Publications

2021
Estimating the drivers of urban economic complexity and their connection to economic performance
Gomez-Lievano, A. & Patterson-Lomba, O., 2021. Estimating the drivers of urban economic complexity and their connection to economic performance. Royal Society Open Science , 8 (9). Publisher's VersionAbstract
Estimating the capabilities, or inputs of production, that drive and constrain the economic development of urban areas has remained a challenging goal. We posit that capabilities are instantiated in the complexity and sophistication of urban activities, the know-how of individual workers, and the city-wide collective know-how. We derive a model that indicates how the value of these three quantities can be inferred from the probability that an individual in a city is employed in a given urban activity. We illustrate how to estimate empirically these variables using data on employment across industries and metropolitan statistical areas in the USA. We then show how the functional form of the probability function derived from our theory is statistically superior when compared with competing alternative models, and that it explains well-known results in the urban scaling and economic complexity literature. Finally, we show how the quantities are associated with metrics of economic performance, suggesting our theory can provide testable implications for why some cities are more prosperous than others.
Grisanti, A., et al., 2021. Colombian Diaspora Survey Results Dashboard. Publisher's VersionAbstract
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.
Hausmann, R., et al., 2021. What Economic Complexity Theory Can Tell Us about the EU’s Pandemic Recovery and Resilience Plans. Growth Lab / European Politics and Policy.Abstract

A little over a year ago, the EU’s political leaders agreed on an unprecedented fiscal package – dubbed ‘Next Generation EU’ – to aid Europe’s recovery from the pandemic. Ricardo Hausmann, Miguel Angel Santos, Corrado Macchiarelli and Renato Giacon write that economic complexity theories can provide a useful tool for evaluating whether the recovery and resilience plans submitted by EU member states to receive this funding are well-designed. Assessing the case of Greece, they argue that investments should be tailored toward export-oriented sectors and aim to help close the country’s product complexity gap with other EU states. 

Lopesciolo, M., Muhaj, D. & Pan, C., 2021. The Quest for Increased Saudization: Labor Market Outcomes and the Shadow Price of Workforce Nationalization Policies.Abstract
Few countries have embraced active labor market policies to the same extent as Saudi Arabia. In the aftermath of the Arab Spring, the imperative of increasing Saudi employment became paramount. The country faced one of the highest youth unemployment rates in the world while over 80 percent of its private sector consisted of foreign labor. Since 2011, a wave of employment nationalization efforts has been mainly implemented through a comprehensive and strictly enforced industry and firm specific quota system known as Nitaqat. This paper assesses the employment gains as well as the costs and unintended consequences resulting from Nitaqat and related policies between 2011 and 2017. We find that while job nationalization policies generated significant initial gains in Saudi employment and labor force participation, the effects were heterogeneous across workers, firms and sectors. Moreover, our analysis suggests that the resulting unintended consequences far outweighed the benefits over time generating a less cost-effective and productivity inhibiting labor market composition.
 
2021-07-cid-wp-132-saudi-labor-market-outcomes.pdf
Hani, F. & Lopesciolo, M., 2021. Understanding Saudi Private Sector Employment and Unemployment.Abstract

This paper analyzes the changes in Saudi employment and unemployment between 2009 and 2018 and argues that a supply-demand skill mismatch exacerbated by insufficient job creation, and prevalent Saudi preferences and beliefs about employment underpin the high unemployment problem that coexists with low Saudi employment in the private sector in the country.

2021-03-cid-fellows-wp-131-saudi-employment.pdf
Nano, E., Panizza, U. & Viarengo, M., 2021. A Generation of Italian Economists.Abstract

We examine the role of financial aid in shaping the formation of human capital in economics. Specifically, we study the impact of a large merit-based scholarship for graduate studies in affecting individuals’ occupational choices, career trajectories, and labor market outcomes of a generation of Italian economists with special focus on gender gaps and the role of social mobility. We construct a unique dataset that combines archival sources and includes microdata for the universe of applicants to the scholarship program and follow these individuals over their professional life. Our unique sample that focuses on the high end of the talent and ability distribution also allows us to analyze the characteristics of top graduates, a group which tends to be under-sampled in most surveys. We discuss five main results. First, women are less likely to be shortlisted for a scholarship as they tend to receive lower scores in the most subjective criteria used in the initial screening of candidates. Second, scholarship winners are much more likely to choose a research career and this effect is larger for women. Third, women who work in Italian universities tend to have less citations than men who work in Italy. However, the citation gender gap is smaller for candidates who received a scholarship. Fourth, women take longer to be promoted to the rank of full professor, even after controlling for academic productivity. Fifth, it is easier to become a high achiever for individuals from households with a lower socio-economic status if they reside in high social mobility provinces. However, high-achievers from lower socio-economic status households face an up-hill battle even in high social mobility provinces.

2021-05-cid-wp-400-italian-economists.pdf
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.
2021-05-cid-wp-397-diaspora-internationalization-colombian-economy.pdf
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.

2021-03-cid-wp-386-economic-complexity-loreto-en.pdf.pdf 2020-10-cid-wp-386-economic-complexity-loreto-es.pdf
Shen, J.H., Wang, H. & Lin, S.C.-C., 2021. Productivity Gap and Inward FDI Spillovers: Theory and Evidence from China. China & World Economy , 29 (2) , pp. 24–48. Publisher's VersionAbstract
This paper constructs a two-stage sequential game model to shed light on the spillover effect of inward FDI on the efficiency of domestic firms in host countries. Our model shows that, given an optimal joint-venture policy made by foreign firms, the impact of the spillover effect of inward FDI is contingent upon the productivity gap between the domestic firms and foreign ones. In particular, we demonstrate that the spillover effect of inward FDI varies negatively with the productivity gap between domestic low-productivity firms and foreign firms but works in the opposite way for high-productivity firms. This suggests that once the productivity gap widens, the entry of foreign firms will increase the efficiency of high-productivity firms but reduce the efficiency of low-productivity firms. In support of our theoretical model, we provide robust empirical results by using the dataset of annual survey of Chinese industrial enterprises.
china-world-economy-productivity-gap-and-inward-fdi-spillovers.pdf
Toward an empirical investigation of the long-term debt and financing deficit nexus: evidence from Chinese-listed firms
Jiang, X., Shen, J.H. & Lee, C.-C., 2021. Toward an empirical investigation of the long-term debt and financing deficit nexus: evidence from Chinese-listed firms. Applied Economics. Publisher's VersionAbstract
As the literature has studied the financing method of Chinese-listed firms for a long time, but with inconclusive indications, this research thus adopts non-financial Chinese-listed firms’ data from 2003 to 2015 to investigate the relationship between long-term debt financing and financing deficit. We pay particular attention to three channels (ownership concentration, market timing, and state ownership) that potentially affect the adoption of long-term debt financing when there is a financing deficit. The empirical analysis documents a positive relationship between financing deficit and changes in the long-term debt ratio in our sampled firms for both static and dynamic panel models. Moreover, among the three channels we show that state ownership has the strongest positive impact on the adoption of long-term debt financing, followed by ownership concentration, while the weakest channel is the market timing’s negative effect. In general, our empirical analysis finds that the important external financing method of long-term debt is most likely to be impacted by the state ownership aspect.
Hausmann, R., et al., 2021. Western Australia – Research Findings and Policy Recommendations.Abstract

The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia.

This report is organized in six sections, including this brief introduction. Section 2 is an Executive Summary. Section 3 explains the methodologies of Growth Diagnostics and Economic Complexity, including its theoretical foundations and main concepts. Section 4 describes the main findings of the Economic Complexity Report, including a characterization of Western Australia’s complexity profile. This is done at the state, regional, and city levels. Additionally, this section identifies diversification opportunities with high potential and organizes them into groupings to capture important patterns among the opportunities. This section also contextualizes the opportunities further by identifying relevant viability and attractiveness factors that complement the complexity metrics and consider local conditions. Section 5 highlights the main findings of the Growth Perspective Report. This section describes the economic growth process of Western Australia — with a focus on the past two decades — and identifies several issues with the way that growth has occurred. This section highlights three key channels through which negative externalities have manifested: labor market imbalances, pro-cyclicality of fiscal policy, and a misalignment of public goods. The section provides perspectives on the ways in which each of these channels have hampered the quality of growth and explores the deep-rooted factors that underpin these adverse dynamics. Section 6 introduces a policy framework that can be leveraged by WA to capitalize on revealed diversification opportunities and address the factors that impact the quality of the growth process of the state.

2021-04-cid-wp-395-wa-policy-recommendations.pdf
Hausmann, R., et al., 2021. Economic Complexity Report for Western Australia.Abstract

The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development (CID) at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia.

This Economic Complexity Report is organized in six sections, including this brief introduction. Section 2 explains the methodology of economic complexity, including its theoretical foundations and main concepts, as well as the adjustments that were required to obtain the required export data at a subnational level and incorporate the service sector to the analysis. Section 3 describes the structure of the WA economy, identifying its productive capacities and exploring its complexity profile. This is done at the state, regional, and city levels. Section 4 identifies industries with high potential and organizes them into groupings to capture important patterns among the opportunities. Section 5 contextualizes the opportunities further by identifying relevant viability and attractiveness factors that complement the complexity metrics and consider local conditions, as well as a criterion for regional participation in the state-wide diversification strategy. Finally, Section 6 summarizes the main findings of this report and discusses implications for Government of WA strategy and policy toward capitalizing on these revealed opportunities.

2021-04-cid-wp-394-wa-economic-complexity-report.pdf
Hausmann, R., et al., 2021. Growth Perspective on Western Australia.Abstract

The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia. As its name implies, this Growth Perspective Report aims to provide a set of perspectives on the process of economic growth in WA that provide insights for policymakers toward improving growth outcomes.

This Growth Perspective Report describes both the economic growth process of Western Australia — with a focus on the past two decades — and identifies several problematic issues with the way that growth has been structured. In particular, this report traces important ways in which policies applied during the boom and subsequent slowdown in growth over the last twenty years have exacerbated a number of self-reinforcing negative externalities of undiversified growth. The report analyzes three key channels through which negative externalities have manifested: labor market imbalances, pro-cyclicality of fiscal policy, and a misalignment of public goods. The report includes sections on each of these channels, which provide perspectives on the ways in which they have hampered the quality of growth and explore the reasons why problematic externalities have become self-reinforcing. In some cases, new issues have emerged in the most recent iteration of WA’s boom-slowdown cycle, but many issues have roots in the long-term growth history of WA.

2021-04-cid-wp-393-wa-growth-perspective.pdf
Yildirim, M.A., 2021. Sorting, Matching and Economic Complexity.Abstract
Assignment models in trade predict that countries with higher productivity levels are assortatively matched to industries that make better use of these higher levels. Here, we assume that the driver of productivity differences is the differential distribution of factors among countries. Utilizing such a structure, we define and estimate the average factor level (AFL) for countries and products using only the information about the production patterns. Interestingly, our estimates coincide with the complexity variables of (Hidalgo and Hausmann, 2009), providing an underlying economic rationale. We show that AFL is highly correlated with country-level characteristics and predictive of future economic growth.
2021-03-cid-wp-392-supermodularity-eci.pdf
O'Clery, N., Yildirim, M.A. & Hausmann, R., 2021. Productive Ecosystems and the arrow of development. Nature Communications , 12. Publisher's VersionAbstract

Economic growth is associated with the diversification of economic activities, which can be observed via the evolution of product export baskets. Exporting a new product is dependent on having, and acquiring, a specific set of capabilities, making the diversification process path-dependent. Taking an agnostic view on the identity of the capabilities, here we derive a probabilistic model for the directed dynamical process of capability accumulation and product diversification of countries. Using international trade data, we identify the set of pre-existing products, the product Ecosystem, that enables a product to be exported competitively. We construct a directed network of products, the Eco Space, where the edge weight corresponds to capability overlap. We uncover a modular structure, and show that low- and middle-income countries move from product communities dominated by small Ecosystem products to advanced (large Ecosystem) product clusters over time. Finally, we show that our network model is predictive of product appearances.

Listen to the authors discuss their findings in this Growth Lab Podcast.

Implied Comparative Advantage
Hausmann, R., Stock, D.P. & Yildirim, M.A., 2021. Implied Comparative Advantage. Research Policy . Publisher's VersionAbstract
The comparative advantage of a location shapes its industrial structure. Current theoretical models based on this principle do not take a stance on how comparative advantages in different industries or locations are related with each other, or what such patterns of relatedness might imply about the evolution of comparative advantage. We build a simple Ricardian-inspired model and show that hidden information on inter-industry and inter-location relatedness can be captured by simple correlations between the observed structure of industries across locations, or the structure of locations across industries. We then use this recovered information to calculate a measure of implied comparative advantage, and show that it explains much of the location’s current industrial structure. We give evidence that these patterns are present in a wide variety of contexts, namely the export of goods (internationally) and the employment, payroll and number of establishments across the industries of subnational regions (in the US, Chile and India). In each of these cases, the deviations between the observed and implied comparative advantage in the past tend to be highly predictive of future industry growth, especially at horizons of a decade or more; this explanatory power holds at both the intensive as well as the extensive margin. These results suggest that a component of the long-term evolution of comparative advantage is already implied in today’s patterns of production.
Goldstein, P., Yeyati, E.L. & Sartorio, L., 2021. Lockdown Fatigue: The Diminishing Effects of Quarantines on the Spread of COVID-19.Abstract

Non-Pharmaceutical Interventions (NPIs) have been for most countries the key policy instrument utilized to contain the impact of the COVID-19 pandemic. In this article, we conduct an empirical analysis of the impact of these policies on the virus’ transmission and death toll, for a panel of 152 countries, from the start of the pandemic through December 31, 2020. We find that lockdowns tend to significantly reduce the spread of the virus and the number of related deaths. We also show that this benign impact declines over time: after four months of strict lockdown, NPIs have a significantly weaker contribution in terms of their effect in reducing COVID-19 related fatalities. Part of the fading effect of quarantines could be attributed to an increasing non-compliance with mobility restrictions, as reflected in our estimates of a declining effect of lockdowns on measures of actual mobility. However, we additionally find that a reduction in de facto mobility also exhibits a diminishing effect on health outcomes, which suggests that lockdown fatigues may have introduce broader hurdles to containment policies.

Podcast: Do Lockdowns Work? Eduardo Levy Yeyati discusses the research with Sam Munson of the Octavian Report.

2021-02-cid-wp-391-covid-lockdown-fatigue.pdf
Jäggi, A., Schetter, U. & Schneider, M.T., 2021. Inequality, Openness, and Growth through Creative Destruction.Abstract
We examine how inequality and openness interact in shaping the long-run growth prospects of developing countries. To this end, we develop a Schumpeterian growth model with heterogeneous households and non-homothetic preferences for quality. We show that inequality affects growth very differently in an open economy as opposed to a closed economy: If the economy is close to the technological frontier, the positive demand effect of inequality on growth found in closed-economy models may be amplified by international competition. In countries with a larger distance to the technology frontier, however, rich households satisfy their demand for high quality via importing, and the effect of inequality on growth is smaller than in a closed economy and may even be negative. We show that this theoretical prediction holds up in the data, both when considering growth in export quality at the industry level and when considering growth in GDP per capita.
2021-02-cid-fellows-wp-130-inequality-growth.pdf
Economics of Covid-19 in three sub‑Saharan African countries: Ethiopia, Namibia and South Africa
Goldstein, P. & Hausmann, R., 2021. Economics of Covid-19 in three sub‑Saharan African countries: Ethiopia, Namibia and South Africa. In R. Arezki, S. Djankov, & U. Panizza, ed. Shaping Africa’s Post-Covid Recovery. The Centre for Economic Policy Research Press, pp. 195-214. Publisher's VersionAbstract
With the exception of some flashpoints in Northern and Southern Africa, the continent has been largely spared from the direct health effect of Covid-19. However, the African economy has been significantly hurt by the economic consequences. This eBook summarises recent research on the economic effect of the Covid-19 pandemic in the continent covering a wide array of topics focusing on the response of firms, households, governments, and international organisations.
africas_post-covid_recovery.pdf
Cakmakli, C., et al., 2021. The Economic Case for Global Vaccinations: An Epidemiological Model with International Production Networks.Abstract
COVID-19 pandemic had a devastating effect on both lives and livelihoods in 2020. The arrival of effective vaccines can be a major game changer. However, vaccines are in short supply as of early 2021 and most of them are reserved for the advanced economies. We show that the global GDP loss of not inoculating all the countries, relative to a counterfactual of global vaccinations, is higher than the cost of manufacturing and distributing vaccines globally. We use an economic-epidemiological framework that combines a SIR model with international production and trade networks. Based on this framework, we estimate the costs for 65 countries and 35 sectors. Our estimates suggest that up to 49 percent of the global economic costs of the pandemic in 2021 are borne by the advanced economies even if they achieve universal vaccination in their own countries.
2021-01-cid-faculty-wp-390-global_vaccinations.pdf

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