Policy Research

Shah, K. & Sturzenegger, F., 2022. Search, Transport Costs, and Labor Markets in South Africa.Abstract

South Africa’s labor market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labor market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labor market, creating exclusion and perpetuating spatial segregation. In most developing countries, the result would be higher employment in informal or own account employment. However, with low productivity in the informal sector, the high rate of exclusion shows itself in higher unemployment rates instead. Transportation costs and housing deregulation may become key factors in improving the working of the labor market in South Africa especially if it is not possible to raise informal productivity.

Related project: Growth Through Inclusion in South Africa

Lochmann, A., Rao, N. & Rossi, M.A., 2022. The Long-Run Effects of South Africa’s Forced Resettlements on Employment Outcomes.Abstract

Can South Africa’s segregation policies explain, at least partially, its current poor employment outcomes? To explore this question, we study the long-term impact of the forced resettlement of around 3.5 million black South Africans from their communities to the so-called “homelands” or “Bantustans”, between 1960 and 1991. Our empirical strategy exploits the variability in the magnitude of resettlements between communities. Two main findings. First, the magnitude of outgoing internal migrations was largest for districts close to former homelands. Second, districts close to former homelands have higher rates of non-employed population in 2011. Together the evidence suggests that districts that experienced racial segregation policies most intensely, as measured by outgoing forced resettlements, have worse current employment outcomes.

Related project: Growth Through Inclusion in South Africa

Lochmann, A., 2022. Diagnosing Drivers of Spatial Exclusion: Places, People, and Policies in South Africa’s Former Homelands.Abstract

This report analyzes the economic legacy of spatial exclusion in South Africa, focusing on the long-term effects of the former Bantustan policy. Through quantitative analysis, the report explores the spatial dimension of economic activity in South Africa and specifically how this particular spatial institution has continued to shape current economic outcomes, despite past and present attempts to reverse the effect. The report also identifies areas for further research and potential intervention to enable more effective economic inclusion of the former homeland areas of the country.

Related project: Accelerating Growth Through Inclusion in South Africa

Fortunato, A., 2022. Getting Back on the Curve: South Africa’s Manufacturing Challenge.Abstract

The report aims to inform the government’s strategic approach towards manufacturing by analyzing the potential and limits for job creation within the sector. To meet that goal, we analyze the sector’s main features and recent trajectory through the lens of global deindustrialization and South Africa’s particular industrial dynamics. Secondly, we provide evidence of how, when, and why South Africa has deviated from the global deindustrialization trends. Lastly, we provide a policy framework to address the bottlenecks that are preventing South Africa from getting back on a better track of industrial performance.

Related project: Accelerating Growth Through Inclusion in South Africa

Shah, K., 2022. Diagnosing South Africa’s High Unemployment and Low Informality.Abstract

This report analyzes the causes and consequences of South Africa’s high rates of unemployment and the unique nature of labor market exclusion in the country. It leverages a combination of new quantitative analysis using South African datasets and international datasets for benchmarking, together with synthesis of existing literature and case studies. The goal is to: (1) characterize the challenge of labor market exclusion in South Africa, (2) identify ways in which this is similar and different to other countries, (3) understand what drives the unique challenges of the labor market in South Africa, and (4) narrow down what policy areas are most important to address the underlying drivers. This report takes a diagnostic approach to understand the causes of South Africa’s unique pattern of low informality.

Related project: Accelerating Growth Through Inclusion in South Africa

Klinger, B., 2022. More (Inclusive) Entrepreneurship in South Africa: The Role of Franchising.Abstract

This paper explores franchising in South Africa, and its potential to help resolve the economy’s challenges of low entrepreneurship and concentrated ownership. South Africa features a large franchising sector, with half a million formal workers and a large number of small businesses owners competing directly with vertically integrated chains. Traditional franchising may not have much space for further growth as a percentage of the economy, but it can be made more inclusive with innovations in franchise finance that broaden the base of potential franchisees, as well as enforcement of consumer protections to ensure franchisee-franchisor relationships are balanced. The expansion of the franchising model to less capital-intensive business concepts and serving lower-income consumers (micro-franchising) is one area with expanding growth potential for the country, while the application of the franchising model to public services and socially driven organizations is less promising. Finally, while the franchising model is only directly applicable to particular sectors, there are features of franchising and the capabilities built up around the franchising that could be applied to other priority areas of the economy, in particular to smallholder agriculture. The success of traditional franchising shows the power of a menu of standardized proposals and contracts in a marketplace with a range of franchisors (in this case, up- and downstream agriculture corporates) offering different opportunities to potential franchisees (in this case, smallholder farming communities), along with training and technology transfer at scale.

Related project: Accelerating Growth Through Inclusion in South Africa

'Aha' moments: On the ground in Kazakhstan with the private sector

By Yomna Mohei Eldin

Kazakhstan is one of the least densely populated countries in the world. It has an area roughly equal to that of all of Western Europe and a population of 19 million – around that of the Netherlands. Kazakhstan became Independent in 1991 after the fall of the Soviet Union and shortly thereafter experienced an oil boom. The global commodity super-cycle ended in 2014, and oil prices fell. Kazakhstan’s unique socioeconomic history and its vulnerability to commodity price shocks...

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Hausmann, R., et al., 2022. Overcoming Remoteness in the Peruvian Amazonia: A Growth Diagnostic of Loreto.Abstract

Is there a tradeoff between environmental sustainability and economic development? If there is a place where that question can be approximated, that is Loreto. Located on the western flank of the Amazon jungle, Loreto is Peru’s largest state and the one with the lowest population density. Its capital, Iquitos, is the largest city without road access in the world. For three decades, the region’s income and development has diverged from that of Peru and its other Amazonian peers by orders of magnitude. And yet, despite plummeting contributions from natural resources – that predominate in the policy discussion in and on the state – Loreto has developed a more complex productive ecosystem than one would expect, given its geographical isolation. As a result, it has a stock of productive capabilities that can be redeployed in economic activities with higher value-added, able to sustain higher wages and better living standards.

We deployed a thorough Growth Diagnostic of Loreto to identify the most binding constraints preventing private investment and development in sustainable economic activities. In the process, we relied on domestic databases available to the public in Peru and international datasets, combining and validating our analytical insights with extensive field visits to the Peruvian Amazonia and lengthy interviews with policymakers, private businesses, and academia. Improving fluvial connectivity, developing the capacity to sort out coordination failures associated with the process of self-discovery, and substituting oil for solar energy, are the three policy goals that would deliver the largest bang for the reform buck. The latter presents an opportunity for environmental organizations – subsidizing solar – to move away from their status quo of preventing bad things from happening, to a more constructive one that entails enabling good things and sustainable industries to happen.

Project page: Economic Growth and Structural Transformation in Loreto, Peru

2022 Oct 31

Development Talk: The Role of Business in South Africa's Future

12:00pm to 1:00pm

Location: 

Wexner 434 AB, Zoom (registration information below)

The Growth Lab's Development Talks is a series of conversations with policymakers and academics working in international development. The seminar provides a platform for practitioners and researchers to discuss both the practice of development and analytical work centered on policy. This event is co-sponsored by Harvard's Center for African Studies. 

Speaker: Ann Bernstein, Executive Director, Centre for Development and Enterprise, South Africa

Moderator: Soraya Mohideen, Harvard South Africa Fellow, HKS Mid-Career MPA '23

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Student Stories: Inspired by the Growth Diagnostics Framework

Photo of Jack GisbyJack Gisby recently graduated with an MPA (Economic Policy) from the London School of Economics. As part of the Growth Lab's 2022 Summer Internship Program, he contributed to the newly formed Pan-Africa research agenda. Our team is exploring the Africa Continental Free Trade Area (AfCFTA) and the underlying constraints that have held African nations back from economic diversification and structural transformation.... Read more about Student Stories: Inspired by the Growth Diagnostics Framework

Student Stories: Tackling Transportation Infrastructure in Kazakhstan

Yomna Mohei EldinYomna Mohei Eldin is a second-year MPA/ID student at Harvard Kennedy School. Se was accepted into the Growth Lab's 2022 Summer Internship Program and contributed to our policy engagement in Kazakhstan where our research aims to identify and prioritize investment opportunities and policy options to drive sustainable economic growth and diversification.... Read more about Student Stories: Tackling Transportation Infrastructure in Kazakhstan

Student Stories: Assessing Decarbonization (and the Rodeo) in Wyoming

Ryosuke Shimizu photoRyosuke Shimizu is a second-year MPA/ID student at Harvard Kennedy School. He was accepted into the Growth Lab's 2022 Summer Internship Program and contributed to our policy engagement in Wyoming. Initial work will focus on understanding the causes of economic stagnation that have resulted in a deficit of job opportunities. We will also examine the risks and opportunities for the future of Wyoming’s economy, including automation and global decarbonization.... Read more about Student Stories: Assessing Decarbonization (and the Rodeo) in Wyoming

Student Stories: Challenges and Public Sector Growth in Namibia

María Ignacia Ossa is a second-year MPP student at the London School of Economics and Political Science. As part of the Growth Lab's 2022 Summer Internship Program, she contributed to the project in Namibia. This two-year policy engagement with the Government of Namibia focuses on supporting implementation efforts on a range of growth- and inclusion-related challenges.... Read more about Student Stories: Challenges and Public Sector Growth in Namibia

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