Global Supply Chain Pressures, International Trade, and Inflation

We study the impact of the Covid-19 pandemic on Euro Area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21. Our model-based calibration exercises deliver four key results: 1) Compositional effects – the switch from services to goods consumption – are amplified through global input-output linkages, affecting both trade and inflation. 2) Inflation can be higher under sector-specific labor shortages relative to a scenario with no such supply shocks. 3) Foreign shocks and global supply chain bottlenecks played an outsized role relative to domestic aggregate demand shocks in explaining Euro Area inflation over 2020-21. 4) International trade did not respond to changes in GDP as strongly as it did during the 2008-09 crisis despite strong demand for goods. These lower trade elasticities in part reflect supply chain bottlenecks. These four results imply that policies aimed at stimulating aggregate demand would not have produced as high an inflation as the one observed in the data without the negative sectoral supply shocks.

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.

The Economic Complexity of Namibia: A Roadmap for Productive Diversification

After a large growth acceleration within the context of the commodity super cycle (2000-2015), Namibia has been grappling with three interrelated challenges: economic growth, fiscal sustainability, and inclusion. Accelerating technological progress and enhancing Namibia’s knowhow agglomeration is crucial to the process of fostering new engines of growth that will deliver progress across the three targets. Using net exports data at the four-digit level, we estimate the economic complexity of Namibia – a measure of knowhow agglomeration – vis-à-vis its peers. Our results suggest that Namibia’s economy is relatively less complex and attractive opportunities to diversify tend to be more distant. Based on economic complexity metrics, we define a place-specific path for productive diversification, identifying industries with high potential and providing inputs – related to their feasibility and attractiveness in Namibia – for further prioritization. Namibia’s path to structural transformation will likely be steeper than for most peers, calling for a more active policy stance geared towards progressive accumulation of productive capacities, well-targeted “long jumps”, and strengthening state capacity to sort out market failures associated with the process of self-discovery.

A Growth Diagnostic of Namibia

In the thirty years that have passed since independence, Namibia has been characterized by its over-reliance on its mineral resource wealth, procyclicality of macroeconomic policy, and large income disparities. After an initial decade marked by nation building and slow growth (1990-2000), the Namibian economy embarked on a rapid growth acceleration that lasted 15 years, within the context of the global commodity super cycle. Favorable terms of trade translated into an investment and export boom in the mining sector, which was amplified to the non-tradable sector of the economy through a significant public expenditure spree from 2008 onwards. Between 2000 and 2015 income and consumption per capita expanded at an average annual rate of 3.1%, poverty rates halved, and access to essential public goods expanded rapidly. As the commodity super cycle came to an end and the fiscal space was exhausted, Namibia experienced a significant reversal. Investment and exports plummeted, bringing GDP per capita to contract by 2.1% between 2015-2019. With debt-to-GDP ratios 3.5 times higher than those in 2008, the country embarked on a fiscal consolidation effort which brought the primary fiscal deficit from 6.8% of GDP in 2016 to 0.6% by March 2020. Along all these years, inequality has been endemic and is reflected across demographic characteristics and employment status. At present, a large majority of Namibians are unable to access well-paying formal sector jobs, as these tend to be particularly scarce outside of the public sector. Looking forward, the road to sustained inclusive growth and broad prosperity entails expanding the formal private labor market by diversifying the Namibian economy, while at the same time removing the barriers preventing Namibians from accessing these opportunities inherited from the apartheid.

The Growth Lab at Harvard University has partnered with the Government of Namibia to develop research that results in inputs for a policy strategy aimed at promoting sustainable and inclusive growth. The Growth Diagnostic is a cornerstone of the ongoing research engagement and is meant at providing an overview of the most binding constraints to Namibia’s economic performance and outlining how these relate in a systemic way to the concurrent challenges of growth, fiscal sustainability, and inclusion. 

Inclusive growth in Namibia is currently facing a set of self-reinforcing constraints. The country is missing both the productive capabilities (words) and required skills (letters) to sustain longer periods of growth. The low degree of knowhow agglomeration that can be inferred from its current productive structure – as gathered by the Economic Complexity Index (ECI) – leaves very little opportunities of diversification that can be pursued by redeploying existing skills (low connectedness). Our analysis reveals that Namibia has been able to diversify differentially more that most of its peers given its current set of productive capabilities, but the problem is that the set of adjacent opportunities are neither complex nor plenty. As the marginal cost of acquiring new capabilities tend to be high, the government needs to take a more active role in sorting coordination and information failures associated to the process of productive diversification and self-discovery.

Relatedly, Namibia’s growth prospects are also constrained by a shortage of specialized skills. Three empirical facts derived from econometric analysis of Labor Force Survey statistics point in this direction. First, certain skill-intensive industries and occupations exhibit differentially higher wage premiums. Second, highly educated, and experienced workers face the lowest unemployment rates in the economy, by a wide margin. Third, skill-intensive industries tend to grow less than the rest of the sectors in the economy.

The demand for high skilled foreign workers is high – as proxied by their wage premium. This skill shortage may be constraining not only existing industries but also the development of new engines of growth, limiting access to opportunity for Namibians across all skill levels. Missing skills at the top of the spectrum tends to depress job creation at the bottom. These two constraints – low knowhow agglomeration with poor connectedness and skills shortages – seem to reinforce each other. Using the Scrabble metaphor, Namibia is missing the letters (productive capabilities) and the entire words (more complex products).

Knowhow, by definition, resides in brains of people and it’s embedded in the goods and services a country produces. A broad knowhow-enhancing strategy aimed at targeting efficiency-seeking foreign direct investment (FDI, firms bringing entire new words to Namibia), and migration regulation policies (specific letters needed by more complex industries) is required to ease the binding constraints. Investment promotion efforts shall be targeted to ‘efficiency-seeking’ firms, which tend to take advantage of a competitive factor in the country (efficient labor force, access to international financial markets, infrastructure, etc.) to produce and export to foreign markets. This type of FDI is essentially different from the ‘natural resource-seeking’ investments that have characterized the Namibian economy and pose additional challenges. At the same time, the country would benefit from a more open immigration policy targeted towards high-skill workers. The evidence we have gathered suggests that high-skill foreigners tend to function as complements – rather than substitutes – to Namibian workers: industries with larger shares of high-skill workers tended to pay lower skill workers significantly higher wages. Easing the existing restrictions t labor flows and incentivizing inflows of high-skill foreigners will likely trickle down into the rest of the labor force and enhance the knowhow agglomeration of the Namibian productive ecosystem.

A challenge to productive diversification broadly, and attracting foreign investment and talent more particularly, might be policy uncertainty. Existing levels of policy uncertainty – instability or absence of the adequate regulating environment, worries about potential issues for property rights, inexperience with respect to the efficiency of domestic courts – in Namibia might not be enough to deter investments in resource-based industries, but might be an important hurdle for other type of industries, especially the ones that have a choice regarding their international location. To attract these investments, a simpler and more transparent investment environment, coped a more comprehensive set of international investment treaties, might be necessary.

The report is organized in six sections, including this Executive Summary. Section 2 outlines the Growth Diagnostic methodology. Section 3 provides a summary of the growth trajectory of Namibia and the challenges facing inclusive growth. Section 4 covers the main takeaways of the analysis conducted in each of the branches of the Growth Diagnostics Tree, including those related to access to finance, low social returns, government failures and agglomeration of collective knowhow. Section 5 concludes by highlighting potential binding and providing inputs for a collaborative exploration of why these issues have persisted and become an equilibrium.

Macroeconomic risks after a decade of microeconomic turbulence: South Africa 2007-2020

This study analyses the performance of macroeconomic policy in South Africa in 2007–2020 and outlines challenges for policy in the coming decade. After remarkable economic growth in 1997–07, South Africa’s progress slowed dramatically in 2009 with the global financial crisis. Real GDP growth decelerated more than in other emerging markets and mineral exporting peers and never recovered pre-crisis levels. In addition, the budget deficit that provided counter-cyclical support to the economy was never reigned in, leading to a rapidly rising public debt load. The study assesses three accounts of South Africa’s post-GFC growth and fiscal slump: (1) an external story; (2) a macro story; and (3) a microeconomic story. Evidence of strong linkages between micro- and political developments and growth performance is provided.

New Avenues for Colombia’s Internationalization: Trade in Tasks

One of the consequences of COVID-19 is the recognition that many tasks can be done from home. But anything that can done remotely, can be done from abroad. Given large salary differences between white collar workers across countries, it would make sense for value chains to try to exploit them. This opens an opportunity for Colombia to further promote its integration into the world global value chains and access new markets.

This paper explores the possibility of exporting teleworkable services from Colombia. The goal is to provide useful information to guide strategic interventions to speed-up the development of such service industries in Colombia.

We first introduce a definition of teleworkable jobs and describe its occupations and industries along different dimensions. We show that there are many teleworkable jobs in the US, representing a significant share of industry costs. Then, we show that many industries intensive in teleworkable jobs are currently traded across borders. To quantify Colombia’s advantage providing teleworkable services, we study the cost structure of industries and quantify the potential savings in overall costs if the tasks were performed by Colombians. Given Colombia’s current presence and the density around teleworkable industries we can calculate a proxy of the latent advantage in teleworkable services. We propose an index that summarize these dimensions and rank the potential gains from including telework from Colombia in an industry. We end with a set of policy recommendations to move this agenda forward.

Learning to Improve the Investment Climate for Economic Diversification: PDIA in Action in Sri Lanka

Many countries, like Sri Lanka, are trying to diversify their economies but often lack thecapabilities to lead diversification programs. One of these capabilities relates to preparing the investment climate in the country. Many governments tackle this issue by trying to improve their scores on ‘Doing Business Indicators’ which measure performance on general factors affecting business globally (like how long it takes to open a business or pay taxes). Beyond these common indicators, however, investors face context specific challenges when working in countries like Sri Lanka that are not addressed in global indicators. Governments often lack the capabilities to identify and resolve such issues. This paper narrates a recent initiative to establish these capabilities in Sri Lanka. The initiative adopted a Problem Driven Iterative Adaptation (PDIA) process, where a team of Sri Lankan officials worked with Harvard Center for International Development (CID) facilitators to build capabilities over a six-month period. The paper tells the story of this process, providing documented evidence of the progress over time (and describing thinking behind the PDIA process as well). The paper will be of interest to those thinking about the challenges associated with creating a climate that is investor or business friendly and to those interested in processes (like PDIA) focused on building state capability and fostering policy implementation.

The Devil’s in the Dance: Elements of a Growth Diagnostic in Bolivia

Bolivia’s economy stands at a crossroads. Weakened by the fiscal and external imbalances triggered by the 2014 fall in gas prices and exacerbated by the COVID-19 pandemic, the country faces a complex challenge: how to reignite economic growth while restoring macroeconomic stability. This paper applies the Growth Diagnostic methodology to identify the most binding constraints to growth in Bolivia and proposes pathways forward for policy reform.

The paper presents Bolivia’s growth syndrome as “La Diablada” or the dance of the devil—a dance between opposing priorities. On one side lies the need for fiscal consolidation to address mounting imbalances; on the other, an urgent need to stimulate demand and support recovery after the COVID-19 shock. This collision of policy needs creates a situation where missteps in either direction could be highly disruptive, risking either prolonged stagnation or macroeconomic crisis.

The paper finds that Bolivia’s current growth model—heavily reliant on commodity-led rents and public sector-led investment—has reached its limits. The economic challenge is that the historical engine of growth in Bolivia—net government spending fueled by rising gas prices—cannot drive growth in the current period. Even a short-run recovery in gas prices belies the structural challenges in demand for gas exports in Argentina and Brazil, along with the supply of gas, in the lack of investments in new discovery. Structural weaknesses also include a rising wage bill dominated by public employment, the lack of foreign investment, and a lack of economic diversification into higher complexity sectors. Political uncertainty and institutional inefficiencies, especially among state-owned enterprises (SOEs), further erode the country’s fiscal space and growth potential.

To manage current macroeconomic imbalances and lay the groundwork for inclusive growth, the government must prioritize the sequencing of actions across four key policy fronts:

1. Fiscal Response: Focus on increasing fiscal space to allow for stimulus to drive economic recovery, including smart fiscal consolidation, cutting unproductive spending—especially in loss-making SOEs and an inflated wage bill, while guarding against the recessionary pressures of fiscal consolidation.
2. External Finance Response: Maximize access to external finance while balancing debt sustainability. Foreign reserves risk not being able to cover medium-term debt obligations, if no action is taken.
3. Monetary Response: Restore confidence in monetary policy by preparing for a gradual move toward a more flexible exchange rate regime, supported by stronger institutions and clearer communication. Not addressing the overvalued boliviano risks a currency crisis, a balance of payments crisis, or both.
4. Private Sector Response: Shift the growth model by enabling private sector-led diversification, removing investment bottlenecks, and targeting support to export-oriented, higher-complexity sectors.

At stake is whether Bolivia can shift from managing crises to enabling a more resilient, inclusive, and sustainable future.

Last updated on 05/20/2025

Understanding Saudi Private Sector Employment and Unemployment

This paper analyzes the changes in Saudi employment and unemployment between 2009 and 2018 and argues that a supply-demand skill mismatch exacerbated by insufficient job creation, and prevalent Saudi preferences and beliefs about employment underpin the high unemployment problem that coexists with low Saudi employment in the private sector in the country.

The Role of the Diaspora in the Internationalization of the Colombian Economy

We studied the geography as well as the demographic and socio-economic characteristics of 1.7 million members of the global Colombian diaspora (34% of the total estimated Colombian diaspora) using census and survey data from major host countries, and 3.5 million Twitter users located around the world presumed to be of Colombian origin. We also studied the locations and industries of Colombian senior managers and directors outside Colombia, using a global database of over 400 million companies. Moreover, we studied the migration journeys, the diaspora’s attachment to Colombia, the level of diaspora engagement and interest in engaging, the intentions to return back home, the interest in diaspora government policy, and the overall sentiment of the diaspora towards Colombia, through a survey which received 11,500 responses from the diaspora in well over 100 countries in less than two months. We additionally interviewed 12 Colombian transnational entrepreneurs and professionals, to understand what attracts them professionally to Colombia, and what may stand in the way of more diaspora engagement and professional growth.