Moving to the Adjacent Possible: Discovering Paths for Export Diversification in Rwanda
How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? We analyze Rwanda’s historical growth and trade performance and find that Rwanda’s high transportation costs and limited productive knowledge have held back greater export development and have resulted in excessive rural density. Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country’s exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identify more than 100 tradable products that lie at Rwanda’s knowledge frontier, are not intensive in Rwanda’s scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. We illustrate an approach that can be applied to other settings in order to identify opportunities for export diversification that take seriously local constraints and external market opportunities.
The Structure and Dynamics of International Development Assistance
We study the structure of international aid coordination by creating and analyzing a tripartite network of donor organizations, recipient countries and development issues using web-based information. We develop a measure of coordination and find that it is moderate, achieving about 60% of its theoretical maximum. Many countries are strongly connected to organizations that are related to the issues that are salient there. Nevertheless, we identify many countries that are poorly served, issues that are inadequately attended to, and organizations that focus on the wrong combination of places and issues. Our approach may be used to improve decentralized coordination.
The Dynamics of Nestedness Predicts the Evolution of Industrial Ecosystems
In economic systems, the mix of products that countries make or export has been shown to be a strong leading indicator of economic growth. Hence, methods to characterize and predict the structure of the network connecting countries to the products that they export are relevant for understanding the dynamics of economic development. Here we study the presence and absence of industries in international and domestic economies and show that these networks are significantly nested. This means that the less filled rows and columns of these networks’ adjacency matrices tend to be subsets of the fuller rows and columns. Moreover, we show that their nestedness remains constant over time and that it is sustained by both, a bias for industries that deviate from the networks’ nestedness to disappear, and a bias for the industries that are missing according to nestedness to appear. This makes the appearance and disappearance of individual industries in each location predictable. We interpret the high level of nestedness observed in these networks in the context of the neutral model of development introduced by Hidalgo and Hausmann (2009). We show that the model can reproduce the high level of nestedness observed in these networks only when we assume a high level of heterogeneity in the distribution of capabilities available in countries and required by products. In the context of the neutral model, this implies that the high level of nestedness observed in these economic networks emerges as a combination of both, the complementarity of inputs and heterogeneity in the number of capabilities available in countries and required by products. The stability of nestedness in industrial ecosystems, and the predictability implied by it, demonstrates the importance of the study of network properties in the evolution of economic networks.
Empirical Confirmation of Creative Destruction from World Trade Data
We show that world trade network datasets contain empirical evidence that the dynamics of innovation in the world economy indeed follows the concept of creative destruction, as proposed by J.A. Schumpeter more than half a century ago. National economies can be viewed as complex, evolving systems, driven by a stream of appearance and disappearance of goods and services. Products appear in bursts of creative cascades. We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years. The opposite–disappearances followed by periods of appearances–is not observed. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e., creative destruction. We find a tendency that more complex products drive out less complex ones, i.e., progress has a direction. Finally we show that the growth trajectory of a country’s product output diversity can be understood by a recently proposed evolutionary model of Schumpeterian economic dynamics.
The network structure of economic output
Much of the analysis of economic growth has focused on the study of aggregate output. Here, we deviate from this tradition and look instead at the structure of output embodied in the network connecting countries to the products that they export. We characterize this network using four structural features: the negative relationship between the diversification of a country and the average ubiquity of its exports, and the non-normal distributions for product ubiquity, country diversification and product co-export. We model the structure of the network by assuming that products require a large number of non-tradable inputs, or capabilities, and that countries differ in the completeness of the set of capabilities they have. We solve the model assuming that the probability that a country has a capability and that a product requires a capability are constant and calibrate it to the data to find that it accounts well for all of the network features except for the heterogeneity in the distribution of country diversification. In the light of the model, this is evidence of a large heterogeneity in the distribution of capabilities across countries. Finally, we show that the model implies that the increase in diversification that is expected from the accumulation of a small number of capabilities is small for countries that have a few of them and large for those with many. This implies that the forces that help drive divergence in product diversity increase with the complexity of the global economy when capabilities travel poorly.
The Mexico Competitiveness Report 2009
The past 20 years have been a period of important reforms in Mexico. Since the late 1980s, the country has undergone an impressive process of liberalization, opening of the economy, and macroeconomic stabilization. Extreme vulnerability to external shocks, double-digit inflation, and current account and fiscal deficits seem to have been overcome. However, a number of weaknesses continue to drag the country’s productivity and hence its potential for sustained economic growth and the well-being of its citizens. In spite of a very benign external environment in the period 2003–07, Mexico’s growth rates have been disappointing, and the challenges facing the country have become even greater in the context of the current major economic and financial crisis — one of the most serious in decades — affecting the United States and the rest of the world. The Mexico Competitiveness Report 2009 aims at providing Mexico’s policymakers, business leaders, and all relevant stakeholders with a unique tool that identifies the country’s main competitiveness flaws and strengths, together with an in-depth analysis of areas that are key to the country’s potential for long-term growth. In doing so, the Report aims to support the country’s reform process and contribute to the definition of a national competitiveness agenda of the priority issues that need to be tackled for Mexico to boost its competitiveness in the face of the present daunting economic outlook. The Report is organized into three thematic parts. Part 1 assesses the current state of Mexico’s competitiveness and its potential for sustained growth using the broad methodological framework offered by the Global Competitiveness Index (GCI) 2008–2009. Part 2 features contributions from a number of experts providing additional insights and diagnostics related to particular aspects of the competitiveness challenges faced by the country. Part 3 includes detailed profiles for Mexico and 10 selected countries and offers a comprehensive competitiveness snapshot for each of these countries.
The Global Gender Gap Report 2009
Over the last year, the world has seen the biggest recession in almost a century. It is clear that recovery will require, among other things, the best of talent, ideas and innovation. It is therefore more important now than ever before for countries and companies to pay heed to one of the fundamental cornerstones of economic growth available to them—the skills and talent of their female human resource pool.As consumers, voters, employees and employers, women will be integral to global economic recovery. However, it is not only the financial and economic system that is in need of rethinking, redesigning and rebuilding. Global challenges such as climate change, food security, conflict, education and health require our immediate, collective efforts to find solutions and will, in fact, be intimately linked to our long-term global economic recovery. Girls and women make up one half of the world’s population—without their engagement, empowerment and contribution, we cannot hope to effectively meet these challenges nor achieve rapid economic recovery.
And yet, there is still much work to be done in education, health, the workplace, legislation and politics before women around the globe enjoy the same opportunities as men.There are still millions of “missing” women each year because of the preference for sons in some parts of the world.There are too many female infants who do not receive adequate access to healthcare because of the lower value placed on girls, adding to the global burden of infant mortality. Girls are still missing out on primary and secondary education in far greater numbers than boys, thus depriving entire families, communities and economies of the proven and positive multiplier effects generated by girls’ education and instead aggravating poverty, the spread of HIV/AIDS, and maternal and infant mortality. In those countries where women do indeed receive the benefits of health and education, far too many are then unable to contribute fully and productively to the economy because of barriers to their entry into the workforce or barriers to accessing positions of leadership. Finally, women still remain vastly under-represented in political leadership and decision-making.The combined impact of these gaps entails colossal losses to the global society and economy.
Measuring the size of the problem is a prerequisite for identifying the best solutions.Through the Global Gender Gap Reports, for the past four years, the World Economic Forum has been quantifying the magnitude of genderbased disparities and tracking their progress over time. By providing a comprehensive framework for benchmarking global gender gaps, the Report reveals those countries that are role models in dividing resources equitably between women and men, regardless of their level of resources. The World Economic Forum places a strong emphasis on a multi-stakeholder approach in order to engage leaders to design the most effective measures for tackling global challenges. In 2008, we launched our Global Gender Parity Group and Regional Gender Parity Groups in Latin America, the Middle East,Africa and Asia.To date, these multi-stakeholder communities of highly influential leaders—50% women and 50% men—from business, politics, academia, media and civil society have jointly identified the biggest gaps in each region, based in part on the findings of this Report, and have collectively committed to strategies to improve the use of female talent. In addition, our Global Agenda Council on the Gender Gap, an expert council, is using the findings of this Report as one of the inputs for developing proposals to address gaps in international cooperation towards gender equality. Each of the individuals and organizations represented in these communities work collectively towards empowering women, developing globally replicable frameworks and bringing the world ever closer to achieving gender parity.
The Building Blocks of Economic Complexity
For Adam Smith, wealth was related to the division of labor. As people and firms specialize in different activities, economic effi- ciency increases, suggesting that development is associated with an increase in the number of individual activities and with the complexity that emerges from the interactions between them. Here we develop a view of economic growth and development that gives a central role to the complexity of a country’s economy by interpreting trade data as a bipartite network in which countries are connected to the products they export, and show that it is possible to quantify the complexity of a country’s economy by characterizing the structure of this network. Furthermore, we show that the measures of complexity we derive are correlated with a country’s level of income, and that deviations from this relationship are predictive of future growth. This suggests that countries tend to converge to the level of income dictated by the complexity of their productive structures, indicating that development efforts should focus on generating the conditions that would allow complexity to emerge to generate sustained growth and prosperity.
Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies
This paper studies the relationship between sovereign spreads and the interaction between debt composition and debt levels in advanced and emerging market countries. It finds that in emerging market countries there is a significant correlation between spreads and debt levels. This correlation, however, is not statistically significant in countries where most public debt is denominated in local currency. In advanced economies, the magnitude of the correlation between debt levels and spreads is about one fifth of the corresponding correlation for emerging market economies. In Eurozone countries, however, the correlation between spreads and debt ratios is similar to that of emerging market countries. The paper also shows that the financial crisis amplified the relationship between spreads and debt levels within the Eurozone but had no effect on the relationship between spreads and debt in standalone countries. Finally, the paper shows that the relationship between debt levels and spreads is amplified by the presence of large net foreign liabilities. This amplifying effect of net foreign liabilities is larger in the Eurozone than in standalone advanced economies. The paper concludes that debt composition matters and corroborates the original sin hypothesis that, rather than being a mere reflection of institutional weaknesses, the presence of foreign currency debt increases financial fragility and leads to suboptimal macroeconomic policies.
How should Uganda grow?
Income per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanization rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low-productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them.
These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialization in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed.
The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyze what those new industries might be for Uganda.
To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighboring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradable industries.