# Africa

2022
Hausmann, R., et al., 2022. The Economic Complexity of Namibia: A Roadmap for Productive Diversification .Abstract
After a large growth acceleration within the context of the commodity super cycle (2000-2015), Namibia has been grappling with three interrelated challenges: economic growth, fiscal sustainability, and inclusion. Accelerating technological progress and enhancing Namibia’s knowhow agglomeration is crucial to the process of fostering new engines of growth that will deliver progress across the three targets. Using net exports data at the four-digit level, we estimate the economic complexity of Namibia – a measure of knowhow agglomeration – vis-à-vis its peers. Our results suggest that Namibia’s economy is relatively less complex and attractive opportunities to diversify tend to be more distant. Based on economic complexity metrics, we define a place-specific path for productive diversification, identifying industries with high potential and providing inputs – related to their feasibility and attractiveness in Namibia – for further prioritization. Namibia’s path to structural transformation will likely be steeper than for most peers, calling for a more active policy stance geared towards progressive accumulation of productive capacities, well-targeted “long jumps”, and strengthening state capacity to sort out market failures associated with the process of self-discovery.
Hausmann, R., et al., 2022. A Growth Diagnostic of Namibia.Abstract

In the thirty years that have passed since independence, Namibia has been characterized by its over-reliance on its mineral resource wealth, procyclicality of macroeconomic policy, and large income disparities. After an initial decade marked by nation building and slow growth (1990-2000), the Namibian economy embarked on a rapid growth acceleration that lasted 15 years, within the context of the global commodity super cycle. Favorable terms of trade translated into an investment and export boom in the mining sector, which was amplified to the non-tradable sector of the economy through a significant public expenditure spree from 2008 onwards. Between 2000 and 2015 income and consumption per capita expanded at an average annual rate of 3.1%, poverty rates halved, and access to essential public goods expanded rapidly. As the commodity super cycle came to an end and the fiscal space was exhausted, Namibia experienced a significant reversal. Investment and exports plummeted, bringing GDP per capita to contract by 2.1% between 2015-2019. With debt-to-GDP ratios 3.5 times higher than those in 2008, the country embarked on a fiscal consolidation effort which brought the primary fiscal deficit from 6.8% of GDP in 2016 to 0.6% by March 2020. Along all these years, inequality has been endemic and is reflected across demographic characteristics and employment status. At present, a large majority of Namibians are unable to access well-paying formal sector jobs, as these tend to be particularly scarce outside of the public sector. Looking forward, the road to sustained inclusive growth and broad prosperity entails expanding the formal private labor market by diversifying the Namibian economy, while at the same time removing the barriers preventing Namibians from accessing these opportunities inherited from the apartheid.

The Growth Lab at Harvard University has partnered with the Government of Namibia to develop research that results in inputs for a policy strategy aimed at promoting sustainable and inclusive growth. The Growth Diagnostic is a cornerstone of the ongoing research engagement and is meant at providing an overview of the most binding constraints to Namibia’s economic performance and outlining how these relate in a systemic way to the concurrent challenges of growth, fiscal sustainability, and inclusion.

Inclusive growth in Namibia is currently facing a set of self-reinforcing constraints. The country is missing both the productive capabilities (words) and required skills (letters) to sustain longer periods of growth. The low degree of knowhow agglomeration that can be inferred from its current productive structure – as gathered by the Economic Complexity Index (ECI) – leaves very little opportunities of diversification that can be pursued by redeploying existing skills (low connectedness). Our analysis reveals that Namibia has been able to diversify differentially more that most of its peers given its current set of productive capabilities, but the problem is that the set of adjacent opportunities are neither complex nor plenty. As the marginal cost of acquiring new capabilities tend to be high, the government needs to take a more active role in sorting coordination and information failures associated to the process of productive diversification and self-discovery.

Relatedly, Namibia’s growth prospects are also constrained by a shortage of specialized skills. Three empirical facts derived from econometric analysis of Labor Force Survey statistics point in this direction. First, certain skill-intensive industries and occupations exhibit differentially higher wage premiums. Second, highly educated, and experienced workers face the lowest unemployment rates in the economy, by a wide margin. Third, skill-intensive industries tend to grow less than the rest of the sectors in the economy.

The demand for high skilled foreign workers is high – as proxied by their wage premium. This skill shortage may be constraining not only existing industries but also the development of new engines of growth, limiting access to opportunity for Namibians across all skill levels. Missing skills at the top of the spectrum tends to depress job creation at the bottom. These two constraints – low knowhow agglomeration with poor connectedness and skills shortages – seem to reinforce each other. Using the Scrabble metaphor, Namibia is missing the letters (productive capabilities) and the entire words (more complex products).

Knowhow, by definition, resides in brains of people and it’s embedded in the goods and services a country produces. A broad knowhow-enhancing strategy aimed at targeting efficiency-seeking foreign direct investment (FDI, firms bringing entire new words to Namibia), and migration regulation policies (specific letters needed by more complex industries) is required to ease the binding constraints. Investment promotion efforts shall be targeted to ‘efficiency-seeking’ firms, which tend to take advantage of a competitive factor in the country (efficient labor force, access to international financial markets, infrastructure, etc.) to produce and export to foreign markets. This type of FDI is essentially different from the ‘natural resource-seeking’ investments that have characterized the Namibian economy and pose additional challenges. At the same time, the country would benefit from a more open immigration policy targeted towards high-skill workers. The evidence we have gathered suggests that high-skill foreigners tend to function as complements – rather than substitutes – to Namibian workers: industries with larger shares of high-skill workers tended to pay lower skill workers significantly higher wages. Easing the existing restrictions t labor flows and incentivizing inflows of high-skill foreigners will likely trickle down into the rest of the labor force and enhance the knowhow agglomeration of the Namibian productive ecosystem.

A challenge to productive diversification broadly, and attracting foreign investment and talent more particularly, might be policy uncertainty. Existing levels of policy uncertainty – instability or absence of the adequate regulating environment, worries about potential issues for property rights, inexperience with respect to the efficiency of domestic courts – in Namibia might not be enough to deter investments in resource-based industries, but might be an important hurdle for other type of industries, especially the ones that have a choice regarding their international location. To attract these investments, a simpler and more transparent investment environment, coped a more comprehensive set of international investment treaties, might be necessary.

The report is organized in six sections, including this Executive Summary. Section 2 outlines the Growth Diagnostic methodology. Section 3 provides a summary of the growth trajectory of Namibia and the challenges facing inclusive growth. Section 4 covers the main takeaways of the analysis conducted in each of the branches of the Growth Diagnostics Tree, including those related to access to finance, low social returns, government failures and agglomeration of collective knowhow. Section 5 concludes by highlighting potential binding and providing inputs for a collaborative exploration of why these issues have persisted and become an equilibrium.

Hausmann, R., et al., 2022. Macroeconomic risks after a decade of microeconomic turbulence: South Africa 2007-2020.Abstract
This study analyses the performance of macroeconomic policy in South Africa in 2007–2020 and outlines challenges for policy in the coming decade. After remarkable economic growth in 1997–07, South Africa’s progress slowed dramatically in 2009 with the global financial crisis. Real GDP growth decelerated more than in other emerging markets and mineral exporting peers and never recovered pre-crisis levels. In addition, the budget deficit that provided counter-cyclical support to the economy was never reigned in, leading to a rapidly rising public debt load. The study assesses three accounts of South Africa’s post-GFC growth and fiscal slump: (1) an external story; (2) a macro story; and (3) a microeconomic story. Evidence of strong linkages between micro- and political developments and growth performance is provided.
2021
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.
2020
Goldstein, P., 2020. Pathways for Productive Diversification in Ethiopia, Growth Lab at Harvard's Center for International Development.Abstract

Ethiopia will need to increase the diversity of its export basket to guarantee a sustainable growth path. Ethiopia has shown stellar growth performance throughout the last two decades, but, in this period, export growth has been insufficient to finance the country’s balance of payments needs. As argued in our Growth Diagnostic report,1 Ethiopia’s growth decelerated as a result of the increasing external imbalances which have resulted in a foreign exchange constraint. This macroeconomic imbalance is now slowing the rate of economic growth, job creation and poverty alleviation across the country. Although export growth will not be rapid enough to address the foreign exchange constraint on its own in the short-term, the only way for the country to achieve macroeconomic balance as it grows in the longer term is to increase its exports per capita. With only limited opportunities to expand its exports on the intensive margin, the Government of Ethiopia (GoE) will have to strategically support the diversification of its economy to expand its exports base.

This report applies the theory of Economic Complexity in order to describe the base of productive knowhow and assess the opportunities and constraints to diversification in Ethiopia’s economy. The theory of Economic Complexity offers tools to capture and quantitatively estimate the diversity and sophistication of productive knowhow in an economy and to analyze the potential to develop comparative advantage in new industries. These tools provide valuable inputs for informing diversification strategies and the use of state resources by providing rigorous information on the risks and potential returns of government industrial policies in support of different sectors.

2016
Barrios, D., Russell, S. & Andrews, M., 2016. Bringing Home the Gold? A Review of the Economic Impact of Hosting Mega-Events.Abstract

There is perhaps no larger sports policy decision than the decision to host or bid to host a mega-event like the FIFA World Cup or the Summer Olympics. Hosts and bidders usually justify their decisions by touting their potential impact. Many organizers and promoters either fund or widely disseminate ex-ante studies that tend to highlight the positive effects of the event. For instance, the consultancy firm Ernst & Young produced a 2010 report prior to the 2014 World Cup in Brazil that painted an optimistic picture of the event’s potential legacy. It estimated that an additional R$142.39 billion (4.91% of 2010 GDP) would flow through the Brazilian economy over the 2010-2014 period, generating 3.63 million jobs per year, R$ 63.48 billion (2.17% of 2010 GDP) of income for the population and additional tax collection of R\$ 18.13 billion (0.62% of 2010 GDP) for the local, state and federal governments. Ernst & Young estimated that during the same period 2.98 million additional visitors would travel to Brazil, increasing the international tourist inflow up to 79%.

Such results, if true, would clearly attractive for governments considering a bid, but these expected impacts don’t always materialize. Moreover, hosting mega-events requires significant investments - and the cost of these investments is rising. Zimbalist notes emerging economies like China, Brazil, and South Africa have increasingly perceived "mega-events as a sort of coming-out party signaling that [they are] now a modernized economy, ready to make [their] presence felt in world trade and politics" (Zimbalist 2015). Their intentions may be noble, but the intention of using mega-events as a "coming-out party" means developing countries hoping to host them need to make massive investments. They are confronted by significant obstacles in that they lack sufficient stadiums, accommodations, transportation systems, and other sports-related infrastructure. As a result, each of the mega-events hosted by emerging economies has been exorbitantly expensive. The 2014 World Cup cost Brazil between USD 15 billion and USD 20 billion, while Beijing reportedly spent USD 40 billion prior to the 2008 Summer Olympic (Zimbalist 2015). Additionally, as the debt-ridden 1976 Summer Olympics in Montreal demonstrates, expensive mega-events are not limited to emerging economies alone. Flyvbjerg and Stewart have even shown that every Olympics since 1960 has gone over budget (Flyvbjerg and Stewart 2012).

Such incredible figures, in terms of both costs and benefits, beget the question: are mega-events worth it? Which type of reports should governments focus their attention on? What economic consequences should a government reasonably expect? With such high stakes, policymakers need to choose wisely. We attempt to answer these questions and aid the decisions of policymakers by providing a concise review of the rich academic literature on mega-events. For the purposes of this paper, we mainly focus on the Summer Olympic Games and the FIFA World Cup as mega-events. However, we also leverage information regarding events like the Winter Olympic Games, the UEFA football championships, and the Commonwealth Games. These events are organized on a smaller scale than the previous two, but they might provide some insights on how to best understand mega-events. We focus on claims surrounding the direct or indirect mechanisms that facilitate the impact that ex-ante studies predict. We provide a review of these claims and their validity according to the existing literature.

Section 1 focuses on the argument that mega-events lead to increased economic activity in the host economy. Specifically, we evaluate whether or not mega-events leads to access to previously inaccessible funds and increased investments. These investments could theoretically come from supranational organizations, private stakeholders, or public stakeholders. We also consider whether or not these new expenditures and investments have the multiplicative effect that many ex-ante studies assume they have. We finally investigate if the economic activity surrounding mega-events leads to increased revenues and tax collection for host governments. Overall, the existing academic literature suggests that any increased economic activity resulting from the event is routinely dwarfed by additional public budgetary commitments. Moreover, the arguments regarding multiplicative effects and increased revenues also tend to be exaggerated.

Section 2 shifts the focus to the potential impact of mega-events on a specific industry: tourism. We explore the effect of mega-events on the number of tourists visiting the host region and their spending habits. We explore this channel both for analyses specific to a single mega-event and for cross-country evaluations incorporating many events. Next, we consider the impact of a mega-event on a region’s brand and image in the international community with the idea of testing if hosting the competition will impact future tourism. Finally, we consider if mega-events lead to increases in the capacity of a city or country to welcome future tourists as a result of improved airport infrastructure, accommodations, and/or transportation systems. As was true in Section 1, the academic literature suggests that the claims of many ex-ante studies are misleading. Our review finds that there is some evidence for increases in tourist arrivals to certain events, but those increases are far smaller than what is generally predicted beforehand. These effects are also usually dependent on factors, such as the timing of the competition, that are specific to the host region and the event itself.

Section 3 briefly discusses other potential qualitative and social impacts of mega-events such as international business relations, crime reduction, and the "feel-good effect." In the penultimate section, Section 4, we discuss how these conclusions should impact the decision-making of policymakers. Finally, in a short conclusion, we summarize the findings of our review.

2015
Hausmann, R. & Chauvin, J., 2015. Moving to the Adjacent Possible: Discovering Paths for Export Diversification in Rwanda.Abstract

How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? We analyze Rwanda's historical growth and trade performance and find that Rwanda's high transportation costs and limited productive knowledge have held back greater export development and have resulted in excessive rural density. Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country's exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identify more than 100 tradable products that lie at Rwanda's knowledge frontier, are not intensive in Rwanda's scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. We illustrate an approach that can be applied to other settings in order to identify opportunities for export diversification that take seriously local constraints and external market opportunities.

Chekir, H. & Diwan, I., 2015. Crony Capitalism in Egypt. Journal of Globalization and Development.Abstract

The paper studies the nature and extent of Egyptian "crony" capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak 30 years rule. First, we identify politically connected firms and conduct an event study around the events of 2011, as well as around previous events related to rumors about Mubarak’s health. We estimate the market valuation of political connections to be 20% to 23% of the value of connected firms. Second, we explore the mechanisms used for granting these privileges by looking at corporate behavior before 2011. It appears that these advantages allowed connected firms to increase their market size and power and their borrowings. We finally compare the performance of firms and find that the rate of return on assets of connected firms was lower than that of non-connected firms by nearly 3 percentage points. We argue that this indicates that the granting of privileges was not part of a successful industrial policy but instead, that it led to a large misallocation of capital towards less efficient firms, which together with reduced competition, led to lower economic growth.

2014
Hausmann, R., et al., 2014. How should Uganda grow?.Abstract

Income per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanization rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low-productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them.

These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialization in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed.

The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyze what those new industries might be for Uganda.

To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighboring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradable industries.

2013
Diwan, I., Gaddah, O. & Osire, R., 2013. Looking like an Industry: Supporting Commercial Agriculture in Africa.Abstract

It has long been known that countries only converge conditionally i.e. poor countries catch up with richer ones only if they adopt policies and institutions that are conducive to economic growth. Recently, Dani Rodrik (2011) has shown that manufacturing industries, unlike countries, converge unconditionally. We look at countries' performance in agriculture and find that agricultural productivity actually shows unconditional divergence (and like GDP, conditional converge). This means that agriculture very much behaves like a country and not like industry. We find however that many crops do converge unconditionally, like industry. The question we then ask is: how can we make particular sectors in agriculture more like an "industry" and less like a "country?" The paper argues that the solution lies in finding business models that provide capital and access to missing markets in an aggregated fashion, thus forming high-productivity islands of quality. We provide examples and a discussion of promising business models that do that.

Diwan, I., 2013. Who are the Democrats? Leading Opinions in the Wake of Egypt's 2011 Popular Uprisings.Abstract

I look at changes in public opinion in Egypt, using the two waves of 2000 and 2008 of the World Value Survey. I find that during this period, there has been a major increase in popular support for democracy, a sizable rise in concerns about inequality, and a fall in support for political Islam. I examine the extent to which these changes are connected, and how they clustered along class, age, and education lines. The main findings are that while in 2000, younger Egyptians were more progressive than their parents, by 2008, Egyptian society had become much more organized around class interests and showed little inter-generational differentiation. New democrats come from all backgrounds, but with a concentration among those on the left. Among social classes, the middle class emerges as the main champion for democracy, driven by both aspiration and grievances motives

2012
Hausmann, R. & Bustos, S., 2012. Structural Transformation in Egypt, Morocco, and Tunisia: A Comparison with China, South Korea, and Thailand. In African Development Bank, pp. 15-68. Publisher's VersionAbstract

Countries seldom grow rich by producing more of the same. Development implies changes in what countries produce. Structural transformation is the process by which countries move into new economic activities. In turn, new economic activities are the ones that are able to achieve higher levels of productivity, pay higher wages and increase the level of prosperity of a country’s population. Structural transformation is crucial for economic growth: countries that are able to upgrade their production and exports by moving into new and more complex economic activities tend to grow faster.

Peters, P., 2012. Conflicts Over Land and Threats to Customary Tenure in Africa Today.Abstract

Issues swirling around land across Africa have never been so central to key social and political-economic dynamics as they are at the present time. The first part of the paper briefly reviews the construction of customary tenure and the historical phases of administrative interventions into land tenure, and considers their heritage in contemporary situations. The second part reviews the increasing competition and conflict centered on land; the increase in various types of land transfers that are implicated in the pervasive social conflict focused on land; and the associated rise in social inequality and contestation over belonging and citizenship. The third and final part discusses ‘land grabs’, the most recent surge of international interest in African land, and external and internal threats to ‘customary’ rights in land. The overall conclusion is that while relations around land have long been central to political economy, culture and society across the continent, their greater salience in intensifying struggles among actors within and from outside Africa has significance for the disposition of authority, property and citizenship.

Chekir, H. & Diwan, I., 2012. Crony Capitalism in Egypt.Abstract

The paper studies the nature and extent of Egyptian "crony" capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak 30 years rule. First, we identify politically connected firms and conduct an event study around the events of 2011, as well as around previous events related to rumors about Mubarak’s health. We estimate the market valuation of political connections to be 20% to 23% of the value of connected firms. Second, we explore the mechanisms used for granting these privileges by looking at corporate behavior before 2011. It appears that these advantages allowed connected firms to increase their market size and power and their borrowings. We finally compare the performance of firms and find that the rate of return on assets of connected firms was lower than that of non-connected firms by nearly 3 percentage points. We argue that this indicates that the granting of privileges was not part of a successful industrial policy but instead, that it led to a large misallocation of capital towards less efficient firms, which together with reduced competition, led to lower economic growth.

*Formerly titled: Distressed Whales on the Nile - Egypt Capitalists in the Wake of the 2010 Revolution

Ashraf, Q.H., Weil, D.N. & Wilde, J., 2012. The Effect of Fertility Reduction on Economic Growth.Abstract

We assess quantitatively the effect of exogenous reductions in fertility on output per capita. Our simulation model allows for effects that run through schooling, the size and age structure of the population, capital accumulation, parental time input into child-rearing, and crowding of fixed natural resources. The model is parameterized using a combination of microeconomic estimates, data on demographics and natural resource income in developing countries, and standard components of quantitative macroeconomic theory. We apply the model to examine the effect of a change in fertility from the UN medium-variant to the UN low-variant projection, using Nigerian vital rates as a baseline. For a base case set of parameters, we find that such a change would raise output per capita by 5.6 percent at a horizon of 20 years, and by 11.9 percent at a horizon of 50 years.

Frankel, J., 2012. Mauritius: African Success Story.Abstract

Mauritius is a top performer among African countries. It developed a manufacturing sector soon after independence and has managed to respond well to new external shocks. What explains this success? This paper draws on the history of the island, the writings of foreign economists, the ideas of locals, and the results of econometric tests. Mauritius has mostly followed good policies. They include: creating a well-managed Export Processing Zone, conducting diplomacy regarding trade preferences, spending on education, avoiding currency overvaluation, and facilitating business. The good policies can in turn be traced back to good institutions. They include: forswearing an army, protecting property rights (particularly non-expropriation of sugar plantations), and creating a parliamentary structure with comprehensive participation (in the form of representation for rural districts and ethnic minorities, the “best loser system,” ever-changing coalition governments, and cabinet power-sharing). But from where did the good institutions come? They were chosen around the time of independence in 1968. Why in Mauritius and not elsewhere? Luck?
Some fundamental geographic and historical determinants of trade and rule of law help explain why average income is lower in Africa than elsewhere, and trade and rule of law help explain performance within Africa just as they do worldwide. Despite these two econometric findings, the more fundamental determinants are not much help in explaining relative performance within Africa. Fundamental determinants that work worldwide but not within Africa are remoteness, tropics, size and fragmentation. (Access to the sea is the one fundamental geographic determinant of trade and income that is always important.) A case in point is the high level of ethnic diversity in Mauritius, which in many places would make for dysfunctional politics. Here, however, it brings cosmopolitan benefits. The institutions manage to balance the ethnic groups; none is excluded from the system. It is intriguing that the three African countries with the highest governance rankings (Mauritius, Seychelles and Cape Verde) are all islands that had no indigenous population. It helps that everyone came from somewhere else.

Frankel, J., 2012. The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions.Abstract

Countries with oil, mineral or other natural resource wealth, on average, have failed to show better economic performance than those without, often because of undesirable side effects. This is the phenomenon known as the Natural Resource Curse. This paper reviews the literature, classified according to six channels of causation that have been proposed. The possible channels are: (i) long-term trends in world prices, (ii) price volatility, (iii) permanent crowding out of manufacturing, (iv) autocratic/oligarchic institutions, (v) anarchic institutions, and (vi) cyclical Dutch Disease. With the exception of the first channel – the long-term trend in commodity prices does not appear to be downward – each of the other channels is an important part of the phenomenon. Skeptics have questioned the Natural Resource Curse, pointing to examples of commodity-exporting countries that have done well and arguing that resource exports and booms are not exogenous. The relevant policy question for a country with natural resources is how to make the best of them.

Frankel, J., 2012. What Small Countries Can Teach the World.Abstract

The large economies have each, in sequence, offered "models" that once seemed attractive to others but that eventually gave way to disillusionment. Small countries may have some answers. They are often better able to experiment with innovative policies and institutions and some of the results are worthy of emulation. This article gives an array of examples. Some of them come from small advanced countries: New Zealand’s Inflation Targeting, Estonia’s flat tax, Switzerland’s debt brake, Ireland’s FDI policy, Canada’s banking structure, Sweden’s Nordic model, and the Netherlands’ labor market reforms. Some examples come from countries that were considered "developing" 40 years ago, but have since industrialized. Korea stands for education; among Singapore’s innovative polices were forced saving and traffic congestion pricing; Costa Rica and Mauritius outperformed their respective regions by, among other policies, foreswearing standing armies; and Mexico experimented successfully with the original Conditional Cash Transfers. A final set of examples come from countries that export mineral and agricultural commodities -- historically vulnerable to the "resource curse" -- but that have learned how to avoid the pitfalls: Chile’s structural budget rules, Mexico’s oil option hedging, and Botswana’s "Pula Fund."

2010
Hausmann, R., Klinger, B. & López-Cálix, J.R., 2010. Export Diversification in Algeria. In Trade Competitiveness of the Middle East and North Africa. Washington, DC. Washington, DC: The World Bank, pp. 63-101.Abstract

This chapter applies new methodologies to examine the history of and future opportunities for export diversification in Algeria. The first section examines Algeria’s productive structure, which is highly concentrated in the hydrocarbons sector. It shows that this pattern of specialization is inconsistent with the country’s endowment of hydrocarbon resources. The lack of export diversification is suggestive of an inefficient distortion, reversal of which should be a clear policy priority.

The second section reviews some of the traditional explanations for a lack of export diversification in an oil-exporting country and shows that these explanations do not seem to hold for Algeria. It offers an alternative explanation, based not on macroeconomic volatility or real exchange rate appreciation but on the specificity of productive capabilities in the oil sector and their substitutability to other activities. This explanation underlies the notion of a “product space,” in which structural transformation occurs.

The third section introduces a new methodology to export diversification in Algeria, which is shown to be specialized in a highly peripheral part of the product space. Even activities that compose the non-oil export basket are highly peripheral in the product space, which helps explain the severe lack of export diversification.

The fourth section applies product space data to Algeria’s industrial strategy, using the methodology to identify high-potential export sectors. This data-driven approach has the benefit of systematically scanning the entire set of potential export goods using an empirically validated methodology. It complements other more qualitative and contextual approaches. This section uses the same methodology to review the sectors already identified by the Algerian government in the new industrial policy.

The last section discusses the policy implications of this analysis. A wide variety of methodologies can be used to generate lists of high potential export sectors; more difficult is determining what to do with such lists. The section offers a few specific policy recommendations and discusses some best practices. But the fact that most required public goods and constraints to investment are sector specific means that recommendations cannot be made at the macro level.