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Development Collective Know-how and Us #LSEHausmann
Professor Ricardo Hausmann
Director of Harvard's Center for International Development and Professor of the Practice of Economic Development at the Kennedy School of Government. Former Chief Economist of the Inter-American Development Bank.
Chair: Professor Riccardo Crescenzi
Professor of Economic Geography at LSE.
Hosted by the Department of Geography and Environment.
Development,
Knowhow and Us
R i c a r d o H a u s m a n n
H a r va r d U n i v e r s i t y
L e c t u r e a t L S E , J a n u a r y 2 01 8
Neo-c lassical characters
in the stor y • Capital
– Machines or money?
– Assumes complete markets
• Human capital – (PISA) Quality-adjusted schooling
• Technology – Mostly in the air or in machines
• The secret of growth is mostly technology – Solow
SCHOOLING AND GROWTH
YEARS OF SCHOOLING
?
Years of schooling
Years of schooling
• Increased schooling is not generating the expected income pay-off
• Decreasing returns to human capital accumulation?
Energy use and GDP per capita
GDP per capita, logs
Peru
Chile
Korea
UK
Years of schooling and income per capita
France 1985 US$ 21315
Mexico 1993 10544
Ghana 1998=1015
GDP per capita in constant dollars, logs
Thailand 2005 US$ 6751
Why does technology not diffuse?
The two Nogales
A productivity gap that is consistent wth…
• …same legal framework
• …same federal judicial system
• ...same political representation system
• …mostly same language and religion
• …same exchange rate
• …same interest rate
• ….same macroeconomic setup
• ….same financial architecture
Maybe technology does not diffuse because of the nature of technology itself
But then, what is technology?
What do you do when your tooth hurts?
Search the web and fix it
yourself?
…or look for a dentist
Knowhow needs to be in brains
Knowhow ≠
Comprehension
Source: http://en.wikipedia.org/wiki/File:Michaelpolanyi1-2.jpg
TEAM KNOWHOW
Who has more knowhow?
If knowledge increases, where do you store it?
Major areas of concentration at Harvard
• African and African American Studies
• Anthropology
• Applied Mathematics
• Astrophysics
• Biomedical Engineering
• Chemical and Physical Biology
• Chemistry
• Chemistry and Physics
• Classics
• Computer Science
• Earth and Planetary Sciences
• East Asian Studies
• Economics
• Engineering Sciences
• English
• Environmental Science and Public Policy
• Folklore and Mythology
• Germanic Languages and Literatures
• Government
• History
• History and Literature
• History and Science
• History of Art and Architecture
• Human Developmental Biology
• Human Evolutionary Biology
• Linguistics
• Literature
• Mathematics
• Molecular and Cellular Biology
• Music
• Near Eastern Languages and Civilizations
• Neurobiology
• Organismic and Evolutionary Biology
• Philosophy
• Physics
• Psychology
• Comparative Study of Religion
• Romance Languages and Literatures
• Slavic Languages and Literatures
• Social Studies
• Sociology
• South Asian Studies
• Special Concentrations
• Statistics
• Visual and Environmental Studies
• Studies of Women, Gender, and Sexuality
50
Standard
Fields of
Study
The Personbyte
How do we use productive
knowledge
• Products differ in the number of
personbytes they require
• To create products with more than 1
personbyte, you need to aggregate
personbytes
• This is done in networks of individuals we
call firms
– Firms can do things individuals cannot
• …and in networks of firms
– Firms cannot make all they need
Butcher Candlestick maker
Baker
Division of knowledge then
Theory of Economic
Development…
The Theory
of Economic Development
With 1 letter,
You can make 1 word, of 1 letter
You can make 4 words, of up to 3 letters
With 3 letters,
You can make 9 words, of up to 4 letters
With 4 letters,
You can make 595 words, of up to 10 letters
With 10 letters,
What explains these differences in productivity?
Some technologies diffuse quickly
• Countries that have more personbytes will be able to make more products They would be more diversified
• Products that require more personbytes will be made by fewer countries Products will be less ubiquitous
• Countries that have more personbytes will be able to make products that require more personbytes
• Products that are less ubiquitous will be made by countries that are more diversified
• Countries that have more personbytes should be more diversified and able to make less ubiquitous products
INTUITION
Diversification vs. Ubiquity (2009)
Products
Co
un
trie
s A picture of world trade
0 100 200 300 400 500 600100
150
200
250
300
ALGARROBO
ALHUE
ALTO BIO BIO
ALTO DEL CARMEN
ALTO HOSPICIO
ANCUD
ANDACOLLO
ANGOL
ANTARTIDA
ANTOFAGASTA
ANTUCO
ARAUCO
ARICA
AYSEN
BUIN
BULNESCABILDO
CABO DE HORNOS
CABRERO
CALAMA
CALBUCOCALDERA CALERA DE TANGO
CALLE LARGA
CAMARONESCAMINA
CANELA
CANETE
CARAHUE
CARTAGENA
CASABLANCA
CASTRO
CATEMU
CAUQUENES
CERRILLOS
CERRO NAVIA
CHAITEN
CHANARAL
CHANCO
CHEPICA
CHIGUAYANTE
CHILE CHICO
CHILLAN
CHILLAN VIEJO
CHIMBARONGO
CHOLCHOL
CHONCHI
CISNES
COBQUECURA
COCHAMO
COCHRANE
CODEGUA COELEMU
COIHUECO
COINCO
COLBUN
COLCHANE
COLINA
COLLIPULLICOLTAUCO
COMBARBALA
CON CON
CONCEPCION
CONCHALI
CONSTITUCION
CONTULMO
COPIAPO
COQUIMBO
CORONEL
CORRAL
COYHAIQUE
CUNCO
CURACAUTIN
CURACAVI
CURACO DE VELEZ
CURANILAHUE
CURARREHUE
CUREPTO
CURICO
DALCAHUEDIEGO DE ALMAGRO
DONIHUE
EL BOSQUE
EL CARMEN
EL MONTE
EL QUISCO
EL TABO
EMPEDRADO
ERCILLA
EST CENTRAL
FLORIDA
FREIRE
FREIRINA FRESIA
FRUTILLAR
FUTALEUFU
FUTRONO
GALVARINO
GENERAL LAGOS
GORBEA
GRANEROS
GUAITECAS
HIJUELAS
HUALAIHUE
HUALANE
HUALPEN
HUALQUI
HUARA
HUASCO
HUECHURABA
ILLAPEL
INDEPENDENCIA
IQUIQUE
ISLA DE MAIPO
ISLA DE PASCUA
JUAN FERNANDEZ
LA CALERA
LA CISTERNA
LA CRUZ
LA ESTRELLA
LA FLORIDA
LA GRANJA
LA HIGUERA
LA LIGUA
LA PINTANA
LA REINA
LA SERENA
LA UNION
LAGO RANCO
LAGO VERDE
LAGUNA BLANCA
LAJA
LAMPA
LANCO
LAS CABRAS
LAS CONDES
LAUTARO
LEBU
LICANTEN
LIMACHE
LINARES
LITUECHE
LLANQUIHUE
LLAY-LLAY
LO BARNECHEA
LO ESPEJO
LO PRADO
LOLOL
LONCOCHE
LONGAVI
LONQUIMAY
LOS ALAMOS
LOS ANDES
LOS ANGELES
LOS LAGOS
LOS MUERMOS
LOS SAUCES
LOS VILOS
LOTA
LUMACO
MACHALI
MACUL
MAFIL
MAIPU
MALLOA
MARCHIGUEMARIA ELENA
MARIA PINTO
MARIQUINAMAULE
MAULLIN
MEJILLONES
MELIPEUCO
MELIPILLA
MOLINA
MONTE PATRIA
MULCHEN
NACIMIENTO
NANCAGUA
NAVIDAD
NEGRETE
NINHUE
NIQUEN
NOGALES
NUEVA IMPERIAL
NUNOA
O'HIGGINS
OLIVAR
OLLAGUE
OLMUE
OSORNO
OVALLEP AGUIRRE CERDA
PADRE HURTADOPADRE LAS CASAS
PAIHUANO
PAILLACO
PAINE
PALENA
PALMILLA
PANGUIPULLI
PANQUEHUE
PAPUDOPAREDONES
PARRAL
PELARCO
PELLUHUE
PEMUCO
PENAFLOR
PENALOLEN
PENCAHUE
PENCO
PERALILLO
PERQUENCO
PETORCA
PEUMO
PICA
PICHIDEGUA
PICHILEMU
PINTO
PIRQUE
PITRUFQUEN
PLACILLA
PORTEZUELO
PORVENIR
POZO ALMONTE
PRIMAVERA
PROVIDENCIA
PUCHUNCAVI
PUCON
PUDAHUEL
PUENTE ALTOPUERTO MONTT
PUERTO NATALES
PUERTO OCTAY
PUERTO VARAS
PUMANQUE
PUNITAQUI
PUNTA ARENAS
PUQUELDON
PUREN
PURRANQUEPUTAENDO
PUTRE
PUYEHUE
QUEILEN
QUELLON
QUEMCHI
QUILACO
QUILICURA
QUILLECO
QUILLON
QUILLOTA
QUILPUE
QUINCHAO
QUINTA NORMAL
QUINTA TILCOCO
QUINTERO
QUIRIHUE
RANCAGUA
RANQUIL
RAUCO
RECOLETA
RENAICO
RENCA
RENGO
REQUINOA
RETIRO
RINCONADA
RIO BUENO
RIO CLARO
RIO HURTADO
RIO IBANEZ
RIO NEGRO
RIO VERDE
ROMERAL
SAAVEDRA
SAGRADA FAMILIA
SALAMANCA
SAN ANTONIO
SAN BERNARDO
SAN CARLOS
SAN CLEMENTE
SAN ESTEBAN
SAN FABIAN
SAN FCO DE MOSTAZAL
SAN FELIPESAN FERNANDO
SAN GREGORIO
SAN IGNACIO
SAN JAVIER
SAN JOAQUIN
SAN JOSE MAIPO
SAN JUAN DE LA COSTA
SAN MIGUEL
SAN NICOLASSAN PABLO
SAN PEDRO DE ATACAMA
SAN PEDRO DE LA PAZ
SAN PEDRO DE MELIPILLASAN RAFAEL
SAN RAMON
SAN ROSENDO
SAN VICENTE T-T
SANTA BARBARA
SANTA CRUZ
SANTA JUANA
SANTA MARIA
SANTIAGO
SANTO DOMINGO
SIERRA GORDA
Sin Información
TALAGANTE
TALCA
TALCAHUANO
TALTAL
TEMUCO
TENO
TEODORO SCHMIDT
TIERRA AMARILLATIL-TIL
TIMAUKEL
TIRUA
TOCOPILLA
TOLTEN
TOME
TORRES DE PAINE
TORTEL
TRAIGUEN
TREHUACO
TUCAPEL
VALDIVIA
VALLENAR
VALPARAISO
VICHUQUEN
VICTORIA
VICUNA
VILCUN
VILLA ALEGRE
VILLA ALEMANA
VILLARRICA
VINA DEL MAR
VITACURA
YERBAS BUENAS
YUMBELYUNGAY
ZAPALLAR
k0 (Diversification)
k1 (
Avera
ge U
biq
uity)
FOR CHILE 2008
This pattern also holds subnationally:
Municipalities in Chile
Diversification vs. Ubiquity
Municipality-Product Pairs
Industries (Sorted by Ubiquity)
Loca
tion
s (
So
rte
d b
y D
ive
rsit
y)
100 200 300 400 500 600 700
50
100
150
200
250
300
-1
-0.8
-0.6
-0.4
-0.2
0
Industries in Chilean Municipalities
Cities in Turkey
ADANA
ADIYAMAN
AFYON
AĞRI
AMASYA
ANKARA
ANTALYA
ARTVİN
AYDIN
BALIKESİRBİLECİK
BİNGÖL
BİTLİS
BOLU
BURDUR
BURSA
ÇANAKKALEÇANKIRI
ÇORUMDENİZLİ
DİYARBAKIR
EDİRNE
ELAZIĞ
ERZİNCAN
ERZURUM
ESKİŞEHİRGAZİANTEP
GİRESUN
GÜMÜŞHANE
HAKKARİ
HATAY
ISPARTA
İÇEL
İSTANBUL
İZMİR
KARSKASTAMONU
KAYSERİ
KIRKLARELİ
KIRŞEHİR
KOCAELİKONYA
KÜTAHYA
MALATYA
MANİSA
KAHRAMANMARAŞ
MARDİN
MUĞLA
MUŞ
NEVŞEHİR
NİĞDE
ORDU
RİZE
SAKARYASAMSUN
SİİRT
SİNOP
SİVAS
TEKİRDAĞ
TOKAT
TRABZON
TUNCELİ
ŞANLIURFA
UŞAK
VAN
YOZGATZONGULDAK
AKSARAY
BAYBURT
KARAMAN
KIRIKKALE
BATMANŞIRNAKBARTIN
ARDAHAN
IĞDIR
YALOVA
KARABÜKKİLİS OSMANİYE
DÜZCE
10
20
30
40
50
60
k1
(A
ve
rag
e u
biq
uity)
0 500 1000 1500k0 (diversification)
Diversity and average ubiquity of Turkey's citiesDiversification vs. Ubiquity
States in Mexico
Diversification vs. Ubiquity
Departments in Colombia
Diversification vs. Ubiquity
And Districts in Sri Lanka
Diversification vs. Ubiquity
How do we measure a country’s personbytes?
Economic Complexity Index
Economic Complexity
ECI correlates with GDP per capita In
com
e P
er
Cap
ita
Countries with Natural Resource Exports<10% of GDP
Countries with Natural Resource Exports>10% of GDP
Economic Complexity controlling for NR Exports
Inco
me
Pe
r C
apit
a co
ntr
olli
ng
for
NR
Exp
ort
s
How to get more letters? The chicken and egg problem
BEAR
ZEBRA
LION
Mapping out the Forest
The Product Space
What makes manufacturing different? Complexity, Connectedness and Market Size
Industry Space
Neffke/Otto/Weyh 2017
Industry space Labor market as a network of human capital linkages
98
What is a country, a city or a region?
Venezuela 2015
Mexico 2015
London
Services
Finance, Insurance, and Real Estate
Shanghai
Manufacturing
How do monkeys jump?
A tale of two countries
GHANA THAILAND
1962: Roughly equal income
GHANA THAILAND
$295 $363 GDP per capita (constant 2000 US$)
Human capital story:
GHANA
Ghana’s exports in 1962
Thailand’s exports in 1962
1965
Thailand Ghana
Thailand vs. Ghana in the Product Space
1970
Thailand Ghana
1975
Thailand Ghana
1980
Thailand Ghana
1985
Thailand Ghana
1990
Thailand Ghana
1995
Thailand Ghana
2000
Thailand Ghana
2005
Thailand Ghana
2010
Thailand Ghana
Ghana’s exports per capita at constant 2005 prices
Thailand’s exports per capita at constant 2005 prices
Divergence, big time
Explaining growth
Economic Complexity controlling for NR Exports
Inco
me
Pe
r C
apit
a co
ntr
olli
ng
for
NR
Exp
ort
s
How many letters you have?
How close are
you to other
good products?
Few letters Hard to add more
More letters Easy to add more
Many letters Hard to add more by just copying others
Relative endowment of letters
Ease t
o a
cq
uir
e m
ore
lett
ers
Co
mp
lexit
y O
utl
oo
k In
dex
Low High
Low
High
Bridge over troubled
waters
Strategic bets Little space to improve quality
and few nearby trees
Stairway to heaven
Parsimonious industrial
policy Help jump short distances to
other products
Let it be
It ain’t broke Ample space to move
in all directions
Hey Jude: make it better
Competitiveness policy Improve the conditions of the
sectors that already exist
The Strategic Setting
The Strategic Setting: intensive vs. extensive
Bridge over troubled
waters
Strategic bets Little space to improve quality
and few nearby trees
Stairway to heaven
Parsimonious industrial
policy Help jump short distances to
other products
Let it be
It ain’t broke Ample space to move
in all directions
Hey Jude: make it
better
Competitiveness
policy Improve the conditions of
the sectors that already
exist
How to get new letters? The infection
problem
Example 1: DETROIT
All successful car firms in Detroit came out of OIds Motor Works
Example 2: SILICON VALLEY
Silicon Valley consists almost exclusively of Fairchild Semiconductor renegades
II. Diffusion of knowhow between firms across countries
Example 3: The garment exports of Bangladesh (Klepper and Mostafa, 2011)
Bangladesh
http://www.atlas.cid.harvard.edu/
Huguenots fleeing France – engraving by Jan Luyken, 1696. http://migrationmuseum.org
Diffusion of Knowhow across Countries via Migrants
Erik Hornung (AER, 2014) Immigration and the diffusion technology: The
Huguenot diaspora in Prussia
Louis XIV of France Revocation of the Edict of Nantes
Huguenots on the run
http://www.huguenotsociety.org.uk/history.html
Edict of Potsdam
By Frans Luycx - [1], Public Domain, https://commons.wikimedia.org/w/index.php?curid=4629286
Huguenots in Prussia – 1685-1795
Source: Hornung, E. (2014). Immigration and the diffusion of technology: The Huguenot diaspora in Prussia. The American Economic Review, 104(1), 84-122.
Huguenot weavers in London Source: http://www.townhousewindow.com
New technologies introduced by Huguenots in Prussia • New ways of dyeing fabrics • Cotton printing • Hosiery knitting loom • Silk spinning
100 years after: • Textile factories in towns with
an influx of Huguenots in 1700 are significantly more productive
• And use more advanced technology (more looms)
Source: Hornung, E. (2014). Immigration and the diffusion of technology: The Huguenot diaspora in Prussia. The American Economic Review, 104(1), 84-122.
By Germany,_Federal_Republic_of_location_map_January_1957_-_October_1990.svg: TUBS Flag_of_East_Germany.svg: derivative work: Fry1989 (talk) 00:25, 26 January 2011 (UTC) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
How to start a new industry?
147
Photo Credit: Lear 21 at English Wikipedia 148
Source: Statistisches Bundesamt: 20 Jahre Deutsche Einheit
Collapse of East German manufacturing
Re-industrialization
Former West Germany
Former East Germany
-60%
149
East German pioneers manufacturing vs nonmanufacturing
51% of experienced manufacturing workers were hired from West Germany
0.1
.2.3
.4.5
sh
are
hire
d fro
m
West G
erm
an
y
-1 -.5 0 .5 1
degree of pioneering
experienced inexperienced
150
Return Migration: Moving letters
Welcome home in a crisis: The effect of return migration on wages and
employment on nonmigrants
Hausmann & Nedelkoska (2017)
151
5% of Albanian labor force
Ljubica Nedelkoska & Ricardo Hausmann: Albanian return migration in the Greek crisis 152
Albanian unemployment and wages after 5% of expansion of labor force
Photo credit: Lendingmemo (from www.flickr.com)
4%
1%
Hausmann & Nedelkoska (2016) 153
Technological change
Photo Credit: Clare Masson, USAID Albania, https://blog.usaid.gov/ 154
Return migration: Mexico
Photo Credit: http://www.cbp.gov/newsroom Dario Diodato: Mexican return migration 155
Arnaud Dyevre (LSE), Riccardo Crescenzi (LSE),
Frank Neffke (HKS)
Catalysts of Regional Innovation How foreign firms allow new places to
join the global innovation contest
156
Inventive activity around the world Stable over time
Patents in region before and after 2000
USPTO data
?
157
HP in Bangalore
158
Difference-in-Differences Patents by all firms
-0.05
0.00
0.05
0.10
0.15
0.20
-10 -5 0 5 10t
caliper is .0002, 1502 treatments
All regions
pre-trend
“effect” of treatment
𝑘
159
Enormous heterogeneity in the number and diversity of migrants
in the developing world
The percentage of immigrants varies enormously across the world
0 5 10 15 20 25 30 35 40 45
Mexico
Chile
Uruguay
Venezuela, RB
South Africa
Russian Federation
France
Germany
United States
Canada
Switzerland
Singapore
Inmigrantes
The developing world is very closed to immigration
Singapore 1 in 2.4
Panama 1 in 24
Mexico 1 in 240
Sri Lanka 1 in 534
But is it push or pull?
Quotas on foreign skilled workers are very common
• Ireland: maximum 50% non-EU citizens
• Kazakhstan: maximum 30% foreign
• Egypt, Guatemala, Panama: maximum 10% foreign
• Cambodia: maximum 6% foreign
• Dem. Rep. Congo: maximum 4% foreign
• Ghana, Mozambique, Nigeria, Thailand: 1 or 2 per firm
Summing up
• The secret of development is technology adoption
• A major obstacle to technology adoption is the spread of collective knowhow
• Technology adoption moves preferentially (and inefficiently) towards the “adjacent possible” – From BEAR to ZEBRA rather than LION
• Human mobility is key to accelerate technology diffusion
• Human mobility is highly constrained, especially in developing countries where it is most needed
Epilogue
• We don’t let “them” in because this country is for “us”– An “imagined community” (B. Anderson)
• The state is supposed to act on behalf of “us”• The sense of us is constrained by the need to paper
over existing diversity (race, language, religion)• If development is to happen, the sense of us must be:• …deep enough to agree on complex public goods • …broad enough to allow for economies of scale • …and the mixing of new forms of knowhow • Many countries are paying a hefty price for not
wanting to be more open to others
Development Collective Know-how and Us #LSEHausmann
Professor Ricardo Hausmann
Director of Harvard's Center for International Development and Professor of the Practice of Economic Development at the Kennedy School of Government. Former Chief Economist of the Inter-American Development Bank.
Chair: Professor Riccardo Crescenzi
Professor of Economic Geography at LSE.
Hosted by the Department of Geography and Environment.