Ricardo Hausmann

2022
The new paradigm of economic complexity
Balland, P.-A., et al., 2022. The new paradigm of economic complexity. Research Policy , 51 (3). Publisher's VersionAbstract
Economic complexity offers a potentially powerful paradigm to understand key societal issues and challenges of our time. The underlying idea is that growth, development, technological change, income inequality, spatial disparities, and resilience are the visible outcomes of hidden systemic interactions. The study of economic complexity seeks to understand the structure of these interactions and how they shape various socioeconomic processes. This emerging field relies heavily on big data and machine learning techniques. This brief introduction to economic complexity has three aims. The first is to summarize key theoretical foundations and principles of economic complexity. The second is to briefly review the tools and metrics developed in the economic complexity literature that exploit information encoded in the structure of the economy to find new empirical patterns. The final aim is to highlight the insights from economic complexity to improve prediction and political decision-making. Institutions including the World Bank, the European Commission, the World Economic Forum, the OECD, and a range of national and regional organizations have begun to embrace the principles of economic complexity and its analytical framework. We discuss policy implications of this field, in particular the usefulness of building recommendation systems for major public investment decisions in a complex world.
2021
Lack of progress cannot be solved by a redistributive strategy
Hausmann, R., 2021. Lack of progress cannot be solved by a redistributive strategy. In I. Goldfajn & E. L. Yeyati, ed. Latin America: The Post-Pandemic Decade. London. London: Centre for Economic Policy Research Press, pp. 75-87. Publisher's VersionAbstract

Section II, "Policies for sustainable growth", includes dialogues with Mauricio Cárdenas, Marcela Eslava, Ricardo Hausmann, Rodrigo Valdés and Alejandro Werner.

Returning to sustained growth is a key challenge for Latin American economies. This section discusses the causes of the dismal performance of Latin America and the post-Covid policies needed to change this reality. Contributors in this section suggest that the region will witness important rebounds during 2021-2022. The recovery that started in the second half of 2020 gained strength as the economies gradually reopened following rising vaccination rates. Some countries will be reaching 2019 GDP levels in 2021; others, in 2022. However, the concern is that these recoveries will be short-lived. And if global financial conditions become less supportive, the next decade could be quite demanding.

In the medium term, Latin America is expected to exhibit significant scars from Covid, as growth is expected to be permanently below the levels anticipated before the pandemic. But the severe problem of the limited growth potential of the region predates the crisis. And, even for countries that grew more than the Latin American average, the post-pandemic future looks bleaker. The contributors highlight several reasons behind this modest performance. The first and the most commonly cited is macroeconomic mismanagement (high inflation, financial fragility leading to balance-of-payments crises). However, even countries that successfully achieved macroeconomic stabilisation failed to achieve sustained growth. It follows that the forces behind low growth are more complex: the business environment has been feeble; there is a lack of appropriate governance; the natural resource curse applies in some countries, with weak institutions and short-sighted governments with the perception that there is no need for further effort; there are social, political and institutional factors that complicate the building of a consensus around an economic policy framework that sets the foundations for medium-term inclusive growth. In addition, relatively slow technological progress widens the region’s technological gap with the advanced world. Moreover, while the lack of social progress cannot be solved merely with a redistributive strategy, the region’s regressive income distribution and structural poverty are detrimental to growth through their impact on the expected sustainability of economic regimes, as well as, on occasions, pure expropriation risk arising from social tensions. In the meantime, local talent remains undiscovered and undernourished for lack of opportunities.

Most doubt the possibility of implementing successful industrial policies in the region, sceptical that Latin American policymakers could efficiently substitute for the right market signals and incentives, and propose that the development strategy should be largely based on horizontal policies. But some see a role for the state to address the many unexploited externalities, arguing that public goods do not possess the market’s invisible hand to signal where the information about what is needed, the incentives to provide these public goods, and the allocation of resources.

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

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

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

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

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

2021-12-cid-wp-401-telework_colombia.pdf
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. 

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
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
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.
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
Place-specific determinants of income gaps: New sub-national evidence from Mexico
Hausmann, R., Pietrobelli, C. & Santos, M.A., 2021. Place-specific determinants of income gaps: New sub-national evidence from Mexico. Journal of Business Research. Publisher's VersionAbstract
The literature on wage gaps between Chiapas and the rest of Mexico revolves around individual factors, such as education and ethnicity. Yet, twenty years after the Zapatista rebellion, the schooling gap has shrunk while the wage gap has widened, and we find no evidence indicating that Chiapas indigenes are worse-off than their likes elsewhere in Mexico. We explore a different hypothesis and argue that place-specific characteristics condition the choices and behaviors of individuals living in Chiapas and explain persisting income gaps. Most importantly, they limit the necessary investments at the firm level in dynamic capabilities. Based on census data, we calculate the economic complexity index, a measure of the knowledge agglomeration embedded in the economic activities at the municipal level. Economic complexity explains a larger fraction of the wage gap than any individual factor. Our results suggest that the problem is Chiapas, and not Chiapanecos.
2020
Hausmann, R., et al., 2020. Buscando virtudes en la lejanía: Recomendaciones de política para promover el crecimiento inclusivo y sostenible en Loreto, Peru.Abstract

Loreto es un lugar de contrastes. Es el departamento más grande del Perú, pero se encuentra entre los de menor densidad poblacional. Su capital, Iquitos, está más cerca de los estados fronterizos de Brasil y Colombia que de las capitales de sus regiones vecinas en el Perú - San Martín y Ucayali. Sólo se puede llegar a Iquitos por vía aérea o fluvial, lo que la convierte en una de las mayores ciudades del mundo sin acceso por carretera. Desde la fundación del departamento, la economía de Loreto ha dependido de la explotación de recursos naturales, desde el boom del caucho a finales del siglo XIX y principios del XX hasta la extracción petrolera y explotación de recursos forestales que predomina en nuestros días. Este modelo ha traído consigo daños ambientales significativos y ha producido un patrón de crecimiento lento y volátil, que ha abierto una brecha cada vez más amplia entre la economía de la región y la del resto del país. Entre 1980 y 2018, Loreto creció a una tasa promedio compuesta anual cuatro veces menor a la del resto del Perú. Es decir, mientras el resto del Perú triplicó el tamaño de su economía, la de Loreto creció algo menos que un tercio.

En la última década (2008-2018), la región también se ha venido distanciando de sus pares amazónicos en el país (Ucayali, San Martín y Madre de Dios), que han crecido a una tasa promedio anual cinco veces mayor. En este período, el ingreso promedio por habitante en Loreto ha pasado de ser tres cuartas partes del promedio nacional en 2008 a menos de la mitad para 2018. Además del rezago económico - o quizás como consecuencia de él -, Loreto también se ubica entre los departamentos con peores indicadores de desarrollo social, anemia y desnutrición infantil del Perú.

En este contexto, el Laboratorio de Crecimiento de la Universidad de Harvard se asoció con la Fundación Gordon and Betty Moore para desarrollar una investigación que proporcionara insumos y recomendaciones de política para acelerar el desarrollo de la región y generar prosperidad de forma sostenible.

2020-12-cid-wp-388-loreto-policy-recommendations-es.pdf
Hausmann, R., et al., 2020. Diagnóstico de Crecimiento de Loreto: Principales Restricciones al Desarrollo Sostenible.Abstract

Sembrado en el flanco oeste de la selva amazónica, Loreto se encuentra entre los departamentos más pobres y con peores indicadores sociales del Perú. El desarrollo enfrenta allí un sinfín de barreras, pero no todas son igualmente limitantes y tampoco hay recursos para atender todos los problemas a la vez. El Laboratorio de Crecimiento de la Universidad de Harvard, bajo el auspicio de la Fundación Gordon and Betty Moore, ha desarrollado un Diagnóstico de Crecimiento que buscar identificar las restricciones más limitantes, y priorizar las intervenciones de políticas públicas alrededor de un número reducido de factores con el mayor impacto. La investigación, que se fundamenta en análisis de bases de datos nacionales e internacionales, e incluye factores cuantitativos y cualitativos derivados de las visitas de campo, identifica a la conectividad de transporte, los problemas de coordinación asociados al autodescubrimiento, y la energía eléctrica, como las restricciones más vinculantes para el desarrollo de Loreto. De acuerdo con nuestras conclusiones, mejoras en la provisión de estos tres factores tendrían un mayor impacto sobre el desarrollo sostenible de la región que mejores en la educación y los niveles de capital humano, el acceso a financiamiento, y otros sospechosos habituales. Este reporte es el segundo de una investigación más amplia – Transformación estructural y restricciones limitantes a la prosperidad en Loreto, Perú – que busca aportar insumos para el desarrollo de políticas públicas a escala nacional y regional que contribuyan a promover el desarrollo productivo y la prosperidad de la región.

2020-11-cid-wp-387-loreto-growth-diagnostic-es.pdf
Hausmann, R., et al., 2020. La Riqueza Escondida de Loreto: Análisis de Complejidad Económica y Oportunidades de Diversificación Productiva.Abstract

El Laboratorio de Crecimiento de la Universidad de Harvard, bajo el auspicio de la Fundación Gordon and Betty Moore, ha desarrollado esta investigación para identificar las capacidades productivas existentes en Loreto y las actividades económicas con potencial para liderar la transformación estructural de su economía. Este reporte forma parte de una investigación más amplia – Transformación estructural y restricciones limitantes a la prosperidad en Loreto, Perú – que busca aportar insumos para el desarrollo de políticas públicas a escala nacional y regional que contribuyan a promover el desarrollo productivo y la prosperidad de la región, tomando en cuenta sus características particulares.

2020-10-cid-wp-386-economic-complexity-loreto-es.pdf 2021-03-cid-wp-386-economic-complexity-loreto-en.pdf.pdf
Hausmann, R., et al., 2020. Emerging Cities as Independent Engines of Growth: The Case of Buenos Aires.Abstract

What does it take for a sub-national unit to become an autonomous engine of growth? This issue is particularly relevant to large cities, as they tend to display larger and more complex know-how agglomerations and may have access to a broader set of policy tools. To approximate an answer to this question, specific to the case of Buenos Aires, Harvard’s Growth Lab engaged in a research project from December 2018 to June 2019, collaborating with the Center for Evidence-based Evaluation of Policies (CEPE) of Universidad Torcuato di Tella, and the Development Unit of the Secretary of Finance of the City of Buenos Aires. Together, we have developed research agenda that seeks to provide inputs for a policy plan aimed at decoupling Buenos Aires’s growth trajectory from the rest of Argentina’s.

Listen to the Growth Lab Podcast interview with the authors. 

2020-10-cid-wp-385-independent-engines-buenos-aires.pdf
Knowledge Diffusion in the Network of International Business Travel
Coscia, M., Neffke, F. & Hausmann, R., 2020. Knowledge Diffusion in the Network of International Business Travel. Nature Human Behaviour , 4 (10). 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.

Additional content:

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

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