigration, but economic unfairness: that opportunity is not equal and reward is not according to contribution.

This forensic book draws on original research, cited by the UN and IMF, to demonstrate that illiberal populism strikes hardest when success is influenced by family origins rather than talent and effort. Protzer and Summerville propose a framework of policy inputs that instead support high social mobility, and apply it to diagnose the differing reasons behind economic unfairness in the US, UK, Italy, and France. By striving for a fair, socially-mobile economy, they argue, it is possible to craft a politics that reclaims the reasonable grievances behind populism.

Reclaiming Populism is a must-read for policymakers, scholars, and citizens who want to bring disenchanted populist voters back into the fold of liberal democracy.

Eric Protzer is a Research Fellow at Harvard University’s Growth Lab.
Paul Summerville is an Adjunct Professor at the University of Victoria’s Gustavson School of Business.

Economic complexity offers a potentially powerful paradigm to understand key societal issues and challenges of our time. The underlying idea is that growth, development, technological change, income inequality, spatial disparities, and resilience are the visible outcomes of hidden systemic interactions. The study of economic complexity seeks to understand the structure of these interactions and how they shape various socioeconomic processes. This emerging field relies heavily on big data and machine learning techniques. This brief introduction to economic complexity has three aims. The first is to summarize key theoretical foundations and principles of economic complexity. The second is to briefly review the tools and metrics developed in the economic complexity literature that exploit information encoded in the structure of the economy to find new empirical patterns. The final aim is to highlight the insights from economic complexity to improve prediction and political decision-making. Institutions including the World Bank, the European Commission, the World Economic Forum, the OECD, and a range of national and regional organizations have begun to embrace the principles of economic complexity and its analytical framework. We discuss policy implications of this field, in particular the usefulness of building recommendation systems for major public investment decisions in a complex world.

Section II, "Policies for sustainable growth", includes dialogues with Mauricio Cárdenas, Marcela Eslava, Ricardo Hausmann, Rodrigo Valdés and Alejandro Werner.

Returning to sustained growth is a key challenge for Latin American economies. This section discusses the causes of the dismal performance of Latin America and the post-Covid policies needed to change this reality. Contributors in this section suggest that the region will witness important rebounds during 2021-2022. The recovery that started in the second half of 2020 gained strength as the economies gradually reopened following rising vaccination rates. Some countries will be reaching 2019 GDP levels in 2021; others, in 2022. However, the concern is that these recoveries will be short-lived. And if global financial conditions become less supportive, the next decade could be quite demanding.

In the medium term, Latin America is expected to exhibit significant scars from Covid, as growth is expected to be permanently below the levels anticipated before the pandemic. But the severe problem of the limited growth potential of the region predates the crisis. And, even for countries that grew more than the Latin American average, the post-pandemic future looks bleaker. The contributors highlight several reasons behind this modest performance. The first and the most commonly cited is macroeconomic mismanagement (high inflation, financial fragility leading to balance-of-payments crises). However, even countries that successfully achieved macroeconomic stabilisation failed to achieve sustained growth. It follows that the forces behind low growth are more complex: the business environment has been feeble; there is a lack of appropriate governance; the natural resource curse applies in some countries, with weak institutions and short-sighted governments with the perception that there is no need for further effort; there are social, political and institutional factors that complicate the building of a consensus around an economic policy framework that sets the foundations for medium-term inclusive growth. In addition, relatively slow technological progress widens the region’s technological gap with the advanced world. Moreover, while the lack of social progress cannot be solved merely with a redistributive strategy, the region’s regressive income distribution and structural poverty are detrimental to growth through their impact on the expected sustainability of economic regimes, as well as, on occasions, pure expropriation risk arising from social tensions. In the meantime, local talent remains undiscovered and undernourished for lack of opportunities.

Most doubt the possibility of implementing successful industrial policies in the region, sceptical that Latin American policymakers could efficiently substitute for the right market signals and incentives, and propose that the development strategy should be largely based on horizontal policies. But some see a role for the state to address the many unexploited externalities, arguing that public goods do not possess the market’s invisible hand to signal where the information about what is needed, the incentives to provide these public goods, and the allocation of resources.