Slides presented at the Owen Conference 2015 in Austin College

1. Knowledge
Diffusion
and Income
Inequality
Dany Bahar, PhD
@dany_bahar
IADB, Brookings and Harvard CID

4. Congo, Dem. Rep. 99 297
Burundi 111 354
Guinea-Bissau 128 497
Eritrea 147 584
Haiti 410 1088
Guinea 417 1113
Bangladesh 462 1233
Kenia 464 1470
Cape Verde 1632 3239
Turkmenistan 1705 6138
Ecuador 1746 7402
Guatemala 1893 4367
Chile 6229 13370
Mexico 6591 13407
Croatia 6796 17219
Czech Republic 7632 23341
Market Prices PPP
GDP Per Capita (1/2) in USD $
Poorest
x4
x4
x4

5. USA is 387 times richer than DR Congo (or 145X in PPP terms)
Australia 24401 33369
Belgium 25055 33520
Germany 25420 33665
Canada 26143 36039
Hong Kong 34587 40599
Switzerland 37789 37780
United States 38206 43179
Japan 40481 31484
PPP
Richest
x4
Market Prices
GDP Per Capita (2/2) in USD $

7. What is productivity?

8. IGNORANCE
A measure
of our OWN
Moses Abramovitz (1956)
“
”

9. Productivity
Knowing
how to do
more with
the same
resources

10. How come
knowledge
does not
diffuse
immediately
from place to
place?

11. Knowledge has a
large tacit
component.
Michael Polanyi (1966)
Channels for
knowledge
transmission are
limited to human
interaction
Kenneth Arrow (1969)

12. Knowledge is hard
to transfer and
hard to acquire

15. Is productive knowledge also
tacit?

16. We know about tacit knowledge that it travels
through narrow channels, and its diffusion is
geographically localized

17. Patents citations are
predominantly local
(Jaffe, Trajtenberg and Henderson)

18. Industrial R&D has
geographically
“bounded” spillovers

19. We use new exports as a measure
of productivity gain…

21. Bahar, Dany, Ricardo Hausmann, and César A Hidalgo. 2014. Neighbors and the Evolution of the Comparative Advantage of Nations:
Evidence of International Knowledge Diffusion?. Journal of International Economics 92, no. 1: 111-123.

24. If knowledge travels across
countries, it must travel
through “something” else

25. Goods
(Trade)

26. Capital
(FDI)

27. People
(Migration)

28. In a story about
“tacit”
knowledge…
…people
should matter
more!

31. Bahar, Dany and Hillel Rapoport. Migration, Knowledge Diffusion and the Comparative Advantage of Nations.

32. Does knowledge hinders
the expansion of
multinational firms?

40. Knowledge drives
productivity and
growth…

41. What does this have
to do with inequality?

43. r>g

44. TODAY
$1000 Labor Income, no wealth
16% Income Share
No labor Income, $5000 wealth
84% Income Share

45. +10 YEARS
g=2%
r=5%
~ $1200 Labor Income
13% Income Share
~ $8000 wealth
87% Income Share

46. 0
0.5
1
0
0.166666667
1
0 0.5 1
Gini
Perfect Distribution Distribution (t)

47. 0
0.5
1
0
0.166666667
1
0
0.130434783
1
0 0.5 1
Gini
Perfect Distribution Distribution (t) Distribution (t+10)
g=2%
r=5%

49. SOLUTION?
~ $1200 Labor Income
13% Income Share
~ $8000 wealth
87% Income Share

50. Costly to enforce...
…even more so at a global scale
Might slow down the economy
What is the right tax rate?
So, what about increasing “g”, instead?

51. “Knowledge and skill diffusion is the
key to overall productivity growth as well
as the reduction of inequality both
within and between countries” (Piketty 2014)

53. Large and foreign firms tend to be more productive.
The introduction of large and/or foreign firms tend to
have knowledge and productivity spillovers in the local
economy…

54. However, “endogeneity” is present…
What if these MDPs arrived to counties that were already
growing?

55. Greenstone, Hornbeck and Moretti (2010)
Looks at the inequality dynamics of US counties where a “million
dollar plant” (MDP) was introduced, using “runner-up” counties as
control

56. Using a difference-in-difference approach, we compare what
happened to “winner” vs. “runner-up” cities (MSAs), in
terms of their Gini coefficient
A Natural Experiment with MDPs
We expect < 0

57. 15 years down the line, the
average “winner” county
ranks 0.02 points lower in
the Gini coefficient, across all
MSAs

59. By facilitating
the diffusion of
productive
knowledge, we
could hinder
the rising
inequality
@dany_bahar

60. How do we do that,
and what is the role
of public policy?

64. Future
research
What are the market
failures that hinder
knowledge
diffusion?
What policies can be
applied to overcome
those?

65. Thank you
For further questions or suggestions, email or
follow me at:
db21@post.harvard.edu
@dany_bahar