Academic Research

Schetter, U., 2022. A Measure of Countries’ Distance to Frontier Based on Comparative Advantage.Abstract
This paper presents a structural ranking of countries by their distance to frontier. The ranking is based on comparative advantage. Hence, it reveals information on the productive capabilities of countries that is fundamentally different from GDP per capita. The ranking is centered on the assumption that countries’ capabilities across products are similar to those of other countries with comparable distance to frontier. It can be micro-founded using standard trade models. The estimation strategy provides a general, non-parametric approach to uncovering a log-supermodular structure from the data, and I use it to also derive a structural ranking of products by their complexity. The underlying theory provides a fexible micro-foundation for the Economic Complexity Index (Hidalgo and Hausmann, 2009).
Diodato, D., Hausmann, R. & Schetter, U., 2022. A Simple Theory of Economic Development at the Extensive Industry Margin.Abstract
We revisit the well-known fact that richer countries tend to produce a larger variety of goods and analyze economic development through (export) diversifcation. We show that countries are more likely to enter ‘nearby’ industries, i.e., industries that require fewer new occupations. To rationalize this finding, we develop a small open economy (SOE) model of economic development at the extensive industry margin. In our model, industries differ in their input requirements of non-tradeable occupations or tasks. The SOE grows if profit maximizing frms decide to enter new, more advanced industries, which requires training workers in all occupations that are new to the economy. As a consequence, the SOE is more likely to enter nearby industries in line with our motivating fact. We provide indirect evidence in support of our main mechanism and then discuss implications: We show that there may be multiple equilibria along the development path, with some equilibria leading on a pathway to prosperity while others resulting in an income trap, and discuss implications for industrial policy. We finally show that the rise of China has a non-monotonic effect on the growth prospects of other developing countries, and provide suggestive evidence for this theoretical prediction.
di Giovanni, J., et al., 2022. Global Supply Chain Pressures, International Trade, and Inflation.Abstract

We study the impact of the Covid-19 pandemic on Euro Area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21. Our model-based calibration exercises deliver four key results: 1) Compositional effects – the switch from services to goods consumption – are amplified through global input-output linkages, affecting both trade and inflation. 2) Inflation can be higher under sector-specific labor shortages relative to a scenario with no such supply shocks. 3) Foreign shocks and global supply chain bottlenecks played an outsized role relative to domestic aggregate demand shocks in explaining Euro Area inflation over 2020-21. 4) International trade did not respond to changes in GDP as strongly as it did during the 2008-09 crisis despite strong demand for goods. These lower trade elasticities in part reflect supply chain bottlenecks. These four results imply that policies aimed at stimulating aggregate demand would not have produced as high an inflation as the one observed in the data without the negative sectoral supply shocks.

Endowment Structure, property rights and reforms of large state-owned enterprises (SOEs) in China: Past, present and future
Liu, X., Shen, J.H. & Deng, K., 2022. Endowment Structure, property rights and reforms of large state-owned enterprises (SOEs) in China: Past, present and future. Structural Change and Economic Dynamics. Publisher's VersionAbstract
Based on the criteria of the factor endowment structure of state-owned enterprise (SOE) sectors in China between 1980 and 2018, this paper rationalizes the classified reforming of China's state sectors by constructing a Nash bargaining model to capture the dynamics of ownership restructuring, and the reduction process of policy burden on SOEs. We reveal that the interplay between policy burden bared by SOEs and the ownership restructuring process largely depends upon their factor intensities since the reform period in the 1980s. Our model identifies two Ownership Reform Irrelevance Points (ORIP), which serve as the benchmark for the dynamics of the ownership restructuring process of China's large SOEs, which saw them move from ‘mixed-ownership’ to ‘privatization’. ORIPs demonstrate the need for a reduction in social policy burdens with regards to the state sector's comparative advantage of factor endowment structure through SOE ownership restructuring. This study theoretically analyzes existing literatures on the classified reforms of China's state sectors from 1978 to 2018. This study is the first to base such an analysis on the criteria of factor endowment structure focusing on the connection between the policy burdens bared by SOEs and their ownership restructuring process.
2022 May 23

Research Seminar: Closing Regional Economic Divides

10:15am to 11:30am

Location: 

Belfer Weil Town Hall / Zoom (registration information below)

The Growth Lab Research Seminar series is a weekly seminar that brings together researchers from across the academic spectrum who share an interest in growth and development.

Speaker: Gordon Hanson, Peter Wertheim Professor in Urban Policy, HKS

Abstract: How to help lagging regions create better jobs for disadvantaged workers? Traditional industrial regions have fallen behind economically across high-income countries due to globalization, new technology, and now the energy transition. We need new...

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2022 May 09

Research Seminar: Migration and Cultural Change

10:15am to 11:30am

Location: 

Weil Town Hall - Belfer/Zoom (registration info below)

The Growth Lab Research Seminar series is a weekly seminar that brings together researchers from across the academic spectrum who share an interest in growth and development.

Speaker: Hillel Rapoport, Professor of Economics (and Director of International Relations) at the Paris School of Economics

...

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2022 Apr 25

Research Seminar: Mechanisms of Hardware and Soft Technology Evolution and the Implications for Low-Carbon Energy Costs

10:15pm to 11:30pm

Location: 

Zoom (registration information below)

The Growth Lab Research Seminar series is a weekly seminar that brings together researchers from across the academic spectrum who share an interest in growth and development.

Speaker: Magdalena Klemun, Assistant Professor, Division of Public Policy, Hong Kong University of Science and Technology’s Interdisciplinary Program Office; Research Affiliate, Institute for...

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Hausmann, R., et al., 2022. Cutting Putin’s Energy Rent: ‘Smart Sanctioning’ Russian Oil and Gas.Abstract

Following the Russian aggression against Ukraine, major sanctions have been imposed by Western countries, most notably with the aim of limiting Russia’s access to hard international currency. However, Russia remains the world’s first exporter of oil and gas, and at current energy prices this provides large hard currency revenues. As the war continues, European governments are under increased pressure to scale-up their energy sanctions, following measures taken by the United States, the United Kingdom, Canada and Australia. This piece argues that given the inelasticity of Russia’s oil and gas supply, for Europe the most efficient way to sanction Russian energy would not be an embargo, but the introduction of an import tariff that can be used flexibly to control the degree of economic pressure on Russia.

E-Letter in Science: How to weaken Russian oil and gas strength

Neffke, F., Hartog, M. & Li, Y., 2022. The Economic Geography of the War in Ukraine. Complexity Science Hub Vienna.Abstract

The war in Ukraine has been waging for a month now, not only causing human suffering on a massive scale, but also sending economic tremors that are felt far beyond the country’s borders. Since the collapse of the Soviet Union, Ukraine’s economy has been pulled between its strong historical ties with the Russian economy and the opportunities in forging new ties with the European Union (EU). With the help of Metroverse, an online tool for analyzing the local economies of over a thousand cities worldwide, and of the data that power this tool, we analyze the evolving economic relations between Ukraine, Russia and the West and weigh the consequences of their disruption.

Explore: The Economic Geography of the War in Ukraine 

Related reading:
Media Release
Bloomberg Opinion: Markets Need to Lose the ‘Peace in Our Time’ Reflex

2022 Mar 28

Research Seminar: Organizational Frictions to Automation, and Its Effects on Firms, Workers, and Labor Markets

10:15am to 11:30am

Location: 

Zoom (registration information below)

Speaker: Daniel P. Gross, Assistant Professor, Duke's Fuqua School of Business

Abstract: AT&T was the largest U.S. firm for most of the 20th century. Telephone operators once comprised over 50% of its workforce, but in the late 1910s it initiated a decades-long process of automating telephone operation with mechanical call switching---a technology first invented in the 1880s. This talk will cover results from two papers. In one, we study what drove AT&T to do so, and why it took one firm nearly a century to automate this one...

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Horrible trade-offs in a pandemic: Poverty, fiscal space, policy, and welfare
Hausmann, R. & Schetter, U., 2022. Horrible trade-offs in a pandemic: Poverty, fiscal space, policy, and welfare. World Development , 153. Publisher's VersionAbstract
We analyze how poverty and a country’s fiscal space impact policy and welfare in times of a pandemic. We introduce a subsistence level of consumption into a tractable heterogeneous agent framework, and use this framework to characterize optimal joint policies of a lockdown and transfer payments. In our model, a more stringent lockdown helps fighting the pandemic, but it also 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. Transfer payments help mitigate this trade-off. We show that, ceteris paribus, the optimal lockdown is stricter in richer countries and the aggregate death burden and welfare losses smaller. 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. This is particularly true in societies where a larger fraction of the population is in poverty. We discuss evidence from the literature and provide reduced-form regressions that support the relevance of our main mechanisms. We finally discuss distributional consequences and the political economy of fighting a pandemic.
2022 Feb 14

Research Seminar: How Immigration Grease is Affected by Economic, Institutional, and Policy Contexts: Evidence from EU Labor Markets

10:15am to 11:30am

Location: 

Zoom (registration information below)

Speaker: Martin Kahanec, Professor and Head of the Department of Public Policy at the Central European University (CEU) in Vienna.

Abstract: (Paper)
Theoretical arguments and previous country-level evidence indicate that immigrants are more fluid than...

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