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Institutions and Productivity in Brazil
1. Economia Aplicada
8th July 2016
Fernando de Holanda Barbosa Filho
Institutions and Productivity in Brazil
2. Economia Aplicada2
Introduction
• Productivity gains become more important with lower
demographic growth.
• Per capita GDP growth will depend even more on productivity
gains. Therefore, it is necessary to design productivity
enhancing policies.
• Productivity gains depend on several factors: human capital,
infrastructure, innovation and misallocation.
3. Economia Aplicada3
Questions
• What is the major concern with productivity prevailing in your
country? What are the respective roles of investment and
innovation?
• What is the emphasis and role assigned to productivity
enhancing policies in the current and prospective policy
context?
• To what extent do productivity-enhancing policies in your
country take into account heterogeneous performances
across firms and skill requirements?
• Can the design of institutions implementing productivity-
enhancing policies have an impact on productivity outcomes?
4. Economia Aplicada4
Demographics
• Higher increase in the labor force increases per
capita incomes.
• Increases in the Labor Force Participation Rate are
important but limited.
• Therefore, per capita output growth will demand
higher productivity gains in the future.
• Demographic transition in Brazil(21 years) is much
faster than that observed in Europe.
8. Economia Aplicada8
Productivity Growth in Brazil
• Productivity growth has been stagnant in Brazil.
• Aggregate productivity depends on services
productivity.
• Services Productivity growth is high in modern
sectors but very low in traditional sectors.
• Brazil seems to have a lot of misallocation:
1 – Informal x Formal
2 – Too many small firms
12. Economia Aplicada12
Compositional Effects
• “Easy” gains: Sectorial compositional effects.
The transference of resources from low productivity
sector to high productivity sectors.
Resources from agriculture to industry and from
industry do services.
Informal x formal
Misallocation
13. Economia Aplicada13
Compositional Effects
• Barbosa Filho and Veloso (2016) show that up to 60%
of 2000´s productivity effect due to “formalization”
• Capital productivity has been negative in the last 5
years.
• Brazil has too many small firms.
16. Economia Aplicada
Firms Labor Productivity Distribution – Brazil and selected
countries
0 5 10 15 20
0.00.10.20.30.4
All sectors
Labor productivity
Density
CHL
CHNCOL
MEX
PERRUS
BRA
BRA
CHL, CHN, COL, MEX, PER, RUS
17. Economia Aplicada17
Investment and Innovation
• Investment rates are low in Brazil: around 18%. Brazil
has low saving rates and needs stable “rules of the
game” to attract resources.
• Innovation: R&D investment is not low, but does not
provide results.
19. Economia Aplicada19
Investment and Innovation
Private sector Investiments and R&D Productivity
0
10
20
30
40
50
60
0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0%
PatentesporPesquisador(x1000)
Investimento dasEmpresasem P&D (% PIB)
Brasil
20. Economia Aplicada20
FGV/IBRE
• Books Organized in FGV/IBRE
• Competitiveness (2011) – org. Bonelli.
• Informality Book (2016) - orgs. Barbosa Filho and
Veloso
• Productivity Book (2016/2017) - orgs. Pinheiro,
Bonelli and Veloso.
21. Economia Aplicada21
FGV/IBRE
• Productivity Book Topics.
- Growth accounting: Low productivity contribution
- Productivity comparison: Brazil has low productivity
- Misallocation. Taxation schemes encourages low
productivity firms to continue.
- Low return on R&D.
22. Economia Aplicada22
FGV/IBRE
• FGV/IBRE has contributed to the Brazilian Economic
debate over the years.
• The SIMPLES (simplified taxation for small firms)
limits is an example.
• Congress would increase its limit from R$3,6 million
to R$14,4 million. Increase was limited to R$4,8
million.
23. Economia Aplicada23
Conclusion
• Brazil´s productivity is stagnant over the last 30
years.
• Brazil has low TFP and labor productivity levels.
• Service sector productivity is key (important share of
economic activity).
• Demographic transition makes productivity gains
even more important.
24. Economia Aplicada24
Conclusion
• Composition effects are important: Formal x Informal
• Misallocation is also a concern.
- Capital allocation and capital productivity decline.
- Too many small firms comparing with other
countries.