Publications

2019
Rama, M., 2019. Converge and European Value Chains: How Deep Integration Can Reignite Convergence in the EU.Abstract

Convergence, the process by which poorer countries ‘catch-up’ to rich ones in terms of real incomes, is at the core of the promise of the European Union and the Eurozone. It was enshrined in the founding treaty of the EU and is at the center of policy-making today. However, after several decades of strong European growth, convergence across many core countries has come to a halt. Policymaking has focused on promoting greater integration between EU countries and in particular within the Eurozone to foster further convergence but the political gridlock has stopped these initiatives from moving forward. 

Further economic and political integration is not necessary for, and may in fact be orthogonal to, greater convergence in the EU. EU countries have converged at roughly the same rate as non-EU countries since the 1950s, suggesting EU membership is not responsible for convergence. Further, there is no statistically significant difference in the rate of convergence between EA 12 or EA19 members before and after the introduction of the Euro. Finally, many current Eurozone members have converged in the last 10 years suggesting that the Euro structure does not impede convergence. Still, further integration may be desirable in the EU – not least to restore the union to its democratic ideals. 

The only variable that is associated with greater convergence in European countries is value chain integration, particularly upstream integration. Upstream integration is domestic value added embodied in intermediate exports that are re-processed abroad. High upstream integration indicates strong participation in value chains and integration into regional production networks. The level of upstream integration varies tremendously within the EU, going from 10% of GDP in Spain to 28% of GDP in Estonia. Once we control for the level of upstream integration, the rate of converge in European countries goes from 1.25% to 4.5%. 

High growth countries are deeply integrated in sub-regional supply chains within Europe. Europe is often thought of as a single supply chain but, in fact, there are several sub-regional supply chains within Europe. These sub-regional supply chains are based on strong bilateral ties between neighboring countries. Participation in one of these supply chains appears to matter more for growth than integration with any particular country (e.g. Germany) or to any specific region. Participation in these supply chains is independent of EU membership – it is due to historical ties and deliberate national policymaking. 

The EU must put cross-country collaboration at the core Horizon Europe– its €100B mission driven innovation programme – to future-proof European supply chains and reintegrate lagging countries. Horizon Europe is the EU’s bet to become a global technology leader. Leading in technology involves not only innovation but also developing the supply chains of the future that allow innovation to be commercially successful. Horizon Europe will not succeed if innovation spending continues occur in national siloes as it did in the Horizon 2020 programme. The EU must pro-actively manage and integrate innovation efforts across the Union and ensure that commercialization occurs at the EU level. Only then can we hope to achieve both EU technological leadership and convergence within the EU. 

2019-09-cid-fellows-wp-116-eu-convergence.pdf
Rodrik, D., 2019. Putting Global Governance in its Place.Abstract
In a world economy that is highly integrated, most policies produce effects across the border. This is often believed to be an argument for greater global governance, but the logic requires scrutiny. There remains strong revealed demand for policy and institutional diversity among nations, rooted in differences in historical, cultural, or development trajectories. The canonical case for global governance is based on two set of circumstances. The first occurs when there is global public good (GPG) and the second under “beggar-thy-neighbor” (BTN) policies. However, the world economy is not a global commons, and virtually no economic policy has the nature of a global public good (or bad). And while there are some important BTN policies, much of our current discussions deal with policies that are not true BTNs. The policy failures that exist arise not from weaknesses of global governance, but from distortions of domestic governance. As a general rule, these domestic failures cannot be fixed through international agreements or multilateral cooperation. The paper closes by discussing an alternative model of global governance called “democracy-enhancing global governance.”
2019-08-cid-wp-359-global-governance.pdf
Levy-Yeyati, E., Montané, M. & Sartorio, L., 2019. What Works for Active Labor Market Policies?.Abstract
The past 5 years have witnessed a flurry of RCT evaluations that shed new light on the impact and cost effectiveness of Active Labor Market Policies (ALMPs) aiming to improve workers´ access to new jobs and better wages. We report the first systematic review of 102 RCT interventions comprising a total of 652 estimated impacts. We find that (i) a third of these estimates are positive and statistically significant (PPS) at conventional levels; (ii) programs are more likely to yield positive results when GDP growth is higher and unemployment lower; (iii) programs aimed at building human capital, such as vocational training, independent worker assistance and wage subsidies, show significant positive impact, and (iv) program length, monetary incentives, individualized follow up and activity targeting are all key features in determining the effectiveness of the interventions.
2019-07-cid-wp-358-labor-market-policies.pdf
"City Design, Planning & Policy Innovations" book cover
Barrios, D. & Santos, M.A., 2019. Is There Life After Ford?. In City Design, Planning & Policy Innovations: The Case of Hermosillo. Inter-American Development Bank, pp. 131-53. Publisher's VersionAbstract

This publication summarizes the outcomes and lessons learned from the Fall 2017 course titled “Emergent Urbanism: Planning and Design Visions for the City of Hermosillo, Mexico” (ADV-9146). Taught by professors Diane Davis and Felipe Vera, this course asked a group of 12 students to design a set of projects that could lay the groundwork for a sustainable future for the city of Hermosillo—an emerging city located in northwest Mexico and the capital of the state of Sonora. Part of a larger initiative funded by the Inter-American Development Bank and the North-American Development Bank in collaboration with Harvard University, ideas developed for this class were the product of collaboration between faculty and students at the Graduate School of Design, the Kennedy School’s Center for International Development and the T.H. Chan School of Public Health.

Written by Miguel Angel Santos and Douglas Barrios—two Growth Lab research fellows—the fourth chapter titled “Is There Life After Ford?” focuses on Hermosillo’s economic competitiveness and, specifically, the reasons behind the city’s economic stagnation. It sees the city’s overreliance on the automobile industry as a primary concern. Based on two methodologies developed at the Growth Lab—the Growth Diagnostic and the Economic Complexity Analysis—this piece proposes alternative pathways for Hermosillo’s future economic growth.

Levy-Yeyati, E. & Gomez, J.-F., 2019. The Cost of Holding Foreign Exchange Reserves.Abstract
Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effects empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
2019-05-cid-wp-353-holding-exchange-reserves.pdf
Levy-Yeyati, E., 2019. How ETFs Amplify the Global Financial Cycle in Emerging Markets.Abstract
Since the early 2000s exchange-traded funds (ETFs) have grown to become an important in- vestment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fund- level data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging mar- ket funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the global financial cycle in emerging markets.
2019-05-cid-wp-351-etf-amplify.pdf
Lora, E., 2019. Empleo Femenino en las Ciudades Colombianas: Un Método de Descripción Estadística.Abstract

Este trabajo propone una metodología de descomposición estadística para describir en
forma coherente las dimensiones del empleo femenino según la estructura del mercado
laboral y según la estructura productiva de las ciudades. La metodología se utiliza
para analizar el empleo femenino “pleno y decente” en 23 ciudades colombianas entre
2008 y 2016. Según la estructura laboral, se encuentra que la brecha de género en el
empleo pleno y decente se debe a diferencias en la participación laboral y en la
formalidad del empleo, más que a diferencias entre hombres y mujeres en el desempleo
o en la dedicación al empleo. Según la estructura productiva, se encuentra que la
orientación por sexo y la composición del empleo sectorial de las ciudades tienen
influencia modesta en las diferencias entre ciudades en la generación de empleo
femenino pleno y decente, ya que éstas resultan sobre todo de las diferencias en la
capacidad de generación de para ambos sexos. La metodología también se usa para
analizar los cambios en el período. Se sugieren posibles extensiones de la metodología
propuesta e implicaciones para futuras investigaciones.
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Female Employment in Colombian Cities: A Method of Statistical Description

This paper proposes a methodology of statistical decomposition to describe in a
coherent way the dimensions of female employment according to the structure of the
labor market and according to the productive structure of cities. The methodology is
used to analyze "full and decent" female employment in 23 Colombian cities between
2008 and 2016. According to the labor structure, it is found that the gender gap in full
and decent employment is due to differences in labor participation and in the
formality of employment, rather than differences between men and women in
unemployment or dedication to employment. According to the productive structure, it
is found that the orientation by sex and the composition of sectoral employment in
cities have a modest influence on the differences between cities in the generation of full
and decent female employment, since these are mainly the result of differences in
cities’ capacities to generate employment for both sexes. The methodology is also used
to analyze changes in the period. Potential extensions of the proposed methodology
and implications for future research are suggested.

2019-04-cid-fellows-wp-115-empleo-femenino-cuidades.pdf
Lora, E., 2019. Forecasting Formal Employment in Cities.Abstract
Can “full and productive employment for all” be achieved by 2030 as envisaged by the United Nations Sustainable Development Goals? This paper assesses the issue for the largest 62 Colombian cities using social security administrative records between 2008 and 2015, which show that the larger the city, the higher its formal occupation rate. This is explained by the fact that formal employment creation is restricted by the availability of the diverse skills needed in complex sectors. Since skill accumulation is a gradual path-dependent process, future formal employment by city can be forecasted using either ordinary least square regression results or machine learning algorithms. The results show that the share of working population in formal employment will increase between 13 and nearly 32 percent points between 2015 and 2030, which is substantial but still insufficient to achieve the goal. Results are broadly consistent across methods for the larger cities, but not the smaller ones. For these, the machine learning method provides nuanced forecasts which may help further explorations into the relation between complexity and formal employment at the city level.
2019-04-cid-fellows-wp-114-formal-employment.pdf
Fernandez-Arias, E., Hausmann, R. & Panizza, U., 2019. Smart Development Banks.Abstract
The conventional paradigm about development banks is that these institutions exist to target well-identified market failures. However, market failures are not directly observable and can only be ascertained with a suitable learning process. Hence, the question is how do the policymakers know what activities should be promoted, how do they learn about the obstacles to the creation of new activities? Rather than assuming that the government has arrived at the right list of market failures and uses development banks to close some well-identified market gaps, we suggest that development banks can be in charge of identifying these market failures through their loan-screening and lending activities to guide their operations and provide critical inputs for the design of productive development policies. In fact, they can also identify government failures that stand in the way of development and call for needed public inputs. This intelligence role of development banks is similar to the role that modern theories of financial intermediation assign to banks as institutions with a comparative advantage in producing and processing information. However, while private banks focus on information on private returns, development banks would potentially produce and organize information about social returns.
2019-04-cid-wp-350-smart-development-banks.pdf
Abante, K., 2019. Minimizing Smuggling and Restoring Public Trust in the Philippine Bureau of Customs.Abstract
This policy analysis attempts to answer three questions: First, what is the extent of smuggling and customs tax evasion in the Philippines? Second, how can customs improve its risk management system in the short term to minimize officers’ discretion and improve trade facilitation without abdicating its other mandates of revenue generation and border control? Third, what types of reforms and political commitment are necessary in the long term to restore public trust in the Bureau of Customs?
2019-03-cid-fellows-wp-113-philippine-customs.pdf
Stock, D., 2019. Exit and Foreign Ownership: Evidence from Export-Oriented Firms in Sri Lanka.Abstract
While foreign direct investment may play a transformative role in the development of economies, foreign-owned firms are also said to be more “footloose” than comparable local firms. This paper uses a semi-parametric approach to examine the link between firm ownership and exit rates, tracking a set of export-oriented firms operating in Sri Lanka in years between 1978 and 2017. We find that foreign firms are in fact 42-56% more likely to exit than local firms, but only for their first years of existence. In their later years, foreign firms are actually less likely to exit than local firms, though this late advantage is not statistically significant when conditioned on the firms’ initial characteristics (such as employment size). This pattern supports the theory that foreign firms face a steeper early learning curve in adapting to local conditions.
2019-03-cid-fellows-wp-112-sri-lanka-export-firms.pdf
Bustos, S. & Morales, J.R., 2019. Globalization and Protectionism: AMLO’s 2006 Presidential Run.Abstract
We study the effects of local tariff drops for Mexican exports to the US on the local electoral performance of Andrés Manuel López Obrador (AMLO) in Mexico’s 2006 presidential election. In an effort to appeal to his rural base, AMLO proposed to unilaterally retain tariff exemptions on imported corn and beans, which were scheduled to drop under NAFTA by the end of 2008. This elevated protectionism in the public agenda during the campaign. We find that local economic gains due to export tariff drops under NAFTA between 1994 and 2001 led to a drop in AMLO’s local vote share gains in 2006. These effects are contingent to the 2006 election, as similar effects on local vote for the left are not found in previous or later elections. Results are robust to controls for local grain growing and Chinese competition. We predict that AMLO would have been elected in 2006 had protectionism not been a salient electoral issue. Our findings suggest export access gains due to globalization undermine local political preferences over national protectionist platforms.
2019-03-cid-fellows-wp-111-globalism-protectionism.pdf
Bustos, S. & Yıldırım, M.A., 2019. Production Ability and Economic Growth.Abstract
Production is shaped by capability requirements of products and availability of these capabilities across locations. We propose a capabilities based production model and an empirical strategy to measure product sophistication and location’s production ability. We apply our framework to international trade data, and employment data in the US, recovering measures of production ability for countries and cities, and sophistication of products and industries. We show that both country and city level measures have a strong correlation with income, and economic growth at different time horizons. Product sophistication is positively correlated with measures like education and training needed in the industry. Our model-based estimations also predict the diversification patterns through the extensive margin.
2019-03-cid-fellows-wp-110-production-growth.pdf
Gorrín, J., A., J.R.M. & Ricca, B., 2019. The Impact of the Mexican Drug War on Trade.Abstract
This paper studies the unintended economic consequences of increases in violence following the Mexican Drug War. We study the effects on exports in municipalities with different levels of exposure to violence after the policy. A focus on exports allows us to control for demand shocks by comparing exports of the same product to the same country of destination. Building on the close elections identification strategy proposed by Dell (2015), we show that municipalities that are exogenously exposed to the Drug War experience a 40% decrease in export growth on the in- tensive margin. Large exporters suffer larger effects, along with exports of more complex, capital intensive, and skill intensive products. Finally, using firm level data, we provide evidence consistent with violence increasing marginal exporting costs.
2019-02-cid-fellows-wp-109-mexican-drug-war.pdf
Hausmann, R., et al., 2019. Jordan: The Elements of a Growth Strategy.Abstract

In the decade 1999-2009, Jordan experienced an impressive growth acceleration, tripling its exports and increasing income per capita by 38%. Since then, a number of external shocks that include the Global Financial Crisis (2008-2009), the Arab Spring (2011), the Syrian Civil War (2011), and the emergence of the Islamic State (2014) have affected Jordan in significant ways and thrown its economy out of balance. Jordan’s debt-to-GDP ratio has ballooned from 55% (2009) to 94% (2018). The economy has continued to grow amidst massive fiscal adjustment and balance of payments constraints, but the large increase in population – by 50% between 2008 and 2017 – driven by massive waves of refugees has resulted in a 12% cumulative loss in income per capita (2010-2017). Moving forward, debt sustainability will require not only continued fiscal consolidation but also faster growth and international support to keep interest payments on the debt contained. We have developed an innovative framework to align Jordan’s growth strategy with its changing factor endowments. The framework incorporates service industries into an Economic Complexity analysis, utilizing the Dun and Bradstreet database, together with an evaluation of the evolution of Jordan’s comparative advantages over time. Combining several tools to identify critical constraints faced by sectors with the greatest potential, we have produced a roadmap with key elements of a strategy for Jordan to return to faster, more sustainable and more inclusive growth that is consistent with its emerging comparative advantages.

 

2019-02-28-cid-wp-346-jordan-growth-strategy-revised.pdf
2018
Barrios, D., et al., 2018. Tabasco: Growth Diagnostic.Abstract

Since 2003, the GDP per capita of Tabasco has consistently figured among the 4 largest in the country. However, this level of economic activity has not translated into an equally favorable performance in other social welfare metrics. According to CONEVAL, the Tabasco poverty rate in 2016 was 50.9%, seven percentage points higher than the national rate (43.6%). On the other hand, the average monthly income of the workers of the state is in the 40th percentile of all the states.

This discrepancy can be explained because the mining activity, despite accumulating only 3% of jobs, represents more than 50% of the state's GDP. If we only consider non-oil GDP, we have that the GDP per capita of the state has tended to be located around the country's median, and for 2016 it was in the 30th percentile nationwide.

tabasco_diagnosticocrecimiento_cidrfwp106.pdf
Barrios, D., et al., 2018. Tabasco: Reporte de Complejidad Ecónomica.Abstract

Este estudio busca identificar las capacidades productivas de Tabasco a partir de un análisis de la composición de sus exportaciones y su empleo basándose en la perspectiva de la complejidad económica. Asimismo, busca identificar productos potenciales que requieran una base de conocimientos productivos similar a la que ya tiene Tabasco y que le permita mejorar su complejidad económica actual y prospectiva.

Para tales efectos, primero se explora la evolución en el tiempo del valor de las exportaciones de Tabasco y la composición de las mismas, así como de los principales productos de exportación. En sentido, se tiene que las exportaciones de Tabasco están determinadas por el sector petrolero. Los envíos de petróleo representan alrededor del 97% de las exportaciones estatales y explican más del 90% del aumento de las exportaciones de la última década.

tabasco_complejidadeconomica_cidrfwp107.pdf
Barrios, D., et al., 2018. Tabasco: Industrial Diagnostic.Abstract

En este estudio se consideraron los productos priorizados en el Reporte de Complejidad Económica de Tabasco y se procedió a evaluar su potencial a partir de un conjunto de consideraciones de mercado. Luego, se agregó el potencial de cada producto en distintas colecciones de producto, y se seleccionó una industria cuya estimulación y desarrollo constituya una apuesta de desarrollo prometedora el estado. Respecto de éste se detallaron algunas estadísticas generales como una forma de evaluar su potencial de crecimiento e impacto para la economía local, estatal y nacional.

Para el objeto de este estudio, el sector industrial escogido para el análisis de cuellos de botella fue el de “Químicos” y, más puntualmente, los productos: “Agentes de limpieza orgánicos (ex. Jabón)”, “Aprestos y aceleradores de tintura”, “Mezclas de sustancias odoríferas”, “Placas fotográficas” y “Tinta”. El desarrollo de esta colección de productos representa una importante oportunidad, la que, a la fecha, los productores mexicanos no han podido aprovechar del todo. Sin embargo, estos productos han presentado un gran dinamismo dentro de México en los años recientes. Entre 2004 y 2014, las exportaciones de México en estos productos se han duplicado, el empleo en los sectores asociados a estos productos ha aumentado un 20%, y el salario promedio en estos sectores ha aumentado entre 40% y 50%.

tabasco_diagnosticoindustrial_cidrfwp105.pdf
Barrios, D., et al., 2018. Tabasco: Insumos para el desarrollo de recomendaciónes.Abstract
En este documento se presentaron una serie de insumos para el desarrollo de políticas para Tabasco, que apuntan a la estructuración de una estrategia de transformación productiva que le permita al estado revertir la tendencia adversa de los últimos años y promover una senda de crecimiento sostenido. Asimismo, este documento buscó consolidar los principales hallazgos de las investigaciones que hicieron parte del proyecto “Diseño de estrategias de transformación productiva para Tabasco.
tabasco_insumosrecomendaciones_cidrfwp108.pdf
Barrios, D., et al., 2018. Campeche: Growth Diagnostic.Abstract

Campeche cuenta con el PIB per cápita más alto de todo México. Si bien buena parte de este desempeño se debe a la actividad petrolera (la cual representa 80% de la actividad económica del estado), incluso si se considera únicamente el PIB no petrolero per cápita el estado se ubicaba por encima del 80% de las entidades federativas del país. En 2016 el PIB per cápita de la entidad –a pesar de ser el más alto de todo México – era 45% de su valor en 2003, lo que equivale a una caída anual promedio de aproximadamente 6%. Si bien esta caída ha sido sostenida, las razones que la subyacen parecen haber variado en el tiempo.

En el período 2003-2009 se evidenció una divergencia entre el comportamiento de la actividad petrolera y la no petrolera. Por un lado, todos los sectores de la economía no petrolera, con la excepción de servicios de apoyo a los negocios, reflejaron tasas de crecimiento positivas. Por el contrario, la actividad petrolera cayó abruptamente, debido a que a pesar de que hubo aumentos en la cantidad de pozos de desarrollo perforados y en la cantidad de equipos de perforación activos, la producción petrolera cayó 26%, alcanzado con ello niveles que no se habían observado desde 1997.

campeche_diagnosticocrecimiento_cidrfwp101.pdf

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