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Congo, Dem. Rep. 99 297 Burundi 111 354 Guinea-‐Bissau 128 497 Eritrea 147 584
HaiA 410 1088 Guinea 417 1113 Bangladesh 462 1233 Kenia 464 1470
Cape Verde 1632 3239 Turkmenistan 1705 6138 Ecuador 1746 7402 Guatemala 1893 4367
Chile 6229 13370 Mexico 6591 13407 CroaAa 6796 17219 Czech Republic 7632 23341
Market Prices PPP
GDP Per Capita (1/2) in USD $
Poorest
x4
x4
x4
USA is 387 Ames richer than DR Congo (or 145X in PPP terms)
Australia 24401 33369 Belgium 25055 33520 Germany 25420 33665 Canada 26143 36039
Hong Kong 34587 40599 Switzerland 37789 37780 United States 38206 43179 Japan 40481 31484
PPP
Richest
x4
Market Prices
GDP Per Capita (2/2) in USD $
CumGDPi
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
India China
USA
Bangladesh
Pakistan
Nigeria
Indonesia
Egypt
Brazil
Mexico
Russia
Japan Germ
any France UK
Italy
CumulaAve world populaAon
CumulaAve w
orld income
Korea
Global Income DistribuAon
Would you rather be rich in a poor country, or poor in a rich
country? (credit to Dani Rodrik)
Norway’s poorest 5% has a representaAve income of ~$13K In Niger, the richest 5% of the populaAon has a representaAve income of ~$2K
WHAT’S BEHIND GROWTH? income
institutions integration
geography exogenous
partly endogenous
endogenous endowments productivity
Source: Dani Rodrik
WHAT’S BEHIND GROWTH?
HUMAN CAPITAL
Robert Solow, Nobel Prize in Economics 1987
• Solow developed one of the most influenAal economic growth models.
• Income growth based on factor accumulaAon is a transiAonal phenomenon, as countries move toward a “steady state”. No growth in the long run without technological advancement.
• Convergence: poorer countries grow faster than richer countries, as they “catch up” capital accumulaAon.
Years of schooling and income per capita 1965-‐2005
France 1985 US$ 21315
Mexico 1993 10544
Ghana 1998=1015
GDP per capita in constant dollars, logs
Thailand 2005 US$ 6751
Mexico 2005 US$ 12593
France 1993 US$ 24430
WHAT’S BEHIND GROWTH? income
institutions integration
geography exogenous
partly endogenous
endogenous endowments productivity
Source: Dani Rodrik
WHAT’S BEHIND GROWTH?
institutions
• “Institutions are the humanly devised constraints that shape human interaction in a society” (North, 1990)
• Daron Acemoglu (MIT) and his co-authors
have pioneered the theory of institutions as the main input for economic growth: • Countries are less developed where colonizers
created “extractive” institutions (i..e. LAC, Africa)
• Corruption, lack of trust, type of “culture”, doing business, regulations, bureaucracy, social capital, etc.
• Markets require (proper) institutions to work.
In their absence, markets cannot work.
AGO
ALB ARGARM
ATG
AUSAUT
AZE
BDI
BEL
BENBFA
BGD
BGR
BIH
BLR
BLZ
BOL
BRA
BWA
CAF
CANCHE
CHL
CHN
CIV
CMRCOG
COL
COM
CPVCRI
CYPCZE
DEU
DJI
DMA
DNK
DOMDZAECU
EGY
ERI
ESPEST
ETH
FIN
FJI
FRA
GAB
GBR
GEO
GHA
GIN
GMB
GNB
GRCGRD
GTM
GUY
HKG
HND
HRV
HTI
HUN
IDN
IND
IRL
IRN
ISL
ISRITA
JAM
JOR
JPN
KAZKEN KGZKHM
KNA KOR
LAO
LBN
LCA
LKALSO
LTU
LUX
LVA
MAR
MDA
MDG MEXMKDMLI
MLT
MNG
MOZ MRT
MUS
MWI
MYSNAM
NER
NGA
NIC
NLDNOR
NPL
NZL
PAK
PAN
PERPHLPNG
POL
PRT
PRY
ROM
RUSRW A
SAU
SDN
SEN
SGP
SLBSLE
SLV
SVK
SVN
SWE
SWZ
SYCSYR
TCDTGO
THA
TJKTKM
TONTTOTUN
TUR
TZAUGA UKR
URY
USA
UZB
VCT
VEN
VNM
VUT
YEM
ZAF
ZAR
ZMB
-2-1
01
23
2.5 3 3.5 4 4.5 5LYPPPK
est. Rule of Law Fitted values
GDP per capita (log)
WHAT’S BEHIND GROWTH? income
institutions integration
geography exogenous
partly endogenous
endogenous endowments productivity
Source: Dani Rodrik
WHAT’S BEHIND GROWTH?
integration
Trade: • Opening to trade allow us to import what we are not
good at, and export what we are good at. • Most productive firms survive, allowing for
“reallocation” of resources to more productive activities.
Foreign Direct Investment (Capital): • More productive firms arrive,
“spilling” their productivity to domestic firms.
Migration: • Allows for easier trade and capital flows • Boost knowledge diffusion across countries boosting
productivity
• By 1960, migrants made up 2.63% of the global populaAon, whereas exports of goods and services accounted for 12.7% of global GDP.
• By 2010, these numbers were 3.11%and 28.19%, respecAvely.
WHAT’S BEHIND GROWTH? income
institutions integration
geography exogenous
partly endogenous
endogenous endowments productivity
Source: Dani Rodrik
WHAT’S BEHIND GROWTH?
geography
How geography correlates with income? • Climate defines endowments and type of
activities poor countries could made in the past (agriculture)
• Being landlocked (or far away) reduces integration.
• Some diseases are more prevalent in tropics (i.e. malaria), affecting productivity
• Knowledge tends to diffuse very locally
STP
ECU
UGA
GAB
KEN
SGP
KIR
RWA
MYS
BDI
GNQ
CMR
MDV
COG
ZAR
CAF
SYC
COL
BRN
GHA
SUR
IDN
TGO
TZA
LBR
BEN
GUY
CIV
FSMLKA
SLETMP
AGO
PAN
ETH
NGASLBPNG
GIN
CRIVEN
TTO
KHMDJI
COM
GNB
GRDPER
NIC
TCDBFAMLI
VCT
GMB
NER
SLV
THA
WSM
MWI
LCA
HNDPHLGTM
SEN
CPV
DMA
ERI
YEM
ZMB
SDN
BRA
ATG
BLZ
KNA
VUT
JAM
LAO
FJI
MRT
DOM
HTI
MDG
BOL
MEXMUS
VNM
TON
HKGMAC
NAM
BGD
SAU
BWA
PRY
ZAF
MOZ
SWZBTN
NPL
IND
LSO
EGYJOR
ISR
LBYCHL
SYR
PAK
LBN
MAR
ARGURY
CYPAUS
IRN
JPN
MLT
TUNDZA
KORGRC
TJK
PRT
USA
CHN
TUR
ARMAZE
ESP
UZB
ALB
GEO
ITA
MKDBGR
KGZ
BIH
NZL
ROM
CAN
HRV
SVN
CHE
MDA
HUN
MNG
SVK
AUTFRA
LUX
CZE
UKR
BEL
KAZ
GBR
POL
NLDDEUIRL
BLR
LTU
DNK
RUSLVA
SWE
EST
NOR
FIN ISL
67
89
1011
Ln G
DP
Per
Cap
(in
PP
P)
0 20 40 60Absolute Latitute
lnyppppc Fitted values
Source: WDI (2008)
Absolute Latitude Vs. Ln GDP PPP Per Cap
Knowledge intensity
Distance between HQ
and
Sub
sidiary
Knowledge intensity
Distance between HQ
and
Sub
sidiary
Source: Bahar, D. “Heavier than air? Knowledge diffusion within the mul7na7onal firm” (2015)
Knowledge travels short geographic distances: even within a large MNC
WHAT’S BEHIND GROWTH? income
institutions integration
geography exogenous
partly endogenous
endogenous endowments productivity
Source: Dani Rodrik
WHAT’S BEHIND GROWTH?
productivity
What is productivity?
IGNORANCE
A measure
of our OWN
Moses Abramovitz (1956)
“
”
Technology Management Resource ReallocaAon within and between firms
Productivity Knowing how to do more with the same resources
Productive Knowledge, Development and
Growth
P R O D U C T S
C O U N T R I E S
C O U N T R I E S
P R O D U C T S
The
Theory of Economic Development…
If you have only one letter…
… there aren’t many words to write.
If you have three letters…
You can write:
Now you have four letters…
You can write:
Think about all the words you could write with:
You could write 595 words, such as:
The more letters you have, the more new words you can write with any extra letter…
… and longer words
Fraction of the alphabet available
Frac
tion
of P
rodu
cts
that
are
feas
ible
Increasing returns to accumulating letters
We measure accumulated knowledge based on the products a country exports
Accumulated knowledge (“# of letters”)
Inco
me
Per C
apita
Why so few countries develop? How come knowledge does not diffuse immediately from place to place?
Knowledge has a large tacit component. Michael Polanyi (1966)
Channels for knowledge
transmission are limited to human
interaction Kenneth Arrow (1969)
Knowledge is hard to transfer and hard to acquire
Productive knowledge is also tacit
Countries face the “chicken and egg problem”
• You cannot make watches without watchmakers • You don’t want to be watchmaker if nobody makes watches • You cannot become a watchmaker because there are not
watchmakers to learn from • How does the world deal with this? • By moving towards products that “share”
knowhow and knowledge
ELECTRONICS
MACHINERY
AIRCRAFT
BOILERS
SHIPS
METAL PRODUCTS
CONSTR. MATL. & EQPT.
HOME & OFFICE
PULP & PAPER
CHEMICALS & HEALTH
AGROCHEMICALS
OTHER CHEMICALS
INOR. SALTS & ACIDS
PETROCHEMICALS
LEATHER
MILK & CHEESE
ANIMAL FIBERS
MEAT & EGGS
FISH & SEAFOOD
TROPICAL AGRIC.
CEREALS & VEG. OILS
COTTON/RICE/SOY & OTHERS
TOBACCO
FRUIT
MISC. AGRICULTURE
NOT CLASSIFIED
TEXTILE & FABRICS
GARMENTS
FOOD PROCESSING
BEER/SPIRITS & CIGS.
PRECIOUS STONES
COAL
OIL
MINING
The process of development
• Involves accumulating more letters (knowledge)
• …and expressing them in more words (products)
• …and in longer words (more complex products)
In a perfect world… … innovators have access to all inputs (letters)!
Emerging markets…
…tend to have many missing letters, and many “chicken and egg” problems
Ghana
GDPpc in 1960: ~USD 180
Thailand
GDPpc in 1960: ~USD 100
Vs
No differential trend in years of schooling…
Ghana’s “Product Space” in 1962
Ghana’s “Product Space” in 2013
Thailand’s “Product Space” in 1962
Thailand’s “Product Space” in 2013
Our research suggests that not only the “quanAty” of exports ma^er, but rather the knowledge and knowhow embedded in the export basket…
Δ
Vs 0
1000
2000
3000
4000
GD
P pe
r cap
ita (c
onst
ant 2
005
US$
)
1960 1970 1980 1990 2000 2010Year
Ghana Thailand
South Korea: An Asian “Tiger”
1965
See more at hlp://atlas.cid.harvard.edu/
“Knowledge and skill diffusion is the key to overall producAvity growth as well as the reducAon of inequality both within and between countries” (Pike^y 2014)
.38
.4.4
2.4
4.4
6.4
8C
PS_G
ini
−5 0 5 10 15 20Time from MDP Establishment
Winner Loser
15 years down the line, the average “winner” county ranks 0.02 points lower in the Gini coefficient, across all MSAs
Source: Bahar, D. “TTes7ng Pike>y: A natural experiment on knowledge diffusion and inequality dynamics in America”, (2015)
A framework to think on
solving problems in developing countries…
wtf?
What’s the (market) failure?
Market failures that stop the “invisible hand” • Unequal access to economic
resources (i.e. credit, full information, risk uncertainty)
• Social and private returns differ, externalities (i.e. pollution, workers’ trainings, etc.)
• Institutional failures (e.g. corruption, too much or too little regulation, etc.)
• Poor macroeconomics (e.g. inflation or deflation)
• Coordination failures (e.g. lack of infrastructure, lack of complementary markets)
• A good solution understands the market failure (the cause) and not solves only a symptom • For example: Why should the
gov’t subsidize entrepreneurs? Why can’t entrepreneurs raise money?
• The solution must provide the proper incentives, b/c otherwise it wont work! • Does providing mosquito
nets help reducing malaria?
• How to determine what the market failure is? Ask questions like:
• What is the structure of incentives that generates this problem?
• Why hasn’t the private sector done this yet? Are the ones who overcome this failure are rare?
• Will the solution change the incentives to achieve the goal?
For effective policy, our work to ask the “wtf” question, and why is this solution addressing the cause of the problem and not only a symptom.
“State-of-the-art” program
evaluation
RCTs Plan your own pilot!
Thank you
For further questions or suggestions, email or follow me at:
@dany_bahar