Canada After America

For generations, Canada built its prosperity on economic integration with the United States, only to find itself hostage to its nearest neighbor.

In Canada After America, economists Ricardo Hausmann and Eric Protzer offer a bold, practical strategy for Canadian prosperity in a radically changed world.

Drawing on research from the Harvard Growth Lab and the insights of economic complexity, they argue that the answer is not to retreat from globalization, but to become far better at competing in the rest of the world. Canada must get more of its natural resources to global markets while building industries—aerospace, life sciences, technology—that can overcome the tyranny of distance.

It won’t be easy. Despite world-class universities and research, Canada’s private-sector knowledge economy remains stunted. The country has failed to build and sustain large, research-intensive companies and the dynamic cities in which they flourish. It must abandon its “small is beautiful” approach to innovation, remove barriers to growth, and enable its most promising firms to scale.

The rupture with America is a crisis—but also a historic opportunity to build a more innovative, resilient, and globally competitive Canada.

Lagging Regions: What Can Policymakers Learn from Wyoming?

Despite an abundance of valuable raw materials and breathtaking natural beauty, the western US state of Wyoming lags its neighbours in terms of economic performance. This is largely due to a lack of substantial urban centres, driven in part by excessively restrictive regulations on housing.

A New Algorithm to Efficiently Match U.S. Census Records and Balance Representativity with Match Quality

We introduce a record linkage algorithm that allows one to (1) efficiently match hundreds of millions of records based not just on demographic characteristics but also name similarity, (2) make statistical choices regarding the trade-off between match quality and representativity and (3) automatically generate a ground truth of true and false matches, suitable for training purposes, based on networked family relationships. Given the recent availability of hundreds of millions of digitized census records, this algorithm significantly reduces computational costs to researchers while allowing them to tailor their matching design towards their research question at hand (e.g. prioritizing external validity over match quality). Applied to U.S Census Records from 1850 to 1940, the algorithm produces two sets of matches, one designed for representativity and one designed to maximize the number of matched individuals. At the same level of accuracy as commonly used methods, the algorithm tends to have a higher level of representativity and a larger pool of matches. The algorithm also allows one to match harder-to-match groups with less bias (e.g. women whose names tend to change over time due to marriage).

How Wyoming’s Exodus of Young Adults Holds Back Economic Diversification

Wyoming is a rural Mountain West state with a high Gross State Product (GSP) per capita, foremostly driven by its fossil fuel sector. The state’s longstanding strengths in resource extraction provide much of its livelihood, including both its private earnings and public finances. Its other industries are comparatively much smaller, but Wyoming would benefit from their expansion in order to smooth out resource-related shocks going forward. Importantly, Wyoming should think on a big scale when considering such opportunities. Middling, business-as-usual growth in its non-resource sectors will not fundamentally do much to insulate Wyoming’s economy against resource busts.

One category of diversification opportunities to consider are those in industries tied to the natural endowments of the land. Wyoming generally does well in these sectors, but prospects of further expansion are either highly uncertain or limited in scale. Some of the most promising opportunities are in new energy and critical minerals, but these carry significant technological uncertainty and/or modest income potential. Transformative growth in agriculture is likely to be difficult because Wyoming faces hard constraints on its water consumption, and its tourism income per capita is already among the very highest of any US states. Adding value to raw materials is a commonly-discussed strategy that, in practice, does not work well in the modern economy because raw materials are often easily traded over long distances.

While it is therefore vital for Wyoming to pursue economic activities related to its natural endowments, it must also look to its advanced services and manufacturing sectors. Wyoming is a severe laggard in these industries versus other states, and serious action is needed to generate the large pools of skilled labor that they need to succeed. There is widespread recognition that Wyoming is behind on this matter, and the state has made critical investments in education to bridge this gap. The missing ingredient, however, is keeping young people and families in the state. By the time people born in Wyoming reach their thirties, nearly two thirds have left – one of the highest rates in the country. Without access to this workforce, it is exceedingly difficult for the Wyoming economy to diversify.

Empirically, young Wyomingites and families overwhelmingly leave the state in favor of larger cities. University of Wyoming graduates especially are attracted to large cities a few hours’ drive away from Laramie, Wyoming (where the University of Wyoming is located). These destinations include Fort Collins and Denver. Even if it wanted to, Wyoming could not wave a magic wand to create a large urban metropolis overnight, and it is therefore necessary to understand what specifically attracts young adults and families to these big cities instead of Wyoming towns so that the latter can compete better.

The evidence shows that housing is a surprisingly important factor related to migration decisions on which Wyoming underperforms. Young adults fresh out of university often prefer to live in centrally-located apartments, so that they are close to jobs, restaurants, and friends. Wyoming towns, however, lack dense multi-family housing in their downtown cores as compared to other US towns with very similar overall population. This lack of dense downtown housing suitable for young people contributes to an overall housing supply deficiency, thereby driving up housing prices across the board. It also entails depressed foot traffic in downtowns, leading to fewer customers for local businesses and ultimately fewer urban amenities like restaurants versus Colorado communities – a key result given that surveyed University of Wyoming students report that restaurants are their top desired urban amenity.

The main reason there is not denser housing in Wyoming downtowns is because strict regulations have illegalized them. A plethora of restrictions exist around issues like minimum lot sizes, maximum building heights, minimum parking space requirements, maximum dwellings per unit of area, and more. Studies show that Wyoming is more overregulated than other communities when it comes to restrictions on housing density. Other places successfully leave these decisions to the free market rather than government, and Wyoming could remove these restrictions to increase its supply of housing for young people at no cost. There is additionally a lack of funding for arterial infrastructure in Wyoming, such as water and sewage lines, which drives up development costs.

A general lack of funding for community assets arguably also affects young peoples’ and families’ migration decisions. There is evidence that community demand for investment outstrips supply in water and transport infrastructure, and that many counties use allotted sales tax expansions (“Penny Taxes”) very frequently. One way Wyoming could direct more funding to its local communities is via an expanded grants management system; Wyoming gets less federal grant funding per person than other rural US states, and based on interviews this is tied to a lack of dedicated staff who can navigate the significant overhead associated with following and applying for grants.

Overall, while Wyoming is currently a laggard on advanced service and manufacturing industries there are concrete steps it could take to compete better by retaining more of its young people. Wyoming’s Pathways to Prosperity economic development project has already enacted a number of changes to support that outcome, but more can be done. With denser downtowns and more funding for community assets, Wyoming would bolster both its economic and cultural vitality by keeping its young people and leveraging them to obtain growth in new industries.

Related project: Pathways to Prosperity in Wyoming

From Products to Capabilities: Constructing a Genotypic Product Space

Economic development is a path-dependent process in which countries accumulate capabilities that allow them to move into more complex products and industries. Inspired by a theory of capabilities that explains which countries produce which products, these diversification dynamics have been studied in great detail in the literature on economic complexity analysis. However, so far, these capabilities have remained latent and inference is drawn from product spaces that reflect economic outcomes: which products are often exported in tandem. Borrowing a metaphor from biology, such analysis remains phenotypic in nature. In this paper we develop a methodology that allows economic complexity analysis to use capabilities directly. To do so, we interpret the capability requirements of industries as a genetic code that shows how capabilities map onto products. We apply this framework to construct a genotypic product space and to infer countries’ capability bases. These constructs can be used to determine which capabilities a country would still need to acquire if it were to diversify into a given industry. We show that this information is not just valuable in predicting future diversification paths and to advance our understanding of economic development, but also to design more concrete policy interventions that go beyond targeting products by identifying the underlying capability requirements.

Housing in Wyoming: Constraints and Solutions

Quantitative evidence supports the contention that Wyoming’s housing market is constrained, to a greater degree than many other parts of the US. Prices are persistently above expectations given economic fundamentals in most parts of the state, and the supply of new housing in Wyoming is on average less responsive to price increases than in other US counties. This has undermined natural population growth and contributed to a low amount of population density close to city centers in Wyoming, as compared to other US cities with comparable population levels. Importantly, this phenomenon is not simply the result of pandemic-era economic frictions. The evidence shows that these constraints have durably persisted in Wyoming.

This housing constraint weighs heavily on the broader Wyoming economy, and chokes off growth in new industries that could add to the Wyoming economy beyond its natural resource base. Businesses consistently report a lack of access to workforce as a leading problem that ultimately results from a lack of housing. Some businesses have even tried to create their own housing for employees, and news reports abound of teachers and nurses who secure jobs in Wyoming communities but then have to leave because they cannot find housing.

Key problems behind Wyoming’s housing constraints include excessive regulations concerning housing density and insufficient investment in arterial infrastructure. For example, there is evidence that over-regulated minimum lot sizes in Wyoming are blocking the creation of supply to match free-market demand for houses with smaller amounts of land. Other areas of over-regulation include those concerning allowable housing types, building height, parking spaces per dwelling, and the housing approval process itself. This may be seen as surprising given Wyoming’s reputation as a low-regulation state, but Wyoming maintains restrictions that other states and countries have discarded as outdated and highly counterproductive. Besides outright restrictions on housing development, we find that the most common cost driver undermining the housing development has to do with low public investment in needed arterial infrastructure, especially water systems. Land supply as well as material and construction costs are not primary constraints to housing development across the state, but may matter for select communities.

We suggest a portfolio of policy changes for the state of Wyoming to explore in order to solve its housing constraints. One category of changes is regulatory, and focuses on deregulation, reducing bureaucratic overhead, and shifting from veto-cratic to democratic housing approval procedures. Another category is focused on investment on infrastructure to support housing, and exploration of state-local funding structures to facilitate continuous infrastructure improvement. If implemented, these changes will not only help to solve Wyoming’s housing constraints but also facilitate housing development in a way that combats urban sprawl, and in doing so protects open spaces outside of cities that Wyomingites value.

Related project: Pathways to Prosperity in Wyoming

A Growth Perspective on Wyoming

This report sets out to understand if the economy of the State of Wyoming is positioned to grow into the future. To do this, the report begins by investigating the past. To know where the state economy could be headed, and how that direction may be improved, it is critical to understand how the state developed the economic structure and drivers that it has today. Thus, Wyoming’s economic trajectory is explored over the long, medium, and short term. From this investigation, we find that Wyoming faces an overall growth problem, but we also find a high degree of variation in economic engines and growth prospects across the state. The problem that this report identifies is that the composition of economic activities is not positioned to sustain a high quality of life across all parts of the state.

“Across all parts of the state” is an essential part of the problem statement for Wyoming. While some local and regional economies in the state are growing and bumping up against identifiable constraints, other local and regional economies are experiencing sustained contractions and will require new sources of growth in order to retain (or expand) population and high quality of life. Since economic dynamics vary significantly across the state, analysis is conducted in as much geographic detail as possible. By combining historical and geographic dimensions of growth, this report aims to inform pathways for sustained and inclusive prosperity across Wyoming.

Related project: Pathways to Prosperity in Wyoming

The Economic Complexity of Kazakhstan: A Roadmap for Sustainable and Inclusive Growth

Since the end of the 1990s, Kazakhstan has relied on oil and gas as the main drivers of economic growth. While this has led to rapid development of the country, especially during years of high oil prices, it has also subjected the economy to more severe downturns during oil shocks, bouts of currency overvaluation, and procyclicality in growth and public spending.

Stronger economic diversification has the potential to drive a new era of sustainable growth by supporting new sources of value added and export revenue, creating new and better jobs, and making the economy more resistant to fluctuations in oil dynamics. However, repeated efforts to stimulate alternative, non-oil engines of growth have so far been inconclusive.

This report introduces a new framework to identify opportunities for economic diversification in Kazakhstan. This framework attempts to improve upon previous methods, notably by building country and region-specific challenges to the development of the non-oil economy directly into the framework to identify feasible and attractive opportunities. These challenges are presented in detail in the Growth Diagnostic of Kazakhstan and are summarized along three high-level constraints: (i) an uneven economic playing field dominated by government-related public and private-entities; (ii) difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets; and (iii) ongoing macroeconomic factors lowering external competitiveness lower and making the economy less stable.

Our approach applies the economic complexity paradigm to identify what specific products and industries are most feasible for diversification, based on the existing productive capabilities demonstrated in the economy. We examine Kazakhstan’s economic complexity at the national but also subnational levels, highlighting the heterogeneity of export baskets across regions that makes an analysis of opportunities at the subnational level essential.

What Will It Take for Jordan to Grow?

This report aims to answer the critical but difficult question: “What will it take for Jordan to grow?” Though Jordan has numerous active growth and reform strategies in place, they do not clearly answer this fundamental question. The Jordanian economy has experienced more than a decade of slow growth. Per capita income today is lower than it was prior to the Global Financial Crisis as Jordan has experienced a refugee-driven population increase. Jordan’s comparative advantages have narrowed over time as external shocks and responses to these shocks have changed the productive structure of Jordan’s economy. This was a problem well before the country faced the COVID-19 pandemic. The Jordanian economy has lost productivity, market access, and, critically, the ability to afford high levels of imports as a share of GDP. Significant efforts toward fiscal consolidation have further constrained aggregate demand, which has slowed non-tradable activity and the ability of the economy to create jobs. Labor market outcomes have worsened over time and are especially bad for women and youth. Looking ahead, this report identifies clear and significant opportunities for Jordan to strengthen new engines of export growth that would enable better overall job creation and resilience, even amidst the continued unpredictability of the pandemic. This report argues that there is need for a paradigm shift in Jordan’s growth strategy to focus more direct attention and resources on activating “agents of change” to accelerate the emergence of key growth opportunities, and that there are novel roles that donor countries can play in support of this.

Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters

Populist upheavals like Trump, Brexit, and the Gilets Jaunes happen when the system really is rigged. Citizens the world over are angry not due to income inequality or immigration, but economic unfairness: that opportunity is not equal and reward is not according to contribution.

This forensic book draws on original research, cited by the UN and IMF, to demonstrate that illiberal populism strikes hardest when success is influenced by family origins rather than talent and effort. Protzer and Summerville propose a framework of policy inputs that instead support high social mobility, and apply it to diagnose the differing reasons behind economic unfairness in the US, UK, Italy, and France. By striving for a fair, socially-mobile economy, they argue, it is possible to craft a politics that reclaims the reasonable grievances behind populism.

Reclaiming Populism is a must-read for policymakers, scholars, and citizens who want to bring disenchanted populist voters back into the fold of liberal democracy.

Eric Protzer is a Research Fellow at Harvard University’s Growth Lab.
Paul Summerville is an Adjunct Professor at the University of Victoria’s Gustavson School of Business.