Labor productivity in Brazil during the 1990s

The Brazilian economy was characterized in the 1990s by marked changes from previous decades, many of which induced by economic policy: trade and financial liberalization, privatization, other State reform measures and the beginnings of economic stabilization with the implementation of the Real Plan in the 1990s. Although Gross Domestic Product (GDP) growth rates for the decade as a whole have been below long-term averages, several indicators of macroeconomic and microeconomic performance turned for the better, especially between 1992 and 1997-1998. But few were so well succeeded as productivity change, both in the aggregate and at the sector level. This paper explores the general issue of labor productivity growth in Brazil in the 1990s following a series of steps: first, adopting a long term view, by examining to what extent overall labor productivity in the 1990s progressed at rates different from those attained in all decades since the 1940s; second, by investigating productivity growth in the manufacturing industry in the long term as well; third, by concentrating the analysis on the 1990s to cover all sectors in the economy, not just the manufacturing industries; fourth, by exploring the issue of who benefited from productivity growth in the past decade; fifth, by evaluating the role of trade liberalization and rising import penetration and its association with productivity increases. In interpreting the data assembled for the research I find that some theoretical ideas and hypothesis are not fully confirmed by the empirical results. The many qualifications and conclusions allow us to reach a better understanding of the causes and effects of productivity change in Brazil during the 1990s

A note on foreign direct investment (FDI) and industrial competitiveness in Brazil

This paper addresses a key issue of the link between increased capital inflows through FDI and industrial competitiveness in Brazil. It provides an analysis of the two way relationship which can exist in theory between FDI and competitiveness, as well as some empirical evidence from Brazil in the 1990s. Inflows of FDI to Brazil have increased significantly during the 1990s, and although manufacturing has been losing out in terms of its share of FDI, the stock of foreign capital in the manufacturing sector more than doubled (in current US dollars) between 1990 and 1996. At the same time, rapid growth of manufacturing productivity has been amply documented, in the same period of time. There seems, therefore, to exist a prima facie case for supposing that foreign investment has contributed to increased productivity and competitiveness in Brazil. When looking at disaggregated data within manufacturing which links the growth of competitiveness (whether measured by unit labor costs or export performance) and FDI, however, there does not appear to be a clear cut relationship with either the growth of FDI or the share of foreign capital within different industries. The link applies to some industries, but not to others. In other words: if one interpreted the causation as running in the opposite direction, this evidence would suggest that there is no general tendency for FDI to be attracted primarily to industries where competitiveness is improving most rapidly. This has the implication that rapid productivity growth might be the result of factors other than FDI - like trade liberalization, for instance

Brazil 1950-1980: Three decades of growth-oriented economic policies

This paper, written as a tribute to Albert Hirschman's work and thought, deals with the patterns of structural change and financing economic growth in Brazil from 1950 to 1980. Special attention in given to the role of external finance and to the evolving forms of public sector intervention. Intersectoral income shifts provoked both by inflation and economic policy measures are recognized as a key element in a growth process frequently constrained by unfavorable external events. The paper shows that concerns with the disappearance of the external and internal financing capacity of the public sector were recurrent in our economic history. The result has often been that the government lost the capability of being a coordinating element for a new growth strategy. This challenge has been faced and overcome more than once in the past, something which will have to be tried again if the Brazilian society wishes to consolidate both democracy and a just and healthy economic system

Accounting for Brazil's growth experience: 1940-2002

This paper is devoted to a quantitative assessment of Brazil's long-term growth experience. The analysis herein shows that savings alone do not explain the growth slump after 1980. Our explanation centers on the evolution of the output-capital ratio and on changes in the relative price of investment goods. A lower degree of capacity utilization also helps to elucidate Brazil's mediocre growth performance since 1980. Decadal decompositions of capital stock and GDP growth highlight the factors accounting for Brazil's growth in particular sub-periods

Comparative advantage or economic policy? Stylized facts and reflections on Brazil's insertion in the world economy: 1994-2005

This paper analyzes export performance in Brazil, discussing the roles played by export diversification, productivity enhancements, policy, and natural resource endowments. First, we provide a brief account of Brazil's recent export performance and analyze changes in the competitiveness of Brazilian exports in a long-term perspective. This is done by evaluating actual sector export patterns vis-à-vis the rest of the world in an attempt to grasp a broad picture of comparative export behavior. We proceed to evaluate changes in exports competitiveness as described by shifts in the country's revealed export behavior compared to the rest of the world, for which we rely on a traditional Constant-Market-Share (CMS) decomposition and on an extension of Hummels and Klenow's approach. Next, we analyze agricultural exports, a discussion followed by an evaluation of the role of trade policy, and in particular export promotion instruments and institutions. Among the conclusions we highlight that there are several commonalities between the present and previous export booms, in the sense that: a) it reinforced the country's diversified trade relations, with additional exports concentrated in non-traditional markets such as China, Russia, Africa, and South and Central American, non-Mercosur member countries; b) it did not change the relative share of manufactures in Brazil's export basket, despite the excellent performance of agro-based exports since the early 1990s; and c) both agricultural and manufacture exports have experienced an increasing product diversification. Yet, innovations, defined as new goods entering the export basket, were relatively unimportant, except for some specific markets

Financial development, growth and equity in Brazil

Financial markets help to foster growth and productivity through their role in mobilizing savings to finance investment and production, selecting and monitoring investment projects, diversifying risks, and allowing investment and production to be carried out in the most productive scale and time frame. This paper examines the links between financial development, growth and equity. The focus is on the Brazilian case, but we also aim at contributing to a broader discussion on the role of financial markets in fostering economic development in Latin America. The analysis discusses: a) Brazil's recent growth record, which resembles Latin America's average regarding pace and sources of growth; b) recent changes in financial intermediation in the region, stressing the role of the public sector in absorbing private savings; c) the interface between growth and finance; d) the issue of access to financial services; and e) the impediments to financial deepening and inclusion drawn from the Brazilian experience. Among its conclusions we highlight the relatively small contribution the Brazilian financial system has had towards promoting growth and equity in the following sequence: a) the incomplete macroeconomic adjustment of the economy, which lead to high interest rates, market volatility, and a preference of savers for liquid, short-term financial investments; b) the high tax burden and the associated high degree of informality and fiddling with company accounts, which lower the quality of the information disclosed to financial institutions and capital markets; c) the central role of the state in mobilizing and allocating savings, largely an inheritance of the pre-1990s development model, which dampens the impact of financial intermediation on capital productivity; and d ) the low protection of minority shareholders and especially creditors against expropriation by the state and private parties create a highly uncertain and risky environment that raises the cost of capital, discourages financial intermediation and raises the preference for short-term and liquid financial assets

Pragmatic policy in Brazil: The political economy of incomplete market reform

The last 20 years were a period of major political, economic, social, and institutional reform in Brazil. In the first half of the 1990s, reformers opened the economy to foreign trade and both direct and portfolio investment, sold off a number of large and traditional state-owned enterprises, discontinued myriad price and output regulations, and gradually erected a new regulatory framework. Except for trade liberalization, which was largely completed by the mid-1990s, reforms accelerated after the Real Plan. The consolidation of price stability and market-oriented reforms, in turn, required a number of institutional changes including the strengthening and/or creation of competition and regulatory agencies, and the enactment of new legislation to promote fiscal discipline, improve regulation of financial markets, and protect consumers. This paper focuses on this gradual, piecemeal, loosely coordinated process of partial state retrenchment. The analysis focuses especially on the relative roles of ideology, policy packaging, and pragmatism in advancing reforms; how well reform implementation went; to what extent their results were as expected; and whether state retrenchment is here to stay. We argue that pragmatism - understood as a conduct that emphasizes practicality and stresses practical consequences as constituting the essential criterion in determining action - has been the main driving force behind reforms. In contrast to other Latin American countries, ideology and politics have played a lesser role in fostering market reforms in Brazil. In particular, although reforms were often bundled together with other urgent or popular policies, to facilitate their approval, they were not enacted as a coherent, overall change in development strategy, and more as a piecemeal, flexible, mostly disconnected reform process. Pragmatism led to market reforms that, as a rule, were gradual, usually incomplete and only loosely coordinated with one another. Although these characteristics sometimes facilitated reform politics - opening windows of opportunity and reducing political opposition - they also reduced the efficacy of reforms. In particular, pragmatism was insufficient to generate complementary, second-generation reforms. The overall impact of reforms has not been significant in Brazil, with only a marginal acceleration in GDP growth, due entirely to higher productivity growth. To the extent that pragmatism reflects an approach in which the end results are the main justification for reform, the failure to spur growth after over a decade of reforms puts their sustainability at risk