Institutions and Productivity in Brazil

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Information about Institutions and Productivity in Brazil

Published on July 12, 2016

Author: Structuralpolicyanalysis

Source: slideshare.net

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.

5. Economia Aplicada5 Demographics Number of years for population over 65 to move from 7% to 14% of the population Source: World Bank (2011).

6. Economia Aplicada6 Demographics Number of years for population over 65 to move from 7% to 14% of the population Source: World Bank (2011).

7. Economia Aplicada7 Potential Output Growth TFP Growth 0,5 1,0 1,5 2017 2,8 3,2 3,6 2022 2,5 3,1 3,7 2027 2,2 2,8 3,5 2032 1,8 2,5 3,1 2037 1,5 2,2 2,9 2042 1,2 1,9 2,6 2047 1,0 1,7 2,5 2052 0,8 1,6 2,3 Source: Barbosa Filho et ali (2016).

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

9. Economia Aplicada9 Productivity Evolution 70,0 75,0 80,0 85,0 90,0 95,0 100,0 105,0 110,0 115,0 120,0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TFP Evolution PTF (PO) PTF(HT) Source: FGV/IBRE

10. Economia Aplicada10 Productivity Evolution 25,000 27,000 29,000 31,000 33,000 35,000 37,000 39,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 produtividadedotrabalhosetorial(R$2009) serviços agregada Source: FGV/IBRE

11. Economia Aplicada11 Services Sector Productivity Evolution 10,000 30,000 50,000 70,000 90,000 110,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Modernos Tradicionais Total Source: FGV/IBRE

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.

14. Economia Aplicada14 Formal X Informal Productivity gains Annual growth Level Composition 2000-2009 0,8 13 87 2000-2008 0,9 23 77 2000-2007 0,7 18 82 2003-2009 1,5 42 58 2003-2008 1,7 53 47 2003-2007 1,5 63 37 2005-2009 2,2 46 54 2005-2008 2,8 58 42 2005-2007 2,9 70 30 Labor Productivity Growth Source: Barbosa Filho and Veloso (2016)

15. Economia Aplicada Capital Misallocation? TFP Labor Productivity Capital Productivity 1982-1994 -0,1 0,3 -0,5 -274 374 1994-2002 0,2 0,2 0,0 97 3 2002-2010 1,6 1,2 0,4 74 26 2010-2013 0,1 0,8 -0,7 1013 -913 Source: Barbosa Filho e Pessôa (2015).

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.

18. Economia Aplicada18 Investment and Innovation

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.

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