1 / 44

ISRAEL 15 Prof. Ricardo Hausmann

ISRAEL 15 Prof. Ricardo Hausmann. Agenda. Between Growth and Leapfrog Leapfrog Mechanics: Implications for Israel Challenge of Public/Private Cooperation Is there a Leapfrog Recipe?: The Problem with the Washington Consensus Political Challenges. Between Growth and Leapfrog.

kalil
Download Presentation

ISRAEL 15 Prof. Ricardo Hausmann

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ISRAEL15Prof. Ricardo Hausmann

  2. Agenda • Between Growth and Leapfrog • Leapfrog Mechanics: Implications for Israel • Challenge of Public/Private Cooperation • Is there a Leapfrog Recipe?: The Problem with the Washington Consensus • Political Challenges

  3. Between Growth and Leapfrog

  4. Luxemburg (=1.2) Israeli Growth, Observations US Benchmark (=1) .8 • Israel leapt between 1950-70; • Since 70s stuck at 50% US; • No gain compared to West Europe; • ~10 countries leapt e.g. Ireland, SK; • Israel has constraints yet did better than many countries without resources; • Could it do better? Income Per Capita Relative to the US .6 .4 .2 0 1950 1960 1970 1980 1990 2000 Year

  5. Luxemburg (=1.2) US Benchmark (=1) Some countries have been able to do better .8 Income Per Capita Relative to the US .6 .4 .2 Israel Ireland S. Korea 0 1950 1960 1970 1980 1990 2000 year

  6. Leapfrog Mechanics: Implications for Israel

  7. How do countries grow • Increasing Quality of Existing Products • Moving to More Sophisticated Products • Inventing New Products

  8. Rich Countries Produce Rich Country Goods Relationship between per-capita GDP and EXPY, 2003 Sophistication of exports is measured as the income per capita of countries with a comparative advantage in the country’s export basket • Rich countries do not just produce more of the same • They produce different goods • To grow rich, countries need to change what they produce and export

  9. Sophistication Today Determines Tomorrow’s Growth: Countries become what they export Strong evidence that countries converge to the level of income of the countries they compete with. Growth in 1992-2004,controlling for initial income Sophistication in 1992

  10. 10.2 LUX IRL 10 CHE JPN FIN DEU SWE SVN GBR 9.8 ISR_no_diamonds AUT USA BEL ISL FRA CZE KOR DNK SGP HUN Log of EXPY at PPP (export sophistication) ESP ITA NLD ISR ISR CAN SVK POL lnexpyppp MLT MYS EST NZL MEX PRT ZAF 9.6 HRV LVA AUS GRC KNA CRI LTU NOR ROM ARG URY RUS 9.4 TTO SAU MUS 9.2 CHL 9 9.5 10 10.5 11 Log of GDP per capita at PPP Israel’s Export Sophistication is Mixed ISR, No Diamonds ISR, With Diamonds

  11. But has Improved

  12. Top Contributors to Export Sophistication (2005) Goods with PRODY > 1.5*EXPY, sorted by overall contribution to EXPY

  13. Exports of business, professional and technical services to the US are outstanding Exports per capita (per million) of ‘other professional and technical services to businesses’ in the US, 2005 (BEA)

  14. How To Advance? Monkeys & Trees • Our metaphor: • Products are like trees • Firms are like monkeys • Structural transformation: process whereby monkeys move from the poor part to the rich part of the forest • Easier for monkeys to jump short distance (i.e. to change to products that use similar capabilities)

  15. Increasing Quality of Existing Products is relatively Easy and Fast

  16. Countries with bigger quality gaps grow faster

  17. Israel – at The Top of Its Trees

  18. Moving to different products is more difficult • New products face a chicken and egg problem: • Why create inputs for an industry that does not exist? • How can the industry exist, if the inputs are not there? • In practice, new products use inputs that have been accumulated to serve other “nearby” products • This creates very strong path dependence

  19. Step 1: Maximum Spanning Tree Our Approach: • Distance between trees depends on similarities of required capabilities • Distance measured by probability that, if a country is good in one product, it’s also good in another product. • What is the shape of a forest? • Homogenous or Heterogeneous? • What does it look like?

  20. Step 2: Overlay Strong Links 0.4 > 0.4 – 0.55 0.55 – 0.65 0.65 <

  21. Step 3: Insert Products Nodes sized according to PRODY, darker links are stronger (red is strongest)

  22. Israel 2000 Electronics Pharmaceuticals Chemicals Textiles Garments Agriculture Israel’s Product Space in 2000

  23. Comparatively, Israel is in a sparse part of the forest

  24. Types of Product Spaces Stairway to heaven Parsimonious industrial policy Help jump short distances to other products Let it be It ain’t broke Ample space to move in all directions High Ease to jump to new products: open forest Bridge over troubled waters Strategic bets Little space to improve quality and few nearby trees Hey Jude: make it better Competitiveness policy Improve the quality of what already exists Low Low High Space to improve quality

  25. Stairway to Heaven: move to nearby products that are more sophisticated and strategic Distance vs. sophistication

  26. Low Hanging ‘Up-market’ Fruit, 2005

  27. Very Hard, Inventing New Products

  28. The Israeli R&D Miracle: highest R&D spending in the world National Expenditure on R&D as percentage of GDP, 2003 S. Fischer – Israel Hi-Tech Conference June 2007 Interpreting the Miracle: • Most is private • Reflected in exports, FDI and M&A Source: CBS, BoI.

  29. A reinterpretation • Israeli “monkeys” achieved a very successful jump to a relatively distant part of the product space that is particularly dense and fertile • Due to de facto industrial policy based on military procurement • ICT products for military use spilled-over into civilian products • More successful than previous attempts • Kfir, Lavi, Sussita • This time, start-ups were very numerous and happened in many products which were unpredictable ex ante • Other related activities – such as venture capital – developed to sustain the private expansion of new applications

  30. Contribution is concentrated in ICT related areasICT Value Added as % of business sector product 2003 S. Fischer – Israel Hi-Tech Conference June 2007 Source: CBS.

  31. …and some fundamental questions • Is ICT an example of successful intervention to reduce coordination problems? • Can it be replicated in other areas where military involvement plays less of a coordinating role? • Water-tech, drug development, nanotechnology, energy, genetics • What would it take? • Would it be worthwhile? • What are the implications on income equality?

  32. Two possible scenarios The R&D boom was ignited because of serendipitous reasons (military procurement) but now can be sustained for a very long time because it has developed all the institutions that sustain it Universities, global markets, venture capital The R&D boom will fizzle out because it is relatively concentrated in a few areas that were initially favored (ICT), as more countries enter and more applications are developed, the sector will mature

  33. Intermission

  34. Challenge of Public/PrivateCooperation

  35. Private InputsInformation, Incentives, Resources Public Inputs Transformation Requires Public / Private Cooperation Public / Private CooperationExchange of Information / Shared Risks • How to provide highly specific, high dimensional public inputs that are complements in private production? • Private inputs: • Prices: information • Profit-motivated firms: incentives • Capital markets: move resources • Public inputs: • No price: where to get the information? • What are the incentives? Political? • Even with incentives, how would resources move?

  36. Four Principles for Public / Private Cooperation • Open Architecture • Whenever possible, elicit information about required public inputs • Co-financing Four principles • Transparency • Demands, evaluations and decisions should be public knowledge • Self-Organization • Allow self-organization around critical inputs. Imposing “industry” definitions / requiring agreement is inefficient • Experimentation and Evaluation • Bold moves, tolerance for failures, frequent monitoring, correction over time

  37. A robust, flexible structure No single, top-down institutionAn evolving network of organizations • Specialized bypolicy instrument • Infrastructure, regulation, labor training, etc. Specialized bytype of activity Sectors of industry, trade, etc. Examples: NASA and World Bank

  38. Some policy initiatives Code of Dialogue • Open participation • Self-organization • Co-financing • Transparency • Gov: only public goods Google-likeSearch Mechanisms • Create search mechanisms • Focus them on space of possibilities • Empower them to eliminate obstacles • E.g., Development banks, Industrial parks Virtual Inter-MinistryMarket • Budgetary mechanism to create an internal market within the government for public inputs

  39. Is there a Leapfrog Recipe?:The Problem with the Washington Consensus

  40. Finance Low taxes Human capital Macro stability Infrastructure Low social conflict Washington Consensus: All Reforms are Equal Fiscal Discipline Reorientation of Public Expenditure Reform as much and as best as you can Tax Reform • Working Assumptions: • Any reform is good • The deeper the better • The more areas reformed, the better Financial Liberalization Washington Consensus Openness to DFI Checklist Approach is Wrong! Privatization • The theory of second-best • Latin America since 1990 • Policy dimensionality is high Deregulation Secure Property Rights

  41. Reforms are Contextual Low social conflict Finance Removing Binding Constraints Low taxes • Working Assumptions: • Policy problems are “high dimensional” • Identify most binding constraints on economic activity • Expend scarce political capital on those reforms only Human capital Macro stability Infrastructure Get the Biggest Bang for the Buck

  42. Growth Diagnostics: Reforms are Contextual Problem: Low levels of private investment and entrepreneurship High cost of finance Low return to economic activity Bad International Finance Bad Local Finance Low Social Returns Low Appropriability Government Failures Market Failures Poor Geography Information externalities Coordination externalities Bad Infrastructure Micro Risks: Property Rights, Corruption, Taxes Macro Risks: Financial, Monetary, Fiscal Low Domestic Saving Poor Intermediation Low Human Capital

  43. Political Challenges

  44. Challenges to creating a broad constituency for leaping • Why would society at large support a deep commitment to public-private cooperation if the benefits seem to favor the talented and the lucky? • Perceived as a social program for the already rich? • How does society react to Bill Gates or Steve Jobs? • Israel has very low labor force participation • Those outside need to participate, but have less skills than average; thus requires larger wage inequality • Outside IDF network: Israeli Arabs, religious Jews • The likely characteristics of an Israeli leap is intensive in high skills and innovation • Concentrated benefits • As structural transformation happens, sectors will be abandoned • Those that compete with poorer countries • Conflict between culture of honest and effective public provision and concentrated gains of private profits Development banks Traditionally conceived as motivated by a financial market distortion or failure Political Leadership

More Related