Ricardo Hausmann

2020
Coscia, M., Neffke, F. & Hausmann, R., 2020. Knowledge Diffusion in the Network of International Business Travel. Nature Human Behaviour. Publisher's VersionAbstract
We use aggregated and anonymized information based on international expenditures through corporate payment cards to map the network of global business travel. We combine this network with information on the industrial composition and export baskets of national economies. The business travel network helps to predict which economic activities will grow in a country, which new activities will develop and which old activities will be abandoned. In statistical terms, business travel has the most substantial impact among a range of bilateral relationships between countries, such as trade, foreign direct investments and migration. Moreover, our analysis suggests that this impact is causal: business travel from countries specializing in a specific industry causes growth in that economic activity in the destination country. Our interpretation of this is that business travel helps to diffuse knowledge, and we use our estimates to assess which countries contribute or benefit the most from the diffusion of knowledge through global business travel.
Hausmann, R. & Schetter, U., 2020. Horrible Trade-offs in a Pandemic: Lockdowns, Transfers, Fiscal Space, and Compliance.Abstract

In this paper, we develop a heterogeneous agent general equilibrium framework to analyze optimal joint policies of a lockdown and transfer payments in times of a pandemic. In our model, the effectiveness of a lockdown in mitigating the pandemic depends on endogenous compliance. A more stringent lockdown deepens the recession which implies that poorer parts of society find it harder to subsist. This reduces their compliance with the lockdown, and may cause deprivation of the very poor, giving rise to an excruciating trade-off between saving lives from the pandemic and from deprivation. Lump-sum transfers help mitigate this trade-off. We identify and discuss key trade-offs involved and provide comparative statics for optimal policy. We show that, ceteris paribus, the optimal lockdown is stricter for more severe pandemics and in richer countries. We then consider a government borrowing constraint and show that limited fiscal space lowers the optimal lockdown and welfare, and increases the aggregate death burden during the pandemic. We finally discuss distributional consequences and the political economy of fighting a pandemic.

Additional readings:

2020-06-cid-wp-382-pandemic-trade-offs.pdf
Ganguli, I., Hausmann, R. & Viarengo, M., 2020. Gender Differences in Professional Career Dynamics: New Evidence from a Global Law Firm.Abstract

We examine gender gaps in career dynamics in the legal sector using rich panel data from one of the largest global law firms in the world. The law firm studied is representative of multinational law firms and operates in 23 countries. The sample includes countries at different stages of development. We document the cross-country variation in gender gaps and how these gaps have changed over time. We show that while there is gender parity at the entry level in most countries by the end of the period examined, there are persistent raw gender gaps at the top of the organization across all countries. We observe significant heterogeneity among countries in terms of gender gaps in promotions and wages, but the gaps that exist appear to be declining over the period studied. We also observe that women are more likely to report exiting the firm for family and work-life balance reasons, while men report leaving for career advancement. Finally, we show that various measures of national institutions and culture appear to play a role in the differential labor-market outcomes of men and women.

2020-04-cid-wp-378-gender-dif-careers.pdf
Hausmann, R., Nedelkoska, L. & Noor, S., 2020. You Get What You Pay for: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka.Abstract

We study the factors behind the public sector premium in Albania and Sri Lanka, the group heterogeneity in the premium, the sources of public sector wage compression, and the impact of this compression on the way individuals self-select between the public and the private sector. Similar to other countries, the public sectors in Albania and Sri Lanka pay higher wages than the private sector, for all but the most valued employees. While half of the premium of Sri Lanka and two-thirds of it in Albania are explained by differences in the occupation-education-experience mix between the sectors, and the level of private sector informality, the unexplained part of the premium is significant enough to affect the preferences of working in the public sector for different groups. We show that the compressed distributions of public sector wages and benefits create incentives for positive sorting into the public sector among most employees, and negative sorting among the most productive ones.

Listen to a podcast with author Ljubica Nedelkoska as she discusses the factors behind public sector wage premiums. 

2020-02-cid-wp-376-public-sector-premium.pdf
Fernandez-Arias, E., Hausmann, R. & Panizza, U., 2020. Smart Development Banks. Journal of Industry, Competition and Trade , 19 (69). Publisher's VersionAbstract
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.
Machine-learned patterns suggest that diversification drives economic development
Gomez, A., et al., 2020. Machine-learned patterns suggest that diversification drives economic development. Journal of the Royal Society Interface , 17 (162). Publisher's VersionAbstract
We combine a sequence of machine-learning techniques, together called Principal Smooth-Dynamics Analysis (PriSDA), to identify patterns in the dynamics of complex systems. Here, we deploy this method on the task of automating the development of new theory of economic growth. Traditionally, economic growth is modelled with a few aggregate quantities derived from simplified theoretical models. PriSDA, by contrast, identifies important quantities. Applied to 55 years of data on countries’ exports, PriSDA finds that what most distinguishes countries’ export baskets is their diversity, with extra weight assigned to more sophisticated products. The weights are consistent with previous measures of product complexity. The second dimension of variation is proficiency in machinery relative to agriculture. PriSDA then infers the dynamics of these two quantities and of per capita income. The inferred model predicts that diversification drives growth in income, that diversified middle-income countries will grow the fastest, and that countries will converge onto intermediate levels of income and specialization. PriSDA is generalizable and may illuminate dynamics of elusive quantities such as diversity and complexity in other natural and social systems.
2019
Hausmann, R., et al., 2019. A Roadmap for Investment Promotion and Export Diversification: The Case of Jordan.Abstract

Jordan faces a number of pressing economic challenges: low growth, high unemployment, rising debt levels, and continued vulnerability to regional shocks. After a decade of fast economic growth, the economy decelerated with the Global Financial Crisis of 2008-09. From then onwards, various external shocks have thrown its economy out of balance and prolonged the slowdown for over a decade now. Conflicts in neighboring countries have led to reduced demand from key export markets and cut off important trade routes. Foreign direct investment, which averaged 12.7% of gross domestic product (GDP) between 2003-2009, fell to 5.1% of GDP over the 2010-2017. Regional conflicts have interrupted the supply of gas from Egypt – forcing Jordan to import oil at a time of record prices, had a negative impact on tourism, and also provoked a massive influx of migrants and refugees. Failure to cope with 50.4% population growth between led to nine consecutive years (2008-2017) of negative growth rates in GDP per capita, resulting in a cumulative loss of 14.0% over the past decade (2009-2018). Debt to GDP ratios, which were at 55% by the end of 2009, have skyrocketed to 94%.

Over the previous five years Jordan has undertaken a significant process of fiscal consolidation. The resulting reduction in fiscal impulse is among the largest registered in the aftermath of the Financial Crises, third only to Greece and Jamaica, and above Portugal and Spain. Higher taxes, lower subsidies, and sharp reductions in public investment have in turn furthered the recession. Within a context of lower aggregate demand, more consolidation is needed to bring debt-to-GDP ratios back to normal. The only way to break that vicious cycle and restart inclusive growth is by leveraging on foreign markets, developing new exports and attracting investments aimed at increasing competitiveness and strengthening the external sector. The theory of economic complexity provides a solid base to identify opportunities with high potential for export diversification. It allows to identify the existing set of knowhow, skills and capacities as signaled by the products and services that Jordan is able to make, and to define existing and latent areas of comparative advantage that can be developed by redeploying them. Service sectors have been growing in importance within the Jordanian economy and will surely play an important role in export diversification. In order to account for that, we have developed an adjusted framework that allows to identify the most attractive export sectors including services.

Based on that adjusted framework, this report identifies export themes with a high potential to drive growth in Jordan while supporting increasing wage levels and delivering positive spillovers to the non-tradable economy. The general goal is to provide a roadmap with key elements of a strategy for Jordan to return to a high economic growth path that is consistent with its emerging comparative advantages.

2020-01-cid-wp-374-roadmap-jordan-revised-march.pdf
Revised March 2020
Kasoolu, S., et al., 2019. Female Labor in Jordan: A Systematic Approach to the Exclusion Puzzle.Abstract

Women in Jordan are excluded from labor market opportunities at among the highest rates in the world. Previous efforts to explain this outcome have focused on specific, isolated aspects of the problem and have not exploited available datasets to test across causal explanations. We develop a comprehensive framework to analyze the drivers of low female employment rates in Jordan and systematically test their validity, using micro-level data from Employment and Unemployment Surveys (2008-2018) and the Jordanian Labor Market Panel Survey (2010-2016). We find that the nature of low female inclusion in Jordan’s labor market varies significantly with educational attainment, and identify evidence for different factors affecting different educational groups. Among women with high school education or less, we observe extremely low participation levels and find the strongest evidence for this phenomenon tracing to traditional social norms and poor public transportation. On the higher end of the education spectrum – university graduates and above – we find that the problem is not one of participation, but rather of unemployment, which we attribute to a small and undiversified private sector that is unable to accommodate women’s needs for work and work-family balance.

Listen to a podcast interview with author Semiray Kasoolu about her research on women and labor force exclusion in Jordan

2019-10-cid-wp-365-female-labor-jordan.pdf jordan-policy-brief-v11.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
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
Hausmann, R., Ganguli, I. & Viarengo, M., 2018. Career dynamics and gender gaps among employees in the microfinance sector. Publisher's VersionAbstract

While microfinance institutions (MFIs) are increasingly important as employers in the developing world, there is little micro-level evidence on gender differences among MFI employees and MFIs’ relation to economic development.

We use a unique panel dataset of employees from Latin America’s largest MFI to show that gender gaps favouring men for promotion exist primarily in the sales division, while there is a significant gender wage gap in the administrative division. Among loan officers in the sales division, the gender gap in promotion and wages reverses.

Finally, female employees tend to work with clients with better loan terms and a history of loans with the institution.

Hausmann, R., Ganguli, I. & Viarengo, M., 2018. Career Dynamics and Gender Gaps among Employees in the Microfinance Sector. In S. Anderson, L. Beaman, & J. - P. Platteau, ed. Towards Gender Equity and Development. Oxford University Press.
The workforce of pioneer plants: The role of worker mobility in the diffusion of industries
Hausmann, R. & Neffke, F., 2018. The workforce of pioneer plants: The role of worker mobility in the diffusion of industries. Research Policy. Publisher's VersionAbstract

Does technology require labour mobility to diffuse? To explore this, we use German social-security data and ask how plants that pioneer an industry in a location – and for which the local labour market offers no experienced workers – assemble their workforces. These pioneers use different recruiting strategies than plants elsewhere: they hire more workers from outside their industry and from outside their region, especially when workers come from closely related industries or are highly skilled. The importance of access to experienced workers is highlighted in the diffusion of industries from western Germany to the post-reunification economy of eastern German. While manufacturing employment declined in most advanced economies, eastern German regions managed to reindustrialise. The pioneers involved in this process relied heavily on expertise from western Germany: while establishing new manufacturing industries in the East, they sourced half of their experienced workers from the West.

Originally published as CID Working Paper 310
Kosack, S., et al., 2018. Functional structures of US state governments. Proceedings of the National Academy of Sciences of the United States of America. Publisher's VersionAbstract

Governments in modern societies undertake an array of complex functions that shape politics and economics, individual and group behavior, and the natural, social, and built environment. How are governments structured to execute these diverse responsibilities? How do those structures vary, and what explains the differences? To examine these longstanding questions, we develop a technique for mapping Internet “footprint” of government with network science methods. We use this approach to describe and analyze the diversity in functional scale and structure among the 50 US state governments reflected in the webpages and links they have created online: 32.5 million webpages and 110 million hyperlinks among 47,631 agencies. We first verify that this extensive online footprint systematically reflects known characteristics: 50 hierarchically organized networks of state agencies that scale with population and are specialized around easily identifiable functions in accordance with legal mandates. We also find that the footprint reflects extensive diversity among these state functional hierarchies. We hypothesize that this variation should reflect, among other factors, state income, economic structure, ideology, and location. We find that government structures are most strongly associated with state economic structures, with location and income playing more limited roles. Voters’ recent ideological preferences about the proper roles and extent of government are not significantly associated with the scale and structure of their state governments as reflected online. We conclude that the online footprint of governments offers a broad and comprehensive window on how they are structured that can help deepen understanding of those structures.

Visualizations and datasets available on project website >>

 

government-structure-paper.pdf
Hausmann, R., Pietrobelli, C. & Santos, M.A., 2018. Place-specific Determinants of Income Gaps: New Sub-National Evidence from Chiapas, Mexico.Abstract

The literature on income 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 between Chiapas and the other Mexican entities has shrunk while the income 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. Based on census data, we calculate the economic complexity index, a measure of the knowledge agglomeration embedded in the economic activities at a municipal level in Mexico. Economic complexity explains a larger fraction of the income gap than any individual factor. Our results suggest that chiapanecos are not the problem, the problem is Chiapas. These results hold when we extend our analysis to Mexico’s thirty-one federal entities, suggesting that place-specific determinants that have been overlooked in both the literature and policy, have a key role in the determination of income gaps.

 

2020-02-cid-wp-343-revised-determinants-chiapas.pdf
Revised February 2020
Hausmann, R., Hinz, J. & Yildirim, M.A., 2018. Measuring Venezuelan Emigration with Twitter.Abstract
Venezuela has seen an unprecedented exodus of people in recent months. In response to a dramatic economic downturn in which inflation is soaring, oil production tanking, and a humanitarian catastrophe unfolding, many Venezuelans are seeking refuge in neighboring countries. However, the lack of official numbers on emigration from the Venezuelan government, and receiving countries largely refusing to acknowledge a refugee status for affected people, it has been difficult to quantify the magnitude of this crisis. In this note we document how we use data from the social media service Twitter to measure the emigration of people from Venezuela. Using a simple statistical model that allows us to correct for a sampling bias in the data, we estimate that up to 2,9 million Venezuelans have left the country in the past year.
ven_emigration_cidwp342.pdf
2017
Hausmann, R., 2017. Increasing Your Chances of Success while Leaving Your Comfort Zone: Adapting Sri Lanka’s Growth Model.Abstract
View Ricardo Hausmann's presentation to the Ministry of Development Strategies and International Trade.
hausmann_january2017_2.pdf
Hausmann, R., Santos, M.A. & Obach, J., 2017. Appraising the Economic Potential of Panama: Policy Recommendations for Sustainable and Inclusive Growth.Abstract

This report aims to summarize the main findings of the project as gathered by the three baseline documents, and frame them within a coherent set of policy recommendations that can help Panama to maintain their growth momentum in time and make it more inclusive. Three elements stand out as cornerstones of our proposal:

(i) attracting and retaining qualified human capital;

(ii) maximizing the diffusion of know-how and knowledge spillovers, and

(iii) leveraging on public-private dialog to tackle coordination problems that are hindering economic activity outside the Panama-Colón axis.

panama_policy_wp_334.pdf
Coscia, M., Cheston, T. & Hausmann, R., 2017. Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia.Abstract

Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.

 

colombia_convergence_cidwp_331.pdf
Hausmann, R. & Nedelkoska, L., 2017. Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment.Abstract

The recent economic depression in Greece hit the population of Albanian migrants in Greece particularly hard, spurring a wave of return migration which increased the Albanian labor force by 5 percent in less than four years, between 2011 and 2014. We study how this return migration affected the employment chances and earnings of Albanians who never migrated. We find positive effects on the wages of low-skilled non-migrants and overall positive effects on employment. The gains partially offset the sharp drop in remittances in the observed period. An important part of the employment gains are concentrated in the agricultural sector, where most return migrants engage in self-employment and entrepreneurship. Businesses run by return migrants seem to pull Albanians from non-participation, unemployment and subsistence agriculture into commercial agriculture. 

return_migration_cidwp_330.pdf return_migration_brief.pdf

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