The concept of monkeys jumping and Economic development

The concept of monkeys jumping and Economic development

Prof. Dr. Kriengsak Chareonwongsak

Senior Fellow, Harvard Univerisity’s Center for Business and Government

       Conducting research at Harvard University, has allowed me to become acquainted with Prof. Ricardo Hausmann, former Minister of Planning for Venezuela, who is teaching at Harvard’s Kennedy School of Government. I had a chance to be intrigued by a Hausmann’s course titled “Why Are So Many Countries Poor, Volatile, and Unequal?”

       This question is fascinating because it highlights the current disjunction between economic fact and economic theory.

       Economic theory holds that if each country trades with other countries in the products that they have a comparative advantage, every country should prosper and progress in development.

       However, although most countries in the world are opening themselves in greater ways to international trade, in reality, many countries are still poor (this does not include the impacts from unfair trade and monopolies in those countries.)

      In addition, the answer to this question also implies how to set an effective policy for economic development.

     Professor Hausmann answered this question using “the concept of monkeys jumping,”[MSOffice1]  which he developed after studying the data of different countries worldwide. This concept basically states that international trade boosts a country’s development only when that country can produce high value products. But the process of transforming a country’s structure to produce high value products may be easy or difficult depending on what products the country used to produce previously.

     Structural transformation of a country’s production from low value products to high value products is like a monkey trying to jump from a less abundant tree to a more abundant tree.  

          Each monkey will try to jump to the more abundant tree but if the distance between the trees is too far, the monkey will be restricted and unable to jump to the more abundant trees. Likewise, countries are restricted from structural transformation of their production because producing each product requires different capitals and capabilities.

          The monkey that is close to an abundant tree does not have to use much strength to jump to that tree, like some countries that can transform their production structure quickly because they start with advantageous products that can “jump” easily to higher value products. Examples of these countries include those that produce electronic products and capital goods.

          Whereas the economic structures of some countries make it more difficult for them to “jump to” produce high value products. Examples of these countries are those that produce agricultural products, raw materials, crude oil, etc. These countries are like the monkeys far from abundant trees, monkeys that have to use more strength to jump further.

          The interesting issue highlighted by this concept is how Thailand should transform its economic structure at this time in order to produce higher value products. Many are hoping that Thailand’s transformation will follow  market mechanisms like it did in the USA, Hong Kong, and Singapore. Others think the government should intervene by dictating the direction for industrial development, such as the governments did in Japan, South Korea, and Taiwan.

          The experiences of countries have highlighted the various advantages and disadvantages of each choice. What we know is that those who have chosen to follow market mechanisms have needed to wait for a long time and have had to pay dearly until they have found out and transformed their production structure to the new industries.

          We also know that government intervention will transform production structures more quickly, but this strategy may distort the economic system, affect other industries, and possibly risk supporting the wrong industries due to sloppy study or conflicts of interest in policy making. These can lead to misuse of the budget; they may also garner support for industries that still can’t compete in the global marketplace.

          In this case, Professor Hausmann thinks the government should play a role in the structural transformation because the development of capability and technology for new industries will not happen by itself due to the “spill over” effect within those and nearby industries.

          The spill over effect implies that other firms can gain the benefit from the capability or technology development without costs, while those who develop them must bear all the costs. This is what the economists call “positive externality.” Consequently, no one wants to develop that capability or technology. In this case, the government should support the structural transformation to help the production sector “jump” to higher value industries.

          In my opinion, the government must seriously study on what industries do the government should support, so it can set the best direction for Thailand’s economic development and promote the right industries that will allow Thailand to jump far. This is the only way to ensure that all people in our nation will gain long term benefit, rather than allowing a handful of powerbrokers to receive the most benefit.