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2014
Contreras, V., et al., 2014. Expropriation risk and housing prices: Evidence from an emerging market. Journal of Business Research , 67 (5) , pp. 935-942. Publisher's VersionAbstract
This paper examines the microeconomic determinants of residential real estate prices in Caracas, Venezuela, using a private database containing 17,526 transactions from 2008 to 2009. The particular institutional characteristics of many countries in Latin America, and Venezuela in particular, where land invasions and expropriations (with only partial compensation) have been common threats to property owners, provide us with an opportunity to test the effects of these risks on housing prices using a unique database. The effect of these risks on property prices is negative and significant. To our knowledge, this is the first attempt to quantify these impacts in the Hedonic pricing literature applied to real estate. Size, the number of parking spaces, the age of the property, the incidence of crime, and the average income in the neighborhood are significant determinants of prices. Finally, this paper analyzes the microeconomic determinants of housing prices at the municipal level.
expropriation_risk_housing_prices_santos.pdf
Neffke, F., et al., 2014. Agents of Structural Change: The role of firms and entrepreneurs in regional diversification.Abstract

Who introduces structural change in regional economies: Entrepreneurs or existing firms? And do local or non‐local founders of establishments create most novelty in a region? Using matched employer/employee data for the whole Swedish workforce, we determine how unrelated and therefore how novel the activities of different establishments are to a region’s industry mix. Up‐ and downsizing establishments cause large shifts in the local industry structure, but these shifts only occasionally require an expansion of local capabilities because the new activities are often related to existing local activities. Indeed, these incumbents tend to align their production with the local economy, deepening the region’s specialization. In contrast, structural change mostly originates via new establishments, especially those with non‐local roots. Moreover, although entrepreneurs start businesses more often in activities unrelated to the existing regional economy, new establishments founded by existing firms survive in such activities more often, inducing longer‐lasting changes in the region.

cid_rfwp_75.pdf
Lawrence, R., Frasheri, E. & Qazi, M., 2014. Integration in the Balkans: Albania and Kosovo, Growth Lab at Harvard's Center for International Development.Abstract

Despite their historic and ethnic ties, trade and investment between Albania and Kosovo remains underdeveloped. To be sure, even if fully developed, Kosovo is unlikely to play a major role in Albanian external economic relations. Nonetheless, increased economic integration between the two countries can serve as the basis not only for enhancing the ties between the two countries, but also for spurring the measures that could act as a springboard for Albania’s integration with respect to other countries in the Balkans as well as with the EU.  

integration_in_the_balkans-albania_and_kosovo_cid_report.pdf
Pennacchioli, D., et al., 2014. The retail market as a complex system. EPJ Data Science , 3 (33). Publisher's VersionAbstract

Aim of this paper is to introduce the complex system perspective into retail market analysis. Currently, to understand the retail market means to search for local patterns at the micro level, involving the segmentation, separation and profiling of diverse groups of consumers. In other contexts, however, markets are modelled as complex systems. Such strategy is able to uncover emerging regularities and patterns that make markets more predictable, e.g. enabling to predict how much a country’s GDP will grow. Rather than isolate actors in homogeneous groups, this strategy requires to consider the system as a whole, as the emerging pattern can be detected only as a result of the interaction between its self-organizing parts. This assumption holds also in the retail market: each customer can be seen as an independent unit maximizing its own utility function. As a consequence, the global behaviour of the retail market naturally emerges, enabling a novel description of its properties, complementary to the local pattern approach. Such task demands for a data-driven empirical framework. In this paper, we analyse a unique transaction database, recording the micro-purchases of a million customers observed for several years in the stores of a national supermarket chain. We show the emergence of the fundamental pattern of this complex system, connecting the products’ volumes of sales with the customers’ volumes of purchases. This pattern has a number of applications. We provide three of them. By enabling us to evaluate the sophistication of needs that a customer has and a product satisfies, this pattern has been applied to the task of uncovering the hierarchy of needs of the customers, providing a hint about what is the next product a customer could be interested in buying and predicting in which shop she is likely to go to buy it.

 

 

s13688-014-0033-x.pdf
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.

cid_working_paper_275.pdf
Hausmann, R., et al., 2014. Implied Comparative Advantage. CID Working Paper , 276.Abstract

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 underlying process that governs the evolution of comparative advantage. We build a simple Ricardian-inspired model and show this hidden information on inter-industry and inter-location relatedness can be captured by simple correlations between the observed patterns of industries across locations or locations across industries. Using the information from related industries or related locations, we calculate the implied comparative advantage and show that this measure 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). The deviations between the observed and implied comparative advantage measures 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.

2020-07-cid-wp-276-revised-implied-comparative-advantage.pdf
Revised July 2020.
Pritchett, L., et al., 2014. Trillions Gained and Lost: Estimating the Magnitude of Growth Episodes. CID Working Paper , 279.Abstract

We propose and implement a new technique for measuring the total magnitude of a growth episode: the change in output per capita resulting from one structural break in the trend growth of output (acceleration or deceleration) to the next. The magnitude of the gain or loss from a growth episode combines (a) the difference between the post-break growth rate versus a counter-factual "no break" growth rate and (b) the duration of the episode to estimate the difference in output per capita at the end of an episode relative to what it would have been in the "no break" scenario. We use three "counter-factual" growth rates that allow for differing degrees of regression to global average growth: "no change" (zero regression to the mean), "world episode average" (full regression to the mean) and "unconditional predicted growth" (which uses a regression for each growth episode to predict future growth based only on past growth and episode initial level). We can also calculate the net present value at the start of an episode of the gain or loss in output comparing the actual evolution of output per capita versus a counter-factual. This method allows us to place dollar figures on growth episodes. The top 20 growth accelerations have Net Present Value (NPV) magnitude of 30 trillion dollars - twice US GDP. Conversely, the collapse in output in Iran between 1976 and 1988 produced an NPV loss of $143,000 per person. The top 20 growth decelerations account for 35 trillion less in NPV of output. Paraphrasing Lucas, once one begins to think about what determines growth events that cause the appearance or disappearance of output value equal to the total US economy, it is hard to think about anything else.

cid_working_paper_279.pdf
2014. Colombia Atlas of Economic Complexity (Datlas).
2013
2013. Economic Complexity Brief.Abstract

How does an economy grow? What is economic complexity? How do we determine where countries can start to diversify their production? The growth theories of Ricardo Hausmann and others at CID are explained in this 5 page briefing.

economic_complexity_briefing.pdf
The Atlas of Economic Complexity: Mapping Paths to Prosperity
Hausmann, R., et al., 2013. The Atlas of Economic Complexity: Mapping Paths to Prosperity 2nd ed., Cambridge: MIT Press. Publisher's VersionAbstract

From the foreword:

It has been two years since we published the first edition of The Atlas of Economic Complexity. "The Atlas," as we have come to refer to it, has helped extend the availability of tools and methods that can be used to study the productive structure of countries and its evolution.

Many things have happened since the first edition of The Atlas was released at CID's Global Empowerment Meeting, on October 27, 2011. The new edition has sharpened the theory and empirical evidence of how knowhow affects income and growth and how knowhow itself grows over time. In this edition, we also update our numbers to 2010, thus adding two more years of data and extending our projections. We also undertook a major overhaul of the data. Sebastián Bustos and Muhammed Yildirim went back to the original sources and created a new dataset that significantly improves on the one used for the 2011 edition. They developed a new technique to clean the data, reducing inconsistencies and the problems caused by misreporting. The new dataset provides a more accurate estimate of the complexity of each country and each product. With this improved dataset, our results are even stronger.

All in all, the new version of The Atlas provides a more accurate picture of each country’s economy, its "adjacent possible" and its future growth potential.

For up-to-date datasets and new visualizations, visit atlas.cid.harvard.edu.

 

atlas_2013_part1.pdf
The Dynamics of Economic Growth: A Visual Handbook of Growth Rates, Regimes, Transitions and Volatility
Kar, S., et al., 2013. The Dynamics of Economic Growth: A Visual Handbook of Growth Rates, Regimes, Transitions and Volatility, ESID. Publisher's VersionAbstract

Why there are such significant and persistent differences in living standards across countries is one of the most important and challenging areas of development policy. In spite of a voluminous literature on the causes of economic growth, we still have a long way to go in understanding why the growth experiences of countries differ so much, why growth changes so much (for good and ill) over time, and why only a handful of developing countries have seen their incomes converge to the levels observed in developed countries. To understand the causes of economic growth, we first need to understand what growth is. Much of the focus in the academic and policy literature on "growth" has been on steady-state or long-run average rates of growth of output per capita, or equivalently, comparing levels of income. But the focus on one single growth rate for a particular country misses the point that most countries observe dramatic changes in their growth of per capita income. We present visually the dynamics of the growth experiences of 125 countries. The graphs themselves (and embedded numeric information) highlight the key point that we would like to convey in this Handbook – that economic growth is dynamic and episodic and that many countries have gone through very different growth phases. We identify the timing and magnitude of "breaks" or "episodes" or "regime transitions" for all our 125 countries from the application of a standard statistical procedure. Viewing economic growth as transitions across growth phases would imply that we would need to move beyond current approaches to growth, and that new "third generation" theoretical models and empirical methods would need to be developed to understand what determines economic growth.

dynamics_economic_growth_handbook.pdf
Rising Tide: Is Growth in Emerging Economies Good for the United States?
Edwards, L. & Lawrence, R.Z., 2013. Rising Tide: Is Growth in Emerging Economies Good for the United States?, Peterson Institute for International Economics. Publisher's VersionAbstract

In 1963, US President John F. Kennedy said that ''a rising tide lifts all the boats. And a partnership, by definition, serves both parties, without domination or unfair advantage.'' US international economic policy since World War II has been based on the premise that foreign economic growth is in America's economic, as well as political and security, self-interest. The bursting of the speculative dot.com bubble, slowing US growth, and the global financial crisis and its aftermath, however, have led to radical changes in Americans' perceptions of the benefits of global trade. Many Americans believe that trade with emerging-market economies is the most important reason for US job loss, especially in manufacturing, is detrimental to American welfare and an important source of wage inequality. Several prominent economists have reinforced these public concerns.

In this study, Lawrence Edwards and Robert Z. Lawrence confront these fears through an extensive survey of the empirical literature and in depth analyses of the evidence. Their conclusions contradict several popular theories about the negative impact of US trade with developing countries. They find considerable evidence that while adjusting to foreign economic growth does present America with challenges, growth in emerging-market economies is in America's economic interest. It is hard, of course, for Americans to become used to a world in which the preponderance of economic activity is located in Asia. But one of America s great strengths is its adaptability. And if it does adapt, the American economy can be buoyed by that rising tide.

Coscia, M., Hausmann, R. & Hidalgo, C.A., 2013. The Structure and Dynamics of International Development Assistance. Journal of Globalization and Development , 3 (2) , pp. 1-42. Publisher's VersionAbstract

We study the structure of international aid coordination by creating and analyzing a tripartite network of donor organizations, recipient countries and development issues using web-based information. We develop a measure of coordination and find that it is moderate, achieving about 60% of its theoretical maximum. Many countries are strongly connected to organizations that are related to the issues that are salient there. Nevertheless, we identify many countries that are poorly served, issues that are inadequately attended to, and organizations that focus on the wrong combination of places and issues. Our approach may be used to improve decentralized coordination.

Hausmann, R., Dell’Erba, S. & Panizza, U., 2013. Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies.Abstract

This paper studies the relationship between sovereign spreads and the interaction between debt composition and debt levels in advanced and emerging market countries. It finds that in emerging market countries there is a significant correlation between spreads and debt levels. This correlation, however, is not statistically significant in countries where most public debt is denominated in local currency. In advanced economies, the magnitude of the correlation between debt levels and spreads is about one fifth of the corresponding correlation for emerging market economies. In Eurozone countries, however, the correlation between spreads and debt ratios is similar to that of emerging market countries. The paper also shows that the financial crisis amplified the relationship between spreads and debt levels within the Eurozone but had no effect on the relationship between spreads and debt in standalone countries. Finally, the paper shows that the relationship between debt levels and spreads is amplified by the presence of large net foreign liabilities. This amplifying effect of net foreign liabilities is larger in the Eurozone than in standalone advanced economies. The paper concludes that debt composition matters and corroborates the original sin hypothesis that, rather than being a mere reflection of institutional weaknesses, the presence of foreign currency debt increases financial fragility and leads to suboptimal macroeconomic policies.

cid_working_paper_263.pdf
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.

cid_working_paper_266.pdf
Pritchett, L. & Kenny, C., 2013. Promoting Millennium Development Ideals: The Risks of Defining Development Down.Abstract

The approach of 2015, the target date of the Millennium Development Goals, sets the stage for a global reengagement on the question of "what is development?" We argue that the post-2015 development framework for development should include Millennium Development Ideals which put into measurable form the high aspirations countries have for the well-being of their citizens. Standing alone, low bar targets like the existing Millennium Development Goals "define development down" and put at risk both domestic and global coalitions to support to an inclusive development agenda. Measuring development progress exclusively by low bar targets creates the illusion that specific targeted programs can be an adequate substitute for a broad national and global development agenda.

cid_working_paper_265.pdf
Pritchett, L. & Viarengo, M., 2013. The State, Socialization, and Private Schooling: When Will Governments Support Alternative Producers?.Abstract

Understanding the institutional features that can improve learning outcomes and reduce inequality is a top priority for international and development organizations around the world. Economists appear to have a good case for support to non-governmental alternatives as suppliers of schooling. However, unlike other policy domains, freer international trade or privatization, economists have been remarkably unsuccessful in promoting the adoption of this idea. We develop a simple general positive model of why governments typically produce schooling which introduces the key notion of the lack of verifiability of socialization and instruction of beliefs, which makes third party contracting for socialization problematic. We use the model to explain variations around the world in levels of private schooling. We also predict the circumstances in which efforts to promote the different alternatives to government production – like charter, voucher, and scholarship - are likely to be successful.

cid_working_paper_272.pdf
Kremer, M. & Snyder, C., 2013. When is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity.Abstract

We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer’s ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments—sold after the disease is contracted, when disease risk is no longer a source of private information—always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the U.S. distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity.

cid_working_paper_252.pdf
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

cid_working_paper_256.pdf
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.

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