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The Puzzle of Development:

Hausmann GEM13

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  • The Puzzle of Development:

  • Whys dont they do it more efficiently?

  • Who has more productive knowledge?

    WHO HAS MORE PRODUCTIVE KNOWLEDGE?

    AN INUIT?

  • Who has more productive knowledge?

    WHO HAS MORE PRODUCTIVE KNOWLEDGE?

    OR MODERN MAN?

  • ADAM SMITH & THE PIN FACTORY The division of labor makes people more productive

  • The division of knowledge

  • THE DIVISION OF KNOWLEDGE VS. THE DIVISION OF LABOR

    Division of knowledge then

    BUTCHER BAKER CANDLESTICK MAKER

  • Division of knowledge now

  • OUR ANSWER The division of knowledge at the individual, organizational and societal level (city, region, country) makes people more productive, which in turn might explain the GREAT DIVERGENCE.

  • HOW DO WE GET PRODUCTIVE KNOWLEDGE?

  • What do you do when you have a toothache??

    Search the web and fix it yourself?

    or look for a

    dentist

    Search the web and fix it yourself

    Go see a dentist OR

  • How specific is productive knowhow? (Neffke et al 2013)

    0.0%

    10.0%

    20.0%

    30.0%

    40.0%

    50.0%

    60.0%

    70.0%

    80.0%

    90.0%

    100.0%

    0 10 20 30 40 50 60 70 80 90 100

    FLEX

    (q):

    % o

    f eco

    nom

    y ab

    sorb

    ing

    q

    q: % of total labor flow

    GERMANY

    Where do people who leave an industry go?

    Human capital is very specific to the industry in which people work! 50% of those leaving an industry go to related industries that represent just 2.8% of all employment in the country!

  • THE

    THEORY OF ECONOMIC DEVELOPMENT

  • If you only have one letter

    you cant write many words.

  • If you have three letters

    You can now write 4 words:

  • If you have four letters

    You can now write 8 words:

  • Think about all the words you could write with:

    You could write 595 words, such as:

  • WHAT DOES THIS MEAN FOR ECONOMIC DEVELOPMENT?

    GERMANY has many letters and produces many different products

    LESOTHO has few letters and produces few products

  • PERSONBYTES

    The amount of knowledge in the world has increased tremendously, but our individual capacity to hold it has not. Knowledge is now divided into chunks personbytesand distributed across people. How does the personbyte economy work?

  • CHUNKING KNOWLEDGE PERSONBYTES The amount of knowledge in the world has increased tremendously, but our individual capacity to hold it has not. Knowledge is now divided into chunks personbytesand distributed across people. But making things requires putting many chunks back together again How does the personbyte economy work?

  • PROBLEM OF DEVELOPMENT IS THE PROBLEM OF ACQUIRING PRODUCTIVE KNOWLEDGE

    How is productive knowledge acquired?

    By individuals? By firms? By societies?

  • In school?

  • YEARS OF SCHOOLING

    ?

  • Income at 6 yrs of schooling 2010: $1,000

    Income at 6 yrs of schooling 1970: $10,000

    YEARS OF SCHOOLING

  • Increased schooling is not generating the expected income pay-off

    Decreasing returns to human capital accumulation?

    YEARS OF SCHOOLING

  • UNIVERSITY EDUCATION

  • UNIVERSITY EDUCATION

  • UNIVERSITY EDUCATION

  • YEARS OF SCHOOLING & INCOME PER CAPITA 1965-2005

    France Mexico

    Ghana

    GDP per capita in constant dollars, logs

    Thailand

  • IF NOT AT SCHOOL, FROM WHERE?

  • FIND A MASTER Even the science-based jobs require apprenticeship types of learning The tricks of the trade are acquired from experienced

    senior workers

  • LEARNING AS AN INDIVIDUAL

    There is little-to-no delay between feeling the temperature of a hot pan and deciding to take your hand off it.

  • LEARNING AS A TEAM

    STIMULUS

    MUST RESPOND TOGETHER

    ?

    ?

    ? ?

    ?

    ?

  • LEARNING AS A TEAM IS HARD

  • THE BIRTH OF SUCCESSFUL INDUSTRIES STEVEN KLEPPER

    NEW INDUSTRIES. a successful firm is established employees learn from the firm employees leave the firm to set up new firms spin-offs are often much more successful than

    other firms ... and generate a new wave of spin-offs = A CLUSTER OF HIGH PERFORMING FIRMS ARISE

  • 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

  • CHICKEN & EGG PROBLEM: ACQUIRING PERSONBYTES

    You cannot make watches without watchmakers You dont want to be watchmaker if nobody makes watches You cannot become a watchmaker because there are no

    watchmakers to learn from You need not only watchmakers but also precision machinists,

    marketing teams, etc. How do societies overcome this problem?

  • DIFFUSION OF KNOWLEDGE ACROSS COUNTRIES

    Products diffuse to neighbors A country is more likely to start building products that its

    neighboring countries are good at Bahar, Hausmann and Hidalgo (2013)

    THE COUNTRY SPACE

    When the mobility of watchmakers is limited

  • Products diffuse through migrants Bahar and Rapoport (2013)

    DIFFUSION OF KNOWLEDGE ACROSS COUNTRIES

  • SO, WHERE DO FIRMS ACQUIRE NEW PRODUCTIVE KNOWLEDGE?

    Who brings new kinds of industries to towns in Sweden

    New industries brought in by entrepreneurs and firms from outside the region

    Neffke/Hartog/Boschma/Henning 2013

    Where do local pioneers get their workers from in Germany Pioneer firms have to bring their workers from far away The higher the workers skill level, the larger the distance over

    which he/she is sourced. Hausmann/Neffke/Otto 2013

  • MOVEMENT OF ENTIRE TEAMS OF PERSONBYTES

    Locations of Million Dollar Plants and control groups

  • New industries appear in the vecinity of the MDP

  • GETTING PERSONBYTES FROM ABROAD TEXTILES IN DHAKA Bangladesh has

    A literacy rate of 55.9% 144 out of 176 in corruption perceptions ranking 146 out of 187 on human development index

  • TEXTILES IN DHAKA

    M. Noorul Quader, founder Desh Group

    1979: Desh sends 126 Bangladeshi workers for a 6 month intensive training in Korea

    1988: 56 spin-off companies by Desh workers have been established

    (Klepper and Mostafa 2011)

    &

  • TEXTILES IN DHAKA

  • SO, HOW DO SOCIETIES ACQUIRE PRODUCTIVE KNOWLEDGE?

    Productive knowledge is tacit: very hard to acquire Knowledge resides in the brains of people... ... It is easier to move the brains than the knowledge As a result, knowledge diffuses only slowly and across narrow

    channels

    ... and requires teams with complementary skills You need all the letters to make the word In a world of increasing complexity, teams become more and

    more intricate This makes the coordination problem exponentially harder

    What the world needs is mobility, mobility, mobility

  • CID TEAM

  • CID TEAM

  • Thank you

    The Puzzle of Development:Whys dont they do it more efficiently?Slide Number 3Who has more productive knowledge?Who has more productive knowledge?Slide Number 6The division of knowledgeTHE DIVISION OF KNOWLEDGE VS.THE DIVISION OF LABORDivision of knowledge nowSlide Number 10Slide Number 11HOW DO WE GET PRODUCTIVE KNOWLEDGE?What do you do when you have a toothache??How specific is productive knowhow? (Neffke et al 2013)Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19WHAT DOES THIS MEAN FOR ECONOMIC DEVELOPMENT?PERSONBYTESCHUNKING KNOWLEDGE PERSONBYTESPROBLEM OF DEVELOPMENT IS THE PROBLEM OF ACQUIRING PRODUCTIVE KNOWLEDGE1. HOW DO INDIVIDUALS ACQUIRE PRODUCTIVE KNOWLEDGEYEARS OF SCHOOLINGSlide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30YEARS OF SCHOOLING & INCOME PER CAPITA 1965-2005Slide Number 32Slide Number 332. HOW DO FIRMS ACQUIRE PRODUCTIVE KNOWLEDGELEARNING AS AN INDIVIDUALSlide Number 36LEARNING AS A TEAM IS HARDTHE BIRTH OF SUCCESSFUL INDUSTRIESSTEVEN KLEPPERExample 1: DETROITExample 2: SILICON VALLEYSlide Number 41CHICKEN & EGG PROBLEM: ACQUIRING PERSONBYTESSlide Number 43Slide Number 44DIFFUSION OF KNOWLEDGE ACROSS COUNTRIESDIFFUSION OF KNOWLEDGE ACROSS COUNTRIESSO, WHERE DO FIRMS ACQUIRE NEW PRODUCTIVE KNOWLEDGE?MOVEMENT OF ENTIRE TEAMS OF PERSONBYTESNew industries appear in the vecinity of the MDPSlide Number 50TEXTILES IN DHAKASlide Number 52SO, HOW DO SOCIETIES ACQUIRE PRODUCTIVE KNOWLEDGE?Slide Number 54Slide Number 55Slide Number 56Thank you