Latin America

Rubinstein, A., et al., 2022. An Integrated Epidemiological and Economic Model of COVID-19 NPIs in Argentina.Abstract
We added a multi-sectoral economic framework to a SVEIR epidemiological model, combining the economic rationale of the DAEDALUS model with a detailed treatment of lockdown fatigue and declining compliance with Public Health and Social Measures reported in recent empirical work, to quantify the epidemic and economic benefits and costs of alternative lockdown and PHSM policies, both in terms of intensity and length. Our calibration replicates key features of the case and death-curves and economic cost for Argentina in 2021. The model allows us to quantify the short-term policy trade-off between lives and livelihoods and show that it can be significantly improved with targeted pharmaceutical policies such as vaccine rollout to reduce mainly severe disease and the death toll from COVID-19, as has been highlighted by previous studies.
Hausmann, R., et al., 2022. Overcoming Remoteness in the Peruvian Amazonia: A Growth Diagnostic of Loreto.Abstract

Is there a tradeoff between environmental sustainability and economic development? If there is a place where that question can be approximated, that is Loreto. Located on the western flank of the Amazon jungle, Loreto is Peru’s largest state and the one with the lowest population density. Its capital, Iquitos, is the largest city without road access in the world. For three decades, the region’s income and development has diverged from that of Peru and its other Amazonian peers by orders of magnitude. And yet, despite plummeting contributions from natural resources – that predominate in the policy discussion in and on the state – Loreto has developed a more complex productive ecosystem than one would expect, given its geographical isolation. As a result, it has a stock of productive capabilities that can be redeployed in economic activities with higher value-added, able to sustain higher wages and better living standards.

We deployed a thorough Growth Diagnostic of Loreto to identify the most binding constraints preventing private investment and development in sustainable economic activities. In the process, we relied on domestic databases available to the public in Peru and international datasets, combining and validating our analytical insights with extensive field visits to the Peruvian Amazonia and lengthy interviews with policymakers, private businesses, and academia. Improving fluvial connectivity, developing the capacity to sort out coordination failures associated with the process of self-discovery, and substituting oil for solar energy, are the three policy goals that would deliver the largest bang for the reform buck. The latter presents an opportunity for environmental organizations – subsidizing solar – to move away from their status quo of preventing bad things from happening, to a more constructive one that entails enabling good things and sustainable industries to happen.

Project page: Economic Growth and Structural Transformation in Loreto, Peru

Student Stories: Fighting Altitude and Teaching Public Policy in Bolivia

Marco Brancher is a second-year MPA/ID student at Harvard Kennedy School. He was accepted into the Growth Lab's 2022 Summer Internship Program and participated in our engagement with the Master’s Programs for Development (MpD) at Catholic University of Bolivia. This focus of the project is to strengthen the teaching and studies of the public policy challenges in Bolivia.... Read more about Student Stories: Fighting Altitude and Teaching Public Policy in Bolivia

Lack of progress cannot be solved by a redistributive strategy
Hausmann, R., 2021. Lack of progress cannot be solved by a redistributive strategy. In I. Goldfajn & E. L. Yeyati, ed. Latin America: The Post-Pandemic Decade. London. London: Centre for Economic Policy Research Press, pp. 75-87. Publisher's VersionAbstract

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.

Hausmann, R. & Bustos, S., 2021. New Avenues for Colombia’s Internationalization: Trade in Tasks.Abstract

One of the consequences of COVID-19 is the recognition that many tasks can be done from home. But anything that can done remotely, can be done from abroad.

Given large salary differences between white collar workers across countries, it would make sense for value chains to try to exploit them. This opens an opportunity for Colombia to further promote its integration into the world global value chains and access new markets.

This paper explores the possibility of exporting teleworkable services from Colombia. The goal is to provide useful information to guide strategic interventions to speed-up the development of such service industries in Colombia.

We first introduce a definition of teleworkable jobs and describe its occupations and industries along different dimensions. We show that there are many teleworkable jobs in the US, representing a significant share of industry costs. Then, we show that many industries intensive in teleworkable jobs are currently traded across borders. To quantify Colombia’s advantage providing teleworkable services, we study the cost structure of industries and quantify the potential savings in overall costs if the tasks were performed by Colombians. Given Colombia’s current presence and the density around teleworkable industries we can calculate a proxy of the latent advantage in teleworkable services. We propose an index that summarize these dimensions and rank the potential gains from including telework from Colombia in an industry. We end with a set of policy recommendations to move this agenda forward.

The Role of the Diaspora in the Internationalization of the Colombian Economy

After surveying over 30% of the diaspora of Colombia, Growth Lab researchers and their co-authors studied a number of factors related to this diaspora.

In this Growth Lab podcast, Ana Grisanti interviews Professors Ricardo Hausmann, Annalee Saxenian, and Ljubica Nedlkoska, who describe the internationalization mission in Colombia, the role of the diaspora in this mission, and the policy implications of this research.

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Grisanti, A., et al., 2021. Colombian Diaspora Survey Results Dashboard. Explore DashboardAbstract
As part of the "Role of the Diaspora in the Internationalization of the Colombian Economy" project, Growth Lab researchers surveyed 11,500 members of the Colombian diaspora, located in well over 100 countries. They studied the migration journeys, the diaspora’s attachment to Colombia, the level of diaspora engagement and interest in engaging, the intentions to return back home, the interest in diaspora government policy, and the overall sentiment of the diaspora towards Colombia.
Fool’s Gold: On the Impact of Venezuelan Devaluations in Multinational Stock Prices
Bahar, D., Molina, C.A. & Santos, M.A., 2018. Fool’s Gold: On the Impact of Venezuelan Devaluations in Multinational Stock Prices. Economia LACEA , 19 (1) , pp. 93-128. Publisher's VersionAbstract
This paper documents negative cumulative abnormal returns (CARs) to five exchange rate devaluations in Venezuela within the context of stiff exchange controls and large black-market premiums, using daily stock prices for 110 multinational corporations with Venezuelan subsidiaries. The results suggest evidence of statistically and economically significant negative CARs of up to 2.07 percent over the ten-day event window. We find consistent results using synthetic controls to causally infer the effect of each devaluation on the stock prices of global firms active in the country at the time of the event. Our results are at odds with the predictions of the efficient market hypothesis stating that predictable devaluations should not affect the stock prices of large multinational companies on the day of the event, and even less so when they happen in small countries. We interpret these results as a suggestive indication of market inefficiencies in the process of asset pricing.
Nedelkoska, L., et al., 2021. The Role of the Diaspora in the Internationalization of the Colombian Economy.Abstract
We studied the geography as well as the demographic and socio-economic characteristics of 1.7 million members of the global Colombian diaspora (34% of the total estimated Colombian diaspora) using census and survey data from major host countries, and 3.5 million Twitter users located around the world presumed to be of Colombian origin. We also studied the locations and industries of Colombian senior managers and directors outside Colombia, using a global database of over 400 million companies. Moreover, we studied the migration journeys, the diaspora’s attachment to Colombia, the level of diaspora engagement and interest in engaging, the intentions to return back home, the interest in diaspora government policy, and the overall sentiment of the diaspora towards Colombia, through a survey which received 11,500 responses from the diaspora in well over 100 countries in less than two months. We additionally interviewed 12 Colombian transnational entrepreneurs and professionals, to understand what attracts them professionally to Colombia, and what may stand in the way of more diaspora engagement and professional growth.
Hausmann, R., et al., 2021. Loreto’s Hidden Wealth: Economic Complexity Analysis and Productive Diversification Opportunities.Abstract

The Growth Lab at Harvard University, with funding provided by the Gordon and Betty Moore Foundation, has undertaken this investigation with the aim of identifying the existing productive capacities in Loreto, as well as the economic activities with potential to drive the structural transformation of its economy. This paper is part of a broader investigation – Promoting Sustainable Economic Growth and Structural Transformation in the Amazon Region of Loreto, Peru – which seeks to contribute with context-specific inputs for the development of national and sub-national public policies that promote productive development and prosperity in this Peruvian state.

Place-specific determinants of income gaps: New sub-national evidence from Mexico
Hausmann, R., Pietrobelli, C. & Santos, M.A., 2021. Place-specific determinants of income gaps: New sub-national evidence from Mexico. Journal of Business Research. Publisher's VersionAbstract
The literature on wage gaps between Chiapas and the rest of Mexico revolves around individual factors, such as education and ethnicity. Yet, twenty years after the Zapatista rebellion, the schooling gap has shrunk while the wage gap has widened, and we find no evidence indicating that Chiapas indigenes are worse-off than their likes elsewhere in Mexico. We explore a different hypothesis and argue that place-specific characteristics condition the choices and behaviors of individuals living in Chiapas and explain persisting income gaps. Most importantly, they limit the necessary investments at the firm level in dynamic capabilities. Based on census data, we calculate the economic complexity index, a measure of the knowledge agglomeration embedded in the economic activities at the municipal level. Economic complexity explains a larger fraction of the wage gap than any individual factor. Our results suggest that the problem is Chiapas, and not Chiapanecos.