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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.

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 >>

In Albania, the average specific expenditure by foreign tourists (non-residents) was 13.3% of GDP during 2013-2017, which clocked a 30% growth within the four-year duration. The number of foreign citizen arrivals in the first half of 2018 has seen an increase by 9.1%, as compared to the same period in 2017. "Holiday" is the second most popular purpose of their visit reported after "Others." Tourism being the largest industry since 1990, with Europe representing 42%3 of its total share, there remain huge economic dividends to reap for the emerging tourism industry in Albania. Moreover, this sector can generate non-farm employment in the agriculture sector. The challenge then is it to understand what is driving tourism growth in Albania, and what binds Albania’s tourism opportunities from growing faster.

The UN World Tourism Organisation (UNWTO) defines sustainable tourism as an enterprise that achieves a balance between the environmental, economic and socio-cultural aspects of tourism development for long-term benefits to recipient communities. The Government of Albania, led by Prime Minister Edi Rama, has identified Agritourism as a particularly inclusive and sustainable tourism opportunity and prioritized its development as a rural economic diversification tool within the country’s new "100+ villages Programme." Consistent with this program, the Ministry of Tourism and Environment (MoTE) has started certifying Agritourism businesses, while Ministry of Agriculture and Rural Development (MoARD) through the Albanian Rural Development Agency (ARDA) is in the process of funding Agritourism projects. It is essential to understand the emerging patterns within the sector to strategize appropriately supportive policies.

The Movements of citizens in Albania (INSTAT) report for June 2018 indicates a decrease by 13.3% in the number of foreign citizens’ arrivals as compared to June 2017. There is (month-by-month) erratic traffic of tourists and hence undefined tourism season for the country. The Government of Albania faces a dearth of tourism specific information, like in attractions visited most by tourists, or mapping of identified agritourism farms to make better policy judgements required for seasonal tourism preparedness.

Oaxaca is the second-poorest state in Mexico. It is also growing more slowly than the national average, leading to regional divergence. This paper seeks to diagnose the binding constraints that keep GDP growth in Oaxaca low.

There is significant variation in average monthly incomes within Oaxaca, with a 12x gap between the municipality with the highest salary and that with the lowest. Oaxaca has 570 municipalities, whereas given its population and the national average for people per municipality it should have 66. And it is very indigenous: 58% of the population speaks an indigenous language, compared to a national average of 15%. Oaxaca’s product space, a measure of how many kinds of industries provide employment in the state, is very low and has seen very limited change since 2004. The state shares some similarities with other states in southern Mexico, such as Chiapas and Guerrero. All three share a limited manufacturing base which, even after signing NAFTA, remained flat as a proportion of state GDP. They also have a poverty rate nearly 3 times the national average. 

Oaxaca is a large state with a rugged natural landscape. Its population is highly dispersed, relative to other states in Mexico. This makes infrastructure critical. However, widespread road construction between 2004 and 2014 does not seem to have made a difference to either growth rates or economic complexity at the municipality level, suggesting the infrastructure constraint is not binding. We believe, however, that mobility might be. Transportation costs as a proportion of wages are very high, and are further increased by costly road blockages. This limits the flexibility of the labor force and the aggregation of talent.

Low human capital can reduce the social returns to investment. Even though education is contentious in the state’s politics, Oaxaca’s education gap has been falling over time relative to the national average and its neighbors. This relative increase in years of education, however, has not been translated into economic development. We find that returns to education in the state are very similar to the returns to education in the rest of Mexico and higher than returns to education in Chiapas. We also note that the proportion of schooling undertaken in private institutions is in line with that in other states with higher quality of education. Finally, a Oaxaca-Blinder decomposition suggests that education does not explain wage differentials between Oaxaca and other states. All this evidence suggests that education is not a binding constraint to growth in Oaxaca.

Governance challenges increase the risk of investing in Oaxaca. For instance, over 75% of the municipalities in Oaxaca are governed through Usos y Costumbres. Only 153 of the 570 municipalities use a government-run election to determine their leader, and out of those, four did not elect a municipal president in the June 2016 election due to internal conflicts. 146 municipalities lack a police service. While Usos y Costumbres is a key part of the local social contract, it creates problems, such as in contract enforceability. It also limits migration in and out of the state. We also observe a negative correlation between Usos y Costumbres and local wages that is not explained by factors like indigenous origin.

We also explore access to finance as a constraint to GDP growth. While enterprise surveys confirm that high interest rates, and distance to banks are a problem, Oaxaca’s microenterprises bypass these problems by borrowing from cajas de ahorro or local credit unions. However, most borrowing is destined for consumption rather than investment. We also observe that FDI flows into Oaxaca are very scarce. For these reasons, we believe the binding constraint in Oaxaca is not access to finance, but rather low returns to investment.

It is helpful to think whether there is an underlying syndrome that might explain the two binding constraints we identified: transportation costs and governance. One possible hypothesis is the isolation of people into very small communities that have very strong bonds within the community and very weak bonds outside of it. Oaxaca shows high variety in ethnic groups, languages, and government systems. On average, each municipality has 6,670 people, but there are 110 municipalities with less than 1,000 people. Elsewhere in Mexico, dispersed rural populations gradually converged into urban clusters around job opportunities. In Oaxaca, the process is not yet afoot because of a “productivity trap”, in which low productivity means urban salaries do not cover the costs of transportation or permanent moves, and dispersion keeps productivity low by failing to concentrate employees. Cultural diversity has a side effect of encouraging spatial dispersion and isolation, and of having hundreds of different sets of “rules of the game” covering the state’s population. Increasing the complexity of this economy requires breaking the trap by finding new business models (i.e., encouraging discovery) and coordinating economic activities.  

Economic complexity analysis can point us to new industries that are feasible given Oaxaca’s productive capabilities and the existing constraints we discussed. While Oaxaca’s municipalities have among the least complex economies in the country, some industries stand out from our complexity analysis as potentially promising for Oaxaca. The end of the report singles out some industries for further analysis.

In 2018, the Growth Lab team turned attention to diagnosing growth problems at the subnational level. The Prime Minister of Sri Lanka requested that the team start with the North Central Province, which had been experiencing recurring droughts, which had in turn been affecting national rice production. This presentation summarizes what the team found and presented to a local university in the North Central Province in September 2018. People in the province had long been working to escape from the vulnerability and low income levels of rice farming and the diagnostic found important areas for national-local coordination to support pathways to a stronger, and more connected, local economy.

The degree to which modern technologies are able to substitute for groups of job tasks has renewed fears of near-future technological unemployment. We argue that our knowledge, skills and abilities (KSA) go beyond the specific tasks we do at the job, making us potentially more adaptable to technological change than feared. The disruptiveness of new technologies depends on the relationships between the job tasks susceptible to automation and our KSA. Here we first demonstrate that KSA are general human capital features while job tasks are not, suggesting that human capital is more transferrable across occupations than what job tasks would predict. In spite of this, we document a worrying pattern where automation is not randomly distributed across the KSA space – it is concentrated among occupations that share similar KSA. As a result, workers in these occupations are making longer skill transitions when changing occupations and have higher probability of unemployment.

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.

Economists have long discussed the negative effect of Dutch disease episodes on the non-resource tradable sector as a whole, but little has been said on its impact on the composition of the non-resource export sector. This paper fills this gap by exploring to what extent concentration of a country's non-resource export basket is determined by their exports of natural resources. We present a theoretical framework that shows how upward pressure in wages caused by a resource windfall results in higher export concentration. We then document two robust empirical findings consistent with the theory. First, using data on discovery of oil and gas fields and of commodity prices as sources of exogenous variation, we find that countries with larger shares of natural resources in exports have more concentrated non-resource export baskets. Second, we find capital-intensive exports tend to dominate the export basket of countries prone to Dutch disease episodes.

Listen to the podcast interview with the authors

In August 2016, the Government of Sri Lanka (GoSL) and the Building State Capability program of CID convened five teams of civil servants, tasking them with solving issues related to investment and export promotion. One of these teams, the “Targeting Team,” took on the task of formulating and executing a plan to identify promising new economic activities for investment and export promotion in Sri Lanka. With the assistance of CID’s Growth Lab, the Targeting Team assembled and analyzed over 100 variables from 22 datasets, studying all tradable activities and 29 representative subsectors. Their analysis highlighted the potential of investment related to electronics, electrical equipment and machinery (including automotive products), as well as tourism. Ultimately, the team’s recommendations were incorporated in GoSL strategies for investment promotion, export development, and economic diplomacy; extensions of the research were also used to help plan new export processing zones and target potential anchor investors.

This report summarizes the methodology and findings of the Targeting Team, including scorecards for each of the sectors studied.

Economies grow by adding new products and services to their production portfolio, not by producing more of the same kinds of products. The key to such diversification is access to know-how, but know-how often has to come from abroad. This is because it is often easier to move brains to new countries than to move new know-how into brains. In the experience of Singapore, India, Vietnam and most other dynamic economies, three channels of know-how transfer stand out: FDI, immigration and diaspora networks.

In this lecture, Professor Hausmann explores the relationship between economic development and the accumulation of know-how. In particular, he discusses how to tackle Sri Lanka’s limited export diversification.

Video - Acessing Know-how for Growth in Sri Lanka

Video - Full Q&A on Sri Lanka's export diversification