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Diversification and Economic Development
- 1. Diversification and development: role of local markets and international flows Dany Bahar, PhD The Brookings Institution Harvard Center for International Development OECD Policy Seminar, March 2017 Paris, France
- 2. •As countries move towards more productive activities, they grow faster •Two components play a role: • Productivity increase within sectors • Entry, exit and reallocation of resources from least to more productive sectors Starting premise: structural transformation
- 3. What can we expect of the evolution of a country’s export basket?
- 7. Let’s look at the data!
- 8. Imbs and Warcziag (AER 2003) Specialization
- 9. Cadot et al. (ReStat 2011)
- 10. Let’s now consider another set of facts...
- 12. P R O D U C T S C O U N T R I E S Hidalgo et al. (2007)
- 13. C O U N T R I E S P R O D U C T S Hidalgo et al. (2007)
- 14. How can we put together these two pieces of evidence?
- 15. Bahar (2016, in progress )SITC4dig • Replicated Imbs & Warcziag (2003) • Turning point consistent with previous studies • Focus on two measurement issues: • Natural resource rich countries • Level of disaggregation of the data
- 16. Natural resources and exports diversification
- 17. SITC4dig • When excluding natural resource rich countries (>10% GDP avg during sample period) respecialiaztion pattern is weaker • Consistent with results in Bahar and Santos (2016) Bahar (2016, in progress )
- 18. • Concentration in non- resource export basket tends to be higher for natural resource rich countries • Exchange rate: countries prone to Dutch Disease effects • In fact, capital-intensive goods tend to thrive in these countries • Nat. resource industries draw large investments hindering growth of other industries Bahar and Santos (2016)
- 20. •Sample from 1996-2013, by CEPII • 97 products at 2 digits • 1242 products at 4 digits • 5131 products at 6 digits Harmonized System Classification
- 21. Bahar (2016, in progress )
- 22. •More granular data results in less re-specialization among the richest countries •Countries respecialize in sectors, but remain highly diversified in varieties at higher levels of development • Consistent with new trade theory (Helpman and Krugman 1985)
- 23. Low resolution: Korea and Malawi
- 24. High resolution: Korea and Malawi
- 26. • Ricardo Hausmann and co-authors have shown that diversification responds to local composition of a country’s export basket • Existence of related products strongly explains the emergence of new ones • Cross-industry spillovers are based on a measure of product relatedness
- 28. Panama - 1980
- 29. Panama - 1990
- 30. Panama - 2000
- 31. Panama - 2010
- 32. •Relatedness computed as probability of countries co-exporting two products during the same period •It is an geographic- based, yet agnostic, measure •Yet, it is a very robust and strong predictor What is relatedness?
- 33. A new product is about 60%- 80% more likely to appear in the next decade given higher relatedness by one std dev
- 35. Opening the black box: what explains these agnostic measures?
- 36. Bahar, Stein, Wagner and Rosenow (2017, mimeo) •We look at other relatedness measures to explain new exports •Focus on three channels that link products: • Labor flows • Demand and supply • Technology
- 37. Bahar, Stein, Wagner and Rosenow (2017, mimeo)
- 38. Changes in relatedness based on consumer linkages can explain twice as much than changes in agnostic measures Bahar, Stein, Wagner and Rosenow
- 39. Technology linkages have important explanatory power on future growth Bahar, Stein, Wagner and Rosenow
- 40. ß drops 35% ß drops 40% Bahar, Stein, Wagner and Rosenow
- 41. Share of agnostic measure that remains unexplained when explaining emergence of new sector, in different cuts of the dataset Bahar, Stein, Wagner and Rosenow
- 43. The diffusion of knowledge as a determinant of comparative advantage…
- 44. Knowledge is difficult to transfer and to acquire
- 45. Knowledge has a large tacit component. Michael Polanyi (1966) Channels for knowledge transmission are limited to human interaction Kenneth Arrow (1969)
- 46. Tacit knowledge that travels through narrow channels and its diffusion is geographically localized
- 47. Patents citations are predominantly local (Jaffe, Trajtenberg and Henderson)
- 48. Industrial R&D has geographically “bounded” spillovers
- 49. Does the emergence of a new export sector is consistent with local diffusion of knowledge?
- 50. Bahar, Hausmann and Hidalgo (2014 JIE) • Uses new export as a measure of knowledge acquisition (control for global demand) • Emergence of new export product explained to existence of such product in a neighbors’ export basket
- 51. Export similarity is stronger among neighbors and strongly decays with distance
- 52. Bahar, Dany, Ricardo Hausmann, and César A Hidalgo. 2014. Neighbors and the Evolution of the Comparative Advantage of Nations: Evidence of International Knowledge Diffusion?. Journal of International Economics 92, no. 1: 111-123.
- 55. Bahar (2016) • Using Dun and Bradstreet data, test whether MNC are less likely to expand abroad in knowledge intensive activities • Able to geo-locate each headquarters and its branches throughout the globe
- 56. • Use a new measure of tacit knowledge intensity, based on the experience and on-the-job training of workers in the industry • Based on O*NET workers’ characteristics Bahar (2016)
- 57. Bahar (2016) • MNCs are 15% less likely to horizontally expand a sector that is 2X average knowledge intensity • There exists a tradeoff between knowledge intensity and distance between HQ & foreign subsidiaries within MNCs • A MNC in Houston TX would locate a meat packing subsidiary in Kabul in Afghanistan and a semiconductor plant in Ireland
- 58. Bahar (2016) • The trade-off weakens when controlling for the ease of communication • Ability to communicate in real- time, as measured by time zone closeness effectively “reduces” distance between headquarters and subsidiary by about 1/3, or 2000km on average. • Cost of shipping intermediate goods can’t explain the tradeoff (Keller and Yeaple 2013)
- 59. • Productivity dynamics also suggest difficulties in knowledge diffusion (work in progress) • Convergence- divergence TFP dynamics using ORBIS • Consistent with results by Andrews et al. Bahar (in progress)
- 60. If knowledge transmission requires human interaction… …then the patterns of international knowledge diffusion should follow the patterns of migration
- 62. Bahar and Rapoport (2017 EJ)
- 63. Bahar and Rapoport (2017 EJ)
- 64. Bahar and Rapoport (2017 EJ)
- 65. Bahar and Rapoport (2017 EJ)
- 66. Immigrants and emigrants can explain the emergence of new sectors in the countries that receive them • Using an instrumental variable approach we find a causal relationship • Not explained by bilateral trade due to information networks Bahar and Rapoport (2017 EJ)
- 67. Bahar and Rapoport (2017 EJ)
- 68. •We study transfer of knowledge through return migration using the returnees from Germany to former Yugoslavian countries after the Balkan wars • Using data from Institute for Employment Research in Germany Bahar, Hauptmann, Ozguzel & Rapoport (in progress) 600 700 800 900 1000 1100 1200 1300 1400 Numberofpersons(1,000) 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Number of residents in Germany with a nationality of Yugoslavia or its successor states (YUG, SCG,SRB,HRV,SVN,KOS,MNE,MKD,BIH) Balkan wars (1991-1999). Bosnia, Croatia, Serbia (1991-1995). Kosovo (1998-1999)
- 69. Bahar, Hauptmann, Ozguzel & Rapoport (in progress) •Across the board, industries lost workers with Yugoslavian passport from 1995 to 2010 1112131415 19 111 112113 114 115116 118 121 129 141142 149 223 224 230 240 251 252 341342 343 344 350 360 371372 411412 421 422 430 440 451452 459 460470 481 482 483 484 488 541542544545 546 548 561 564 565 571572573574575576577579 582 583 585 586 589 611612615 616 619 620 711 712 721 722 723 730 741 742 751752 811 812 813 814 819 913 914 980 11101121112211231124 12111212 12131221 1222 1223 21112112211421162117 2119 2120 22212222222322242225 2226 2231223222342235 2238 2239 2320 2331 23322440 2450 2460 2471 2472 2479 2481 24822483 2511 25122516 2517 25182519 2613 2614 2631 2632 2633 2634 26402651265226542655 2659 26652666 2667 2671 2672 2681 2682 26832685 2686 2687 269027112712 27132714 2731 2732 27332734 2741 2742 27712772 2782 2783 2784 2785 2786 2789 2814 28152816 2820 2860 287128722873 2874287528762877 2879 288128822890 2911 2919 29222923 292429252926 2927 2929 32213222 3223 3224 3231 3232 3330 3341 334233433344 3345 3351 33523353 3354 3413 3414 34153510 4111 4113 42324233423442354236 4239 42414242424342444245 4249 4311 4312 4313 4314 5111511251135114 5121 5122512351375138 5139 5145 5146 51475148 51545155 5156 5157 516151625163 5169 5221 522252235224 5225 52315232 52335239 5241 524953115312532253235331 53325334 5335 54115413541454155416 5417 5419 55135514 5530 554155425543 5621562256235629 572157225723 58215822 5823 5824 5825 5826 5827 5828 5829 5831 5832 5833 5834 5835 5836 58375838 5839 584158425843 5849 5851 5852 5911591259135914 5921 5922 5981 5982 5983 5989 6112611361146115 6116 6118 61216122 6123 6129 6130 6210 6251625262536254 6259 6281628262896330 6341 6342 6343 6344 634963516352 6353 6354 6359 6411 6412 6413 6415 6416 6417 6418 6419 64216422 6423 6424 6428 6511 6512 6513 6514 6515 6516 6517 6518 6519 6521 6522 65316532 6534 6535 6536 6538 6539654165426543654465456546 6549 6551 6552 6553 6560 6571 6572 6573 6574 6575 6576 6577 6579 6581658265836584 6589 6591 65926593 65946595 65966597 66116612 66136618 6623 6624 66316632 6633 6635 6637 6638 6639 6641 6642 664366446645 6646 66476648664966516652 6658 66646665 6666 667166726673 6674 67126713 6716 6724 6725 6727 6731 6732 6733 6741 67446745 6746 6747 6749 6750 6760 6770 67816782 6783 6784 6785 6793 6794 681168126821 6822 6831683268416842685168526861686368716872 6880 6891 6899 69116912 6921 6924 693169326935 6940 6951 6953 6954 6960 6973 697469756978 6991 6992 699369946996 6997 6998 6999 711171127119 71267129 7131 7132 71337138 7139 7144 7148 7149 7161 7162 71637169 7187 7188 72117212 72137219 7223 72247233 7234 72397243724472457246 7247 7248725172527259 7263 7264 7267 7268726972717272 7281 7283 7284 7361 7362 7367 73687369 73717372 7373 7411 7412 7413 74147415 7416 7421 74227423 7428 74297431 74327433 7434 7435 7436 7439 7441 7442 7449 7451 7452 7491 74927493 7499 75117512 7518 752175227523752475257528 7591 7599 7611761276217622762876317638 7641 7642 7643 7648 7649 77117712 7721 77227723 7731 7732 77417742 7751775277537754 7757 7758 7761 7762 7763 7764 7768 7781 7782 7783 7784 7788 7810 7821 7822783178327841 7842 7849 785178527853 7861 7868 791179127913791479157919792179227923 7924 79287929 7931 7932 7933 7938 8121 8122 8124 8211 8212 8219 8310 84218422 84238424 8429 8431 8432 843384348435 8439 8441 8442 8443 8451 8452 8459 8461 8462 8463 8464 846584718472 8481 8482 8483 8484 8510 8710 8720 873187328741 8742 8743 87448745 8748 8749 8811 88128813 8821 8822 8830 8841 8842 8851 8852 892189228924 8928 8931 8932 8933 8935 8939 8941 8942 8946 8947 8951 8952 8959 8960 8972 8973 8974 89818982 8983 8989899189938994 8996 8997 8998 8999 9110 9310 9410 9510 9610 9710 012345678 NumberofYugoslavianworkerinT=2010(ln) 0 1 2 3 4 5 6 7 8 Number of Yugoslavian worker in t=1995 (ln) Worker from Yugoslavia and its successor states by 786 4-digit products. Logs computed as lnX = ln(X+1)
- 71. Insights on the role of policy •Diversification and development are strongly related •But the road to diversification is full of market failures • Policy plays a role. Dani Rodrik puts it best…
- 72. Insights on the role of policy (cont) • Hardships in the process of knowledge diffusion may be the biggest challenge we face • Directly relates to the productivity slowdown both developed and developing nations face • Policy could accelerate it by addressing the important externalities in the role of labor mobility both within and across countries • And perhaps especially in times of skilled-biased technological change
- 73. Thank you! Please email me dbahar@brookings.com and follow me on Twitter @dany_bahar
Editor's Notes
- Half a million pixels
- This is a feature of the world that we think expresses the holding of knowledge, between rich and poor country.