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About the Growth Lab

Sustained economic growth is the single most important determinant of persistent increases in living standards and reductions in poverty. The large income gap between the 10 richest and 10 poorest countries — which now stands at a ratio of 145 to 1 — and the massive incidence of global poverty reflects the inability of poor countries to achieve sustained growth.

Led by Ricardo Hausmann, the Growth Lab at Harvard's Center for International Development works to understand the dynamics of growth and to translate those insights into more effective policymaking in developing countries. The Growth Lab places increased economic diversity and complexity at the center of the development story and uncovers how countries move into industries that offer increased productivity.

Research and experience over the last 60 years have helped to illuminate how economic growth occurs. Yet, policymakers have been largely unable to diagnose constraints to growth in specific country settings. This means they have been unable to design solutions suited to each nation’s economic and institutional conditions. Some countries continue to face difficulty triggering growth, despite significant policy reforms. These experiences reveal the limitations of conventional policy: a critical new set of tools is needed.

Growth Lab faculty and fellows engage in theoretical and empirical research on the determinants of growth and its social, political, and environmental sustainability.

Here's a closer look at our core Research Agendas:

Economic Complexity & The Product Space

Economic Complexity is a measure of the amount of capabilities and knowhow that goes into the production of any given product. Products are vehicles for knowledge. To make a shirt, one needs to design it, make the fabric, cut it, sew it, pack it, brand it, market it and distribute it. For a country to produce shirts, it needs people who have expertise in each of these areas. Each of these tasks involves many more capabilities than any one person can master. Only by combining knowhow from different people can any one product be made.

How do countries accumulate productive knowhow they did not previously have? If the product is new it may require knowhow that nobody in the country possesses. If this involves too many different people, such a product may not be feasible. As a consequence, countries tend to move from the products they know how to make to others that are not too far away in terms of knowhow. The Product Space is a theoretical concept in which the distance between any two products is related to the distance in the capabilities required to make them. As a tool, it can help us determine which products require productive knowhow that is similar to the knowhow a country already possesses.

Using network science algorithms, The Product Space details nearly 800 products into 34 color-coded communities. The Atlas of Economic Complexity: Mapping Paths to Prosperity and The Atlas online present this set of maps for every country illustrating where the economic opportunities for each country resides. More specifically, the Product Space is a visualization of the ‘capability distance’ between products. If a country makes one product, we estimate how easy it is to obtain the knowhow it will need in order to make another. The resulting space is the visualization of these connections between products based on the capabilities they share. Using the Product Space, we can predict the evolution of growth. [View related research]

Growth Diagnostics

Growth Diagnostics is a methodology developed by Ricardo Hausmann, Dani Rodrik and Andrés Velasco to determine the obstacles to a country’s capacity to grow. It is a unified framework for identifying the binding constraints to growth, which is key to formulating growth strategies. The main idea is that each country may be bumping against different potential constraints but each constellation of constraints must be giving off a different collection of symptoms or signals. These symptoms can then be used to perform a differential diagnosis.

Potential constraints are scrutinized systematically using a decision tree. The researchers need then to come up with a syndrome that can account for the identified constellation of symptoms and can account for their persistence. By using Growth Diagnostics, policymakers can develop a clearer theory of change by designing policies that can take the country out of (or work around) its current syndrome and relax its most binding constraints.

The Growth Lab has participated in growth diagnostic exercises in several countries including Algeria, Armenia, Belize, Botswana, Dominican Republic, Ecuador, El Salvador, Mexico, Pakistan, and Peru, among others. [View related research]

Inclusive Growth

The key to Inclusive Growth is to increase the productivity of a country. When examining the world, the gaps in productivity are enormous. If we can get the people who are working unproductively to work more productively, output would increase, and there would be more income and wealth. In order to increase productivity, households and firms need access to networks that deliver water, dispose of waste, and distribute electricity, urban transportation, goods, education, health care, security, and finance. Lack of access to any of these networks causes enormous declines in productivity. Think of how your life would change if you had to walk two hours each day to obtain drinking water or wood for fuel. Any strategy for Inclusive Growth must empower people by including them in these networks.

 

Skills/Human Capital

Building upon the Product Space methodology and using large-scale administrative datasets on populations (wages, education, gender, etc) in Germany, Sweden, Colombia and Mexico, the Growth Lab is now examining the productive knowhow embedded in the workforce; how workers interact across local and global networks, including the impact of labor mobility on the productivity of a country, city, or sector. This research is changing the way we understand labor markets and their impact on how regional economies diversify, how firms expand the range of their activities, how technology diffuses and how governments can make the most of the human capital available.

There are good reasons to believe the productivity of a worker strongly depends on the availability of co-workers with complementary skills, making cities critical in enabling innovation and productivity by bringing together highly complex teams of workers. For workers to collaborate, they have to commute to where complex activities take place and, in developing mega cities with irregular public transport, the cost of participating in the formal, productive part of the economy is prohibitive.

We are conducting concrete research into cities and accessibility in Colombia and in Chiapas, Mexico.