Pretending to be the Law: Violence to Reduce the COVID-19 Outbreak

Did the COVID-19 pandemic create an opportunity to earn population control through illegal violence? We argue that criminal groups in Colombia portray as de facto police by using mass killings to reduce the COVID-19 outbreak. They used massacres as a threat to enforce social distance measures in places they considered worth decreasing mobility. Our results from an Augmented Synthetic Control Method model estimated that commuting to parks fell 20% more in areas with massacres than in places without mass killings. In addition, we do not find a decline in mobility to workplaces and COVID-19 deaths after the first mass killing. These findings are congruent with the hypothesis that illegal armed groups used fear to enforce mobility restrictions without hurting economic activities and their sources of revenue. However, violence slightly impacted the virus’ spread. Treated areas had a decline of 35 cases per 100,000 inhabitants four months after the first massacre.

Food for Growth: A Diagnostics of Namibia’s Agriculture Sector

This growth diagnostic report analyzes the economic constraints that explain the underperformance of the agriculture sector in Namibia. Section 1 starts by showing why Namibia’s agricultural challenge is unique when compared to the rest of the world. We then describe the sector’s key features, recent trajectory, and growth potential across different relevant dimensions in Section 2. In Section 3, we provide an adaptation of the growth diagnostic framework to the case of agriculture in Namibia and a detailed analysis of its economic constraints. Finally, Section 4 presents policy guidelines for addressing the challenges described in this report and prioritizing policy interventions accordingly.

Gravity with History: On Incumbency Effects in International Trade

We introduce incumbency effects into a tractable dynamic model of international trade. The framework nests the canonical Melitz (2003)-Chaney (2008) model as a special case. The key novelty is that fixed costs of market access decrease with tenure. As a consequence, there is less market exit and entry in response to a shock. We derive a gravity equation and show that, ceteris paribus, countries that liberalized their trade relationship earlier trade more today. We provide supporting evidence for the underlying mechanism and derive an augmented ACR formula (Arkolakis et al., 2012) for the gains from trade that accounts for incumbency effects. A quantitative analysis suggests that our mechanism can explain up to 25% of countries’ home shares and that the gains from trade are, on average, 10% larger when accounting for incumbency effects. The analysis further reveals novel distributional effects of trade that benefit real wages but reduce profits.

Growth Diagnostics and Competitiveness Study of the Manufacturing Sector in Tanzania

Tanzania’s manufacturing puzzles (and frustrations) seem to be a natural outcome of their policy choice. The Tanzanian economy experienced a significant acceleration over two decades, growing at a compounded annual growth rate of 6% between 1998 and 2018: Largest rates were recorded and sustained by the super commodity cycle (2005-2014). Within that growth trajectory, manufacturing’s share of gross domestic product (GDP) has lingered for 30 years below 10% – well below the 23% target established for 2025 in Tanzania’s Industrial Development Strategy (2011). As stressed by Diao et al (2021), the bulk of manufacturing value added is created by a few capital-intensive firms, whereas informal manufacturing has increased employment but without significant improvements in productivity/wages. Manufacturing exports surged in 2011 and remained steady since driven by subsector basic metals (gold & unrefined copper). If these are excluded, the curve mirrors the commodity price boom (likely a price boom rather than a volume boom). Looking only at exports conceals the fact that the bulk of the manufacturing output in Tanzania is sold in the domestic market rather than exported: exports are equivalent to less than 2% of GDP; domestic sales are seven times higher. While Food and Beverages make up for the largest share of manufacturing value employment and value-added, basic metals are the ones accounting for the vast majority of Tanzania’s exports.

The most binding constraint to investments in manufacturing in Tanzania is the availability and quality of electricity supply: Access to electricity is the lowest among peers, with large disparities between rural (22%) and urban (70%). Electrical outages are frequent and expensive for the manufacturing sector; firms even plan their production schedules and decide on plant locations based on power reliability. And yet, when we analyze the share of value-added against energy intensity at the sub-sector level, the negative relationship to be expected if electricity is indeed the constraint is there, but too fragile and noisy. Why? The strongest evidence points to the role of trade protection in compensating firms for other constraints, allowing existing manufacturers to capture large shares of domestic value-added while remaining uncompetitive in export markets. Large manufacturing subsectors of moderate to high energy intensity and more capital intensive enjoy higher tariff protection, creating a wedge that allows these industries to thrive in the domestic market. Despite joining numerous free trade agreements, Tanzania remains one of the most restrictive countries from a trade standpoint, eased by filing exceptions that shield individual products and entire domestic industries from competition. We have also found that effective taxation in Tanzania is relatively higher on labor (lower on capital, materialized through massive tax holidays granted within SEZ), skewing returns away from the country’s relative labor abundance. Failure to address the binding constraints creates a rationale for upholding protection, which reinforces biases towards capital and energy-intensive sectors. These policies go a long way in explaining the Tanzanian manufacturing puzzle.

Eight Decades of Changes in Occupational Tasks, Computerization and the Gender Pay Gap

We build a new longitudinal dataset of job tasks and technologies by transforming the U.S. Dictionary of Occupational Titles (DOT, 1939 -1991) and four books documenting occupational use of tools and technologies in the 1940s, into a database akin to, and comparable with its digital successor, the O*NET (1998 -today). After creating a single occupational classification stretching between 1939 and 2019, we connect all DOT waves and the decennial O*NET databases into a single dataset, and we connect these with the U.S. Decennial Census data at the level of 585 occupational groups. We use the new dataset to study how technology changed the gender pay gap in the United States since the 1940s. We find that computerization had two counteracting effects on the pay gap -it simultaneously reduced it by attracting more women into better-paying occupations, and increased it through higher returns to computer use among men. The first effect closed the pay gap by 3.3 pp, but the second increased it by 5.8 pp, leading to a net widening of the pay gap.

The Impact of a Rise in Expected Income on Child Labor: Evidence from Coca Production in Colombia

Can households’ beliefs about future income shocks affect child labor? This paper examines whether the three-year gap between the announcement (in 2014) and the start (in 2017) of the Illicit Crop Substitution Program (ICSP) increased child labor in Colombia. The ICSP provides farmers with financial support for not planting and harvesting coca leaves – the key input of cocaine. My results from a difference-in-differences model using differences in historical coca production show that due to the ICSP announcement, children became four percentage points more likely to work in municipalities with historical coca production than in non–coca-growing areas. Although the likelihood of working increased in coca–growing areas, the hours worked per child declined modestly after the ICSP announcement. The expansion of the children working in coca fields but the decline in working hours per child produce null effects of the announcement on education outcomes. The rise in the expected income affects the time allocation decision within households in rural areas.

What is South Africa’s Crop Production Potential?

Combining satellite data with FAO potential yields we provide a new measure of South Africa’s current and potential crop farming output. We find that field crop production is twice its census estimate, contributing 1.4% of GDP rather than 0.7%, and that achieving potential could increase its contribution a further 0.5% of GDP. Estimating horticulture potential is more difficult. We ﬁnd that its 0.7% contribution to GDP is massively unreported, with actual production at 2.5%. Reaching potential could increase this number a further 0.5%. The distance from current to potential output represents over 100 billion 2017 rand of additional gross income and about 350.000 thousand jobs and is unevenly distributed across the country and concentrated in four provinces: Free State, Western Cape, Kwazulu-Natal and Eastern Cape. Our result suggests that there is room to expand agriculture, but because the potential gains are geographically concentrated, the solutions should have a strong location dimension.

Scaling Partnerships to Activate Idle Community Land in South Africa

We discuss three cases of corporate-smallholder partnerships in South Africa’s former homelands, which have tried to bridge the problem of low productivity by supplying technology, technical assistance and financing along with established channels for sales and distribution. The cases are indicative of some key difficulties faced by such ventures: building trust, finding a suitable partner, successfully transferring technological to small farms, and reducing risk, particularly climate related. In order for these types of partnerships to help close the gap between South Africa’s two agricultures, solutions to these problems must be provided at greater scale. We explore mechanisms to achieve that scale, drawing lessons from South Africa’s successful franchising sector, as well as newly emerging business models and technologies from abroad.

Una historia de la economía de dos Amazonias: Lecciones sobre generar prosperidad compartida mientras se protege la selva en Perú y Colombia

A menudo se piensa que alcanzar la prosperidad económica en la selva amazónica es incompatible con la protección del ambiente. Los investigadores ambientales suelen advertir, con razón, que la velocidad de la deforestación actual está llevando a la Amazonía a un potencial punto de quiebre a partir del cual la selva no podrá dejar de deteriorarse hasta convertirse en una sábana herbácea. Pero se habla menos de lo que hay que hacer para generar prosperidad compartida en las comunidades amazónicas. La deforestación suele tratarse como algo inevitable a la hora de atender las necesidades humanas, locales y globales. Este reporte sintetiza los hallazgos de dos proyectos del Laboratorio de Crecimiento de Harvard University, que estudian la naturaleza del crecimiento económico en dos contextos amazónicos: el departamento de Loreto, en Perú, y los departamentos de Caquetá, Guaviare y Putumayo, en Colombia. La meta de estas colaboraciones es valerse de la investigación de alcance global que ha hecho el Growth Lab sobre la naturaleza del crecimiento económico para aplicar esos métodos al reto único de desarrollar rutas hacia la prosperidad en la Amazonía, de manera que no se perjudique a la selva. Este reporte compara y contrasta los hallazgos en la Amazonía peruana y colombiana para evaluar hasta qué punto hay lecciones que se puedan generalizar sobre la relación entre crecimiento económico y protección del bosque en la Amazonía.

The Connectivity Trap: Stuck between the Forest and Shared Prosperity in the Colombian Amazon

The Colombian Amazon faces the dual challenge of low economic growth and high deforestation. High rates of deforestation in Colombia have led to a perceived trade-off between economic development and protecting the forest. However, we find little evidence of this trade-off: rising deforestation is not associated with higher economic growth. In fact, the forces of deforestation of some of the world’s most complex biodiversity are driven by some of the least complex economic activities, like cattle-ranching, whose subsistence-level incomes are unable to meet the economic ambitions for the region. All the while, the majority of the Amazonian departments’ population works in non-forested cities and towns, at a distance from the agriculture frontier that forms the “arc of deforestation.” The relative urbanization of the Amazonian departments, despite the vast land mass available, recognizes that prosperity is achieved through close social-economic interactions to expand the knowledge set available to be able to produce more, and more complex activities. Achieving economic goals therefore relies on creating new productive opportunities in non-forested, urban areas.

The risk of deforestation reduces incentives to improve the connectivity of Amazonian departments with major cities and export markets. The remoteness of these departments increases the cost of ‘exporting’ goods to markets outside the departments. Poor connectivity contributes to the low economic complexity of the departments. In turn, the low complexity reduces incentives to coordinate new investments that would generate returns to greater connectivity. Coordination failures, which occur when a group of economic actors (e.g., firms, workers) could achieve a better outcome but fail to do so because they do not coordinate their actions, are widespread in all three of the Amazonian departments studied. This limits the creation of new capabilities and productive diversification to generate new jobs and higher incomes.

We posit that economic growth in the Colombian Amazonian is limited by a “connectivity trap” whereby the lack of external market connectivity restricts economic complexity, and, in turn, the low complexity fosters the coordination failures that limit returns to new diversification. Ultimately, low returns to diversification further reduce incentives to improve connectivity. Underpinning the connectivity trap is the belief that limiting the connectivity of Amazonian departments with large Colombian cities and the broader global economy will limit incentives for deforestation. Yet, deforestation has accelerated in recent years, despite the continued poor connectivity. We argue that Colombia must create a new national law to curb deforestation by eliminating the financial incentives for land speculation. Reclassifying forested lands under the control of national protection systems with severe restrictions on economic activities and strengthened enforcement, as detailed in an accompanying report, provides the needed legal clarity regarding land formalization. Within the law to eliminate incentives for deforestation, the national government should create a new development approach for the Colombian Amazon. This approach must move beyond a natural resource-based approach to the region, to center on the productive potential of its urban areas, and the carbon markets and tourism potential of its forested areas. One pillar of this approach is to build new public sector capabilities to coordinate investments into new, targeted productive sectors to create new national-local mechanisms of investment promotion. A second pillar is to improve connectivity to external markets through road and air investments between Caquetá, Guaviare, and Putumayo and major cities and ports.