what does the new technology story imply for growth strategies and development outcomes? ·...

What does the new technology story imply for

growth strategies and development outcomes?

Ricardo Hausmann

Harvard Kennedy School

Center for International Development

at Harvard University

World Bank, Washington DC

September 22, 2017

What will the future bring?

• New General Purpose Technologies

• 3D printing

• Artificial Intelligence

• The Internet of Things

How will new technologies change development possibilities?

• “It is very hard to predict, especially the future.”• Niels Bohr

• It is actually very hard to explain the impact that technology has been having in the recent past

• We may be exaggerating the novelty of the new technologies vis a vis what is already happening

• And explaining what is currently happening may help ask the right questions about what aspects of the new technologies actually matter for development

The puzzle of economic development• The Romer theory of endogenous growth is based on the

role of ideas

• Ideas cause increasing returns to scale

• …but ideas have public-good characteristics• Non-rivalrous and non-excludable

• Hence, at the technological frontier, markets provide insufficient incentives for innovation

• But this logic should make catch-up fairly easy• You just have to use the ideas created by others

• So, why don’t countries catch up?

• Conventional answer: Institutions• They don’t have incentives to adopt the right technology

• My answer: technology does not diffuse because of the nature of technology itself

The new convergence?US GDPpc relative to country

India

China

Korea

CHINAGarments

and

textilesElectronics

Machinery

Mark

et

share

If you change your institutions, you catch up

THAILAND

Garments

and

textiles

Electronics

Machinery

Mark

et

share

…not only in China

TUNISIAGarments

and

textiles

Electronics

Machinery

Mark

et

share

…but sometimes countries get a bit stuck

SRI LANKA

Mark

et

share

Garments

and

textiles

ElectronicsMachinery

…or completely stuck

Is this technology or trade?

Branko Milanovic (2016)

Industry(employment)

Industry(employment)

• Countries have been de-industrializing at a time when rising incomes would have predicted more industry

Industry(employment)

Services(employment)

Services(employment)

They have been •moving into services, but without the concomitant rise in incomes that would have been predicted by the cross section

Services(employment)

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

Division of knowledge now

Knowhow is not schooling

Years of schooling

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?

Societal knowhow does not depend on people knowing

more on average but on people knowing different

The division of knowhow

Products differ in the amount of knowhow they

require

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 letters will be able to make more productsThey would be more diversified

• Products that require more letters will be made by fewer countriesProducts will be less ubiquitous

• Countries that have more letters 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 letters should be more diversified and able to make less ubiquitous products

INTUITION

1) Which country is more diversified?

2) Which is the most ubiquitous product?

3) Which is the least ubiquitous product?

4) Who makes it?

Diversification vs. Ubiquity

Products

Co

un

trie

sCountry-Product Pairs

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

Municipalities in Chile

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 cities

Diversification vs. Ubiquity

States in Mexico

Diversification vs. Ubiquity

Departments in Colombia

Diversification vs. Ubiquity

And Districts in Sri Lanka

Diversification vs. Ubiquity

How are new letters accumulated?

BEAR

ZEBRA

LION

Mapping out the Forest

The Product Space

Community characteristics: Complexity, Connectedness and Market Size

Venezuela 2010

Mexico 1979

How close are monkeys to empty trees?

How many letters you have?

How close are

you to other

good products?

Few lettersHard to add more

More lettersEasy to add more

Many lettersHard to add more by just copying others

The position in the product space affects the growth of complexity

or Na->1

or Na->infinity

Hausmann and Hidalgo (2011) JOEG

Fraction of Capabilities/Personbytes Available

Frac

tio

n o

f P

rod

uct

s A

cces

sib

le

Relationship between letters and words

The deep cause of the Great Divergence

Fraction of Capabilities Available

Frac

tio

n o

f P

rod

uct

sth

at is

Po

ssib

le

1978

AGO

ALBARE

ARG

AUS

AUT

BEL

BGD

BGR

BOL

BRA

CANCHE

CHL

CHN

CIVCMR

COGCOLCRI

CUB

DNK

DOM

DZA

ECU

EGY

ESP

ETH

FIN

FRA

GAB

GBR

GHAGIN

GRC

GTM

HKG

HND

HUN

IDN

IND

IRL

IRN

ISR ITA

JAM

JOR

JPN

KEN

KOR

KWT

LAO

LBN

LBRLBY

LKA

MAR

MDG

MEX

MLIMOZMRT

MUS

MWI

MYS

NGANIC

NLD

NOR

NZL

OMN PAKPAN

PER

PHL

PNG

POL

PRT

PRYQAT

ROU

SAU

SDNSEN

SGP

SLV

SWE

SYR

THA

TTOTUNTUR

TZA

UGA

URY

USA

VEN VNM

ZAF

ZMBZWE

-10

12

3

Op

po

rtu

nity V

alu

e

-4 -2 0 2Economic Complexity

1988

AGO

ALB

ARE

ARG

AUS

AUT

BEL

BGD

BGR

BOL

BRA

CANCHE

CHL

CHN

CIVCMR

COG

COL

CRICUB

DNK

DOMDZA

ECUEGY

ESP

ETH

FIN

FRA

GAB

GBR

GHAGIN

GRC

GTM

HKG

HND

HUN

IDN

IND

IRL

IRN

ISR

ITA

JAM

JOR

JPN

KEN

KOR

KWT

LBN

LBRLBYLKA

MAR

MDG

MEX

MLI

MNGMOZ

MRT

MUS

MYS

NGA NIC

NLD

NOR

NZL

OMNPAK

PAN

PER

PHL

PNG

POL

PRT

QAT

ROU

SAU

SDNSEN

SGP

SWE

SYR

THA

TTO

TUN

TUR

TZA

URY

USA

VEN

VNM

ZAF

ZMBZWE

-10

12

3

Op

po

rtu

nity V

alu

e

-2 -1 0 1 2Economic Complexity

1998

AGO

ALB

ARE

ARG

AUS

AUT

AZE

BEL

BGD

BGR

BIH

BLR

BOL

BRA

CAN

CHE

CHL

CHN

CIVCMR

COG

COL

CRI

CUB

CZE

DNK

DOM

DZAECU

EGY

ESP

EST

ETH

FIN

FRA

GAB

GBR

GEO

GHAGIN

GRC

GTM

HKG

HND

HRV

HUNIDN

IND

IRL

IRN

ISR

ITA

JAM

JOR

JPN

KAZ

KEN

KGZ

KHM

KOR

KWTLAO

LBN

LBRLBY

LKA

LTU

LVA

MAR MDA

MDG

MEX

MKD

MLI MNG

MOZ

MRTMUS

MYS

NGA NIC

NLD

NORNZL

OMN

PAKPAN

PERPHL

PNG

POL

PRT

PRY

QAT

ROU

RUS

SAU

SEN

SGP

SLV

SVKSVN

SWE

SYR

THA

TJKTKM

TTO

TUN

TUR

TZAUGA

UKR

URY

USA

UZB

VEN

VNM

YEM

ZAF

ZMB

ZWE

-10

12

3

Op

po

rtu

nity V

alu

e

-2 -1 0 1 2Economic Complexity

2008

AGO

ALB

ARE

ARG

AUS

AUT

AZE

BEL

BGD

BGR

BIH BLR

BOL

BRA

BWA

CAN

CHE

CHL

CHN

CIV

CMRCOG

COLCRI

CUB CZE

DNK

DOM

DZAECU

EGY

ESPEST

ETH

FIN

FRAGAB

GBR

GEO

GHA

GIN

GRC

GTMHKG

HND

HRV

HUN

IDN

IND

IRL

IRN

ISR

ITAJAM

JOR

JPNKAZ

KEN

KGZ

KHM

KOR

KWTLAO

LBN

LBRLBY

LKA

LTU

LVA

MAR

MDA

MDG

MEX

MKD

MLIMNGMOZ

MRT

MUS

MWI

MYS

NAM

NGA

NIC

NLD

NOR

NZL

OMN

PAKPAN

PER

PHL

PNG

POL

PRT

PRY

QAT

ROU

RUS

SAU

SDN

SEN

SGP

SLV

SRB

SVK

SVN

SWE

SYR

THA

TJKTKM

TTO

TUN

TUR

TZA

UGA

UKR

URY

USAUZB

VEN

VNM

YEM

ZAF

ZMB

ZWE

-20

24

Op

po

rtu

nity V

alu

e

-2 -1 0 1 2Economic Complexity

Is it because of:

the accumulation of country capabilities, or

a change in product technology?

Is it country capabilities or product technologies?The Product Space has changed over time

-1.5

-1-.

50

.51

-2 -1 0 1 2

2008 - PS of 1978 2008 - PS of 2008

Today’s production

with today’s product space

Today’s production with 1978

product space

Economic Complexity

Op

po

rtu

nit

y V

alu

e

The role of global value chains

• Products may be getting more complex• Longer words

• …but value chains are becoming more global

• Each location needs to have fewer capabilities

• Trade in syllables

• Industries become easier to get in• Lenovo

• What do the following cities have in common?• Huntsville, Alabama; Blue Spring, Mississippi, Princeton,

Indiana; Buffalo, West Virginia; Greer, South Carolina

Implications and Questions

• New technologies (new letters) do not diffuse when they are used in long words

• In products that require many complementary technologies that must have previously diffused

• The TV remote control

Internet penetration

USA

China

India

Access to electricityUSA

China

India

Implications and Questions

Will new technologies go into shorter words•Will • 3D printing make manufacturing more accessible?Will the IOT require more demanding •infrastructure?Will AI, by facilitating the substitution of tacit •knowledge for embodied knowledge, help it diffuse faster?

What will the new technologies do to the shape •of the product space

Will it bring trees closer? Will it create more •parsimonious paths to development?

E.g. Apparel, textiles, electronics, cars•

Implications and Questions

• What new products or tasks will developing countries export to the world?

• So that they can participate in the global economy and pay for their imports of new technologies?

• What does reshoring imply?• More concentrated or more distributed production?

Thank you!E-mail: ricardo_hausmann@harvard.edu

Twitter: @ricardo_hausman