Understanding Economic Complexity, Knowhow and Inflation in Ethiopia

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Guest Blog by Sisay Biru Melese, LEG ’22

I have learned a lot form this course. It may be one of the best courses I have ever taken.  It is interesting to categorize problems as complex and complicated. Most economic growth problems are complex in nature. Such kinds of problems demand the PDIA approach to solve.  Most policy makers consider economic growth problems as simple and solutions are sought to be present on the shelf. But, that kind of solution to economic problems does not bring lasting solutions.

Rather than rushing to solutions for the economic growth problems, policy makers are advised to deeply study the major causes and sub-causes of economic problems. They need to identify problem-driven solutions to the economic challenges faced by their respective economies. It is difficult to give a solution to a range of economic problems. That is not only because giving solutions to economic problems is costly but also sometimes policies intended to solve problems have unintended outcomes. So, the better approach is it to deal with the binding constraints after undertaking a proper growth diagnostics. 

I this course, I have learnt the importance of knowhow, the implicit knowledge.  Knowhow is a key part of technology. The other components of technology will be tools and the recipe of making goods and services.  Besides knowhow, the other two tools can be copied by other countries.  The difference between the rich and the poor countries is on the availability and diversity of knowhow among the people of the country. Rich countries have diverse and ample know how. They have a capacity to produce complicated products.

Developing countries have low economic complexity while developed countries have high economic complexity, showing that the products they produce comprise of a high amount of knowhow.  

The Atlas of economic complexity shows the number of products produced by countries. Atlas of economic complexities shows an atlas filled with different kinds of products ranging from low complex product to very high complex products all shown on the same atlas. The atlas gives policy options for policy makers on what kinds of policies to focus to enhance their economic growth challenge.

Another important lesson of this course is the fact that implementing of policies needs a special type of organization: high bandwidth organizations. These organizations need to have sufficient authority and capacity to solve the economic challenge of a country. Above all, they are organizations that are meant to solve the information revelation problem of governments. These types of organization are organized to have a capacity to attract FDI, solve problems of firms faced by interlinking different economic stakeholders and by engaging in proactive economic activities.

Another important lesson of this course is economic growth strategies need to be inclusive. This is to be made through solving the problem associated with fixed costs such as lack of information, education and infrastructure. For governments, rather issuing redistributive policies that is meant to compensate the poor for its poorness it is advised to engage the poor to participate in economic growth process of a given country. Finally, the type of the political organization of a country determines the type of economic policies countries practice.

My growth challenge is inflation. Inflation is the major problem Ethiopia is currently facing. This LEG course has given me a good chance to look into causes and the possible solution to my problem. And I understood that the causes of inflation in Ethiopia are rather deep and structural. Traditional monetary and fiscal policies do not solve the inflationary process the country is facing. To solve the inflation challenge, the country should focus on producing more products and services, eliminate the structural bottleneck constraining the free operating of the market.

I am private consultant. I have a company having six employees under me. I consult both private businesses and government offices alike. I have a plan to customize the concepts that I have learnt here to help a growth challenge of private companies. I also have a plan to use the concepts to overhaul the growth problem faced my own company. 

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 71 Participants successfully completed this 10-week online course in May 2022. These are their learning journey stories.

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