Ricardo Hausman: Tacit Knowledge Is a Key Component of Productivity; That Means Prosperity Depends on Allowing Skilled Immigration--Especially into Poor Countries

Economists have spent a lot of time and have come to the conclusion that a lot of the differences in per capita income across countries are due to productivity, but we're not very clear on what exactly that productivity is and how it arises across countries.

My graduate school contemporary Lant Pritchett interviews Ricardo Hausman. In a 5-minute video, Ricardo talks about how "technology" as measured by total factor productivity (or purified TFP) is really a combination of: 

  1. knowledge embodied in machines
  2. knowledge embodied in books or digital files
  3. knowledge embodied in human brains only in a nonconscious, tacit way

That means that to improve "technology," one should allow into one's country not only advanced machines, books and digital information, but also skilled individuals who have have important tacit knowledge. Remarkably, many poor countries are very restrictive in allowing skilled immigration. Ricardo argues that this not only hurts economic growth, it exacerbates inequality. 

I have a closely related blog post that you might also be interested in:

I should also mention that the YouTube page the video above is on has a wealth of other intriguing videos.