On Monkeys and India's IITs
Posted by Jenny Stefanotti on Friday, September 25, 2009
Under: Economics
I'm taking Ricardo Hausmann's Development Policy Strategy course this semester, and every lecture seems more amusing than the last. This Wednesday's lecture on productive transformation and the evolution of comparative advantage was so entertaining, I felt inclined to share.
Professor Hausmann talks a lot about monkeys and trees. The trees represents the product space, a mapping of the capabilities required to produce certain products in an economy. Monkeys then, are the entrepreneurs. They will jump from one tree (i.e. producing products with the current capabilities that exist in the economy) to a nearby tree, which requires only incremental acquisitions of capabilities. The idea is that economies can't jump too far from their existing capability sets.
I asked how, within that construct, he can explain the growth of the IT industry in India?
"It's a fluke. The fluke is called the H1B visa," he said. The story goes like this: graduates of India's IITs, unable to connect to complementary inputs in India, left for the US to find work. But their visas only lasted six years. They had to go back to India. But by then they had contacts. Those contacts, coupled with the telecommunications infrastructure that circumvented Indian infrastructure and red tape, enabled the repatriated Indians to tap into complementary inputs in Silicon Valley. And so India's IT boom was born.
Hausmann ended his explanation with the quote that inspired this post: "I swear, under penalty of death, that the guys who invested in the IITs had no idea that would happen."
He went on to elaborate on the evolution of capability sets across countries, explaining the absence of income convergence in the process (I'm happy to engage further if anyone's interested, just email me). The lecture ended with a pretty great story about Finland, told in Hausmann's classic way.
"Finland is three people with a lot of trees, so you would expect them to export wood," he began. And so they got good at cutting wood. And then they got good at making machines that cut wood. And then they got good at making machines that cut. And then, automated machines that cut. And then, numerically controlled machines that cut. And then, numerically controlled machines. And then, do you see it coming?
Nokia.
Professor Hausmann talks a lot about monkeys and trees. The trees represents the product space, a mapping of the capabilities required to produce certain products in an economy. Monkeys then, are the entrepreneurs. They will jump from one tree (i.e. producing products with the current capabilities that exist in the economy) to a nearby tree, which requires only incremental acquisitions of capabilities. The idea is that economies can't jump too far from their existing capability sets.
I asked how, within that construct, he can explain the growth of the IT industry in India?
"It's a fluke. The fluke is called the H1B visa," he said. The story goes like this: graduates of India's IITs, unable to connect to complementary inputs in India, left for the US to find work. But their visas only lasted six years. They had to go back to India. But by then they had contacts. Those contacts, coupled with the telecommunications infrastructure that circumvented Indian infrastructure and red tape, enabled the repatriated Indians to tap into complementary inputs in Silicon Valley. And so India's IT boom was born.
Hausmann ended his explanation with the quote that inspired this post: "I swear, under penalty of death, that the guys who invested in the IITs had no idea that would happen."
He went on to elaborate on the evolution of capability sets across countries, explaining the absence of income convergence in the process (I'm happy to engage further if anyone's interested, just email me). The lecture ended with a pretty great story about Finland, told in Hausmann's classic way.
"Finland is three people with a lot of trees, so you would expect them to export wood," he began. And so they got good at cutting wood. And then they got good at making machines that cut wood. And then they got good at making machines that cut. And then, automated machines that cut. And then, numerically controlled machines that cut. And then, numerically controlled machines. And then, do you see it coming?
Nokia.
In : Economics
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