COMPETITIVENESS AND GROWTH IN BRAZIL Juan Blyde, Armando Castelar Pinheiro, Christian Daude, Eduardo...

COMPETITIVENESS AND GROWTH IN BRAZIL

Juan Blyde, Armando Castelar Pinheiro, Christian Daude, Eduardo Fernández-Arias,

Peter Montiel, Mauricio Moreira Mesquita

Second Draft

Washington, September 20, 2007

Real GDP growth 1950-2005 (in per cent)

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

19

48

19

51

19

54

19

57

19

60

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Annual change 10-year MA

Decomposition of growth in GDP per worker

(average annual change in variables)

VariablesVariables 1947-601947-60 1961-801961-80 1981-941981-94 1995-20061995-2006

GDP/workerGDP/worker4.5%4.5% 4.0%4.0% -0.2%-0.2%

0.5%0.5%

Capital/workerCapital/worker 7.4%7.4% 5.0%5.0% 0.7%0.7%-0.7%-0.7%

TFPTFP 1.0%1.0% 1.7%1.7% -0.5%-0.5%0.9%0.9%

Potential constraints tested

Low return to economic activity

• Inadequate infrastructure• Low human capital• Gov failures

– Inadequate business environment

– Taxes– Informality– High price of investment

• Market failures– Innovation shortfalls– Low self discovery and

structural transformation

High cost of finance• Low domestic savings and

lack of access to international finance

• Poor financial intermediation

Testing hypotheses

• Is Brazil different?– Cross-country comparisons controlling for

income level.• Has the constraint changed in a way

consistent with growth deceleration?• What do firms say?

– Investment climate survey• Do prices or other variables signal excess

demand?• Is constraint consistent with growth patterns?

Rank of constraints (tentative)Rank of constraints (tentative)

Severe

Potentially Strong

Moderate

Small

- Taxes- Human Capital

- Infrastructure- Bad Intermediation / low savings

- Bad International Finance- Price of Investment- Inadequate Business Environment- Informality

- Lack of Innovation - Low Structural Transformation

Low Human CapitalLow Human Capital Brazil has historically invested little in human capitalBrazil has historically invested little in human capital

Poor education indicators compared to other middle-Poor education indicators compared to other middle-income countriesincome countries

High return to education indicates human capital is a High return to education indicates human capital is a binding constraintbinding constraint

Municipalities with less educated population showed Municipalities with less educated population showed lower subsequent GDP growth lower subsequent GDP growth

Things improved when growth deceleratedThings improved when growth decelerated

But not in relative terms, so that the gap remains But not in relative terms, so that the gap remains widewide

Poor education indicatorsPoor education indicators

0

5

10

15

20

25

30

35

40

Secondary Level Completed, 2000 (% of pop)Secondary Level Completed, 2000 (% of pop)

Poor education indicators IIPoor education indicators IISecondary Education and DevelopmentSecondary Education and Development

Brazil

High returns indicate binding High returns indicate binding constraintconstraint

Returns to Education and DevelopmentReturns to Education and Development

Brazil

Firms rank it middle of the wayFirms rank it middle of the wayObstacles to Firm GrowthObstacles to Firm Growth

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Skills and education of workers

Source: ICS, World Bank.

Municipal GDP growth 1996-2004

AVGMUNG = 0.048 – 0.160* ln(per capita GDP 1996) –0.095*pop (15.21) (-65.57) (-8.09)

+0.009*pop2 + 0.015*years_educ_1991 (7.52) (9.95)

R2 = 0.80

Things are improving IThings are improving IAverage Years of Schooling Total Population Aged 25 and OverAverage Years of Schooling Total Population Aged 25 and Over

0

1

2

3

4

5

6

7

1960

1965

1970

1975

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1992

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

Source: IPEADATA and Barro and Lee dataset.

Barro&Lee

IPEA

Things are improving IIThings are improving IIReturns and Years of SchoolingReturns and Years of Schooling

And is widening in certain dimensionsAnd is widening in certain dimensionsDifferences b/w Brazil and benchmark in secondary level completedDifferences b/w Brazil and benchmark in secondary level completed

Bad InfrastructureBad Infrastructure Investment in infrastructure has declined Investment in infrastructure has declined substantiallysubstantially

Significant slowdown in capacity expansionSignificant slowdown in capacity expansion

Brazil still has indicators comparable to LAC Brazil still has indicators comparable to LAC and consistent with its income leveland consistent with its income level

Firms do not see infrastructure as a major Firms do not see infrastructure as a major constraint to their growthconstraint to their growth

Substantial decline in investmentSubstantial decline in investmentInvestment breakdown (as percent of GDP, in constant 1980 prices)Investment breakdown (as percent of GDP, in constant 1980 prices)

Year Total Infrastructure Electricity Telecom Transport Sanitation

1971-80 23.5 5.42 2.13 0.8 2.03 0.46

1981-89 18 3.62 1.47 0.43 1.48 0.24

1990-94 14.9 2.16 0.85 0.5 0.69 0.07

1995-96 17 1.79 0.52 0.66 0.48 0.13

1997-98 16.4 2.77 0.79 0.98 0.68 0.32

1999 16.1 2.7 0.77 1.17 0.56 0.2

2000 16.5 2.58 0.67 1.07 0.63 0.21

Source: Bielschowsky (2002: 25-29). Note: 1/ Does not take into account 2007 revision in national accounts. 2/ Public Sector = non-financial public sector, excludes transport.

Capacity has expanded slowly in Capacity has expanded slowly in recent decadesrecent decades

Average annual rates of expansion (%)Average annual rates of expansion (%)

Extension of road

network (km)

Total Paved Roads

Electricity (Generation

capacity, MW)

Telecom (Number of

phone lines) 3

1931-1950¹ 4.6 5.1 4.5 9.0

1951-19602 5.7 21.6 6.3 7.0

1961-1980 5.4 9.3 10.2 9.6

1981-1994 0.8 4.5 4.0 7.3

1995-2004 0.6 3.0 4.6 20.6 Source: Pinheiro, Gill, Severn and Thomas (2005), ANATEL and Gvconsult (2004), apud Afonso, Biasoto and Freire (2007). 1/ For number of lines, growth rates refer to 1937-50; 2/ In the case of telecom, growth rates refer to 1951-59; 3/ Fixed plus mobile, in service.

And to countries with similar incomeAnd to countries with similar incomeDifferences from trend lineDifferences from trend line

Variable Coefficient t-Statistic

Fixed line density 55.5 5.6

Mobile line density -35.5 -1.8

Per capita electricity consumption -373.0 -1.4

Transmission and distribution losses 2.7 3.6

Access to water 1.2 0.7

Access to sanitation -2.1 -0.8

Road / (sq km*million inhab) -116.7 -3.9

Proportion paved roads -47.0 -14.5

Air freight / GNI (PPP) 0.0 -2.2

Air passenger / million inhab -96.2 -1.8 Source: Regressions using WDI indicators. a/ Coefficient of dummy variable for Brazil in regression of variable in first column as a function of per capita gross national income (in PPP) and per capita GNI squared.

Firms don’t see poor infrastructure Firms don’t see poor infrastructure as a major constraintas a major constraint

Obstacles to Firm GrowthObstacles to Firm Growth

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: ICS, World Bank.

Tel

eco

m

Tra

nsp

ort

atio

n

Ele

ctri

city

Selected indicators of savings constrained growth

Indicator 1998 2002 2006

Net foreign debt / Exports (eop) 3.2 2.7 0.4

Current account deficit (% of GDP) 4 1.5 -1.3

Net FDI ($ bn) 28.6 10.1 18.8

Net Brazilian direct invest abroad ($ bn) 2.9 2.5 27.3

EMBI+ (avg December, bp) 1197 1525 207

Real overnight (Selic) rate (%) 26.7 5.9 11.6

Real interest rate on loans to business (%) 37.7 7.7 13.6

Credit to private sector (% of GDP) 27.7 23.4 33.4

Terms of trade (1996=100) 104.4 91.9 96.6

In sum

• GDM offers a structured means to make a comprehensive analysis of growth constraints.

• It is difficult to obtain “smoking gun” evidence on whether a constraint is binding or not.

• Constraints can change significantly over short periods of time.

• So far, our findings suggest that a number of constraints influence growth, some more intensely than others.

• Expand methodology to consider direct effect on growth of TFP, public investment and human capital.

High Cost of FinanceHigh Cost of Finance

Access to international finance Access to international finance Bad domestic financeBad domestic finance

Low domestic savingLow domestic saving Bad intermediationBad intermediation

High Real Lending RatesHigh Real Lending Rates

ARG

BLZBOL

BRA

CHL

COL CRI

DOM

ECUGTM

GUYHNDHTI

JAM

MEX

NIC

PAN

PER

PRY

TTO

URY

VEN

01

02

03

04

05

0E

x-p

ost R

ea

l Le

nd

ing R

ate

(%

)

7.5 8 8.5 9 9.5GDP per capita (log)

Ex-Post Real Lending Rates in LAC 2005Ex-Post Real Lending Rates in LAC 2005

……declining but still very highdeclining but still very high

Real Ex Ante Interest Rates (annual %) Real Ex Ante Interest Rates (annual %)

0.00

10.00

20.00

30.00

40.00

50.00

60.00Average Lending Rate (Individuals & Firms)Average Lending Rate FirmsTBF (Deposit Rate)Spread Firms

Co-movement in interest rates Co-movement in interest rates and investmentand investment

Real Lending Rates and Gross Fixed InvestmentReal Lending Rates and Gross Fixed Investment

2001

2002

2003

2004

2005

2006

32

33

34

35

36

37

Re

al E

x A

nte

Le

nd

ing

Ra

te -

Fir

ms

.15 .155 .16 .165 .17Gross Fixed Capital Investment / GDP


Access to international financeAccess to international finance Bad domestic financeBad domestic finance


Spreads are significantly lower…Spreads are significantly lower…

Comparison of Sovereign SpreadsComparison of Sovereign Spreads

0

500

1000

1500

2000

2500

Bas

is p

oin

ts EMBINon LatinBrazilMexico

Source: JP Morgan

… … also for the private sectoralso for the private sector

Comparison of Sovereign SpreadsComparison of Sovereign Spreads

0

500

1000

1500

2000

2500

3000

EMBI Spread Corporate Spread

Source: Own calculations based on Cavallo and Valenzuela (2007)

Brazil is a low-savings countryBrazil is a low-savings countrySavings/GDP Average 1995 – 2005 vs. GDP per capita

ARG

ATG

BGR

BLR

BLZ

BRA

BWA

CHL

COL

CPVCRI

CZE

DMA

DOM

DZA

ECUEGY

ESPEST

FIN

FJI

GAB

GRCGRD

GTMGUY

HRVHUN

IDN

IRL

IRN

ISR

JAMJOR

KAZ KNA

KOR

LCA

LTU

LVA

MAR

MEX

MKD

MUS

MYS

NAM

NZL

PANPER

PHL

POLPRT

PRY ROM

RUS

SAU

SGP

SLV

SUR

SVK SVN

SWZSYCSYR

THATKM

TON

TTOTUN

TUR

UKR

URYVCT

VEN

VUT

ZAF

10

20

30

40

50

Sa

vin

gs/G

DP

(%

) A

vg

. 19

95

- 2

005

8 8.5 9 9.5 10GDP per capita in 1995 (log)

Returns on savings are high…Returns on savings are high…Ex-Post Real Deposit Rates in LAC 2005

ARG

BLZ

BOL

BRA

CHLCOL

CRI

DOM

ECU

GTMGUY

HND

HTI

JAM

MEX

NIC

PAN

PER

PRY TTO

URY

VEN

-10

-50

51

0E

x-p

ost

Rea

l D

epo

sit R

ate

(%

)


……but in recent years savings but in recent years savings increased significantly,increased significantly,

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

Savings Rate Fixed Investment/GDP current prices

Fixed Investment/GDP constant prices Investment/GDP current prices

……driven by an increase in driven by an increase in private savingsprivate savings

1947-1967

1968-1978

1979-1986

1987-1989

1990-1994

1995-2002

2003-2006

Domestic savings 15.4 19.3 18.0 25.2 19.8 13.8 17.4

Public savings 2.0 4.9 0.3 -1.1 3.6 -0.3 -0.3

Private savings 13.4 14.4 17.7 26.3 16.2 14.1 17.7

Foreign savings -0.4 1.5 3.4 -0.4 -0.4 3.5 -1.0

……substituting foreign financingsubstituting foreign financing

1947-1967

1968-1978

1979-1986

1987-1989

1990-1994

1995-2002

2003-2006

Domestic savings 15.4 19.3 18.0 25.2 19.8 13.8 17.4

Public savings 2.0 4.9 0.3 -1.1 3.6 -0.3 -0.3

Private savings 13.4 14.4 17.7 26.3 16.2 14.1 17.7

Foreign savings -0.4 1.5 3.4 -0.4 -0.4 3.5 -1.0

Brazil is currently a net exporter Brazil is currently a net exporter of savingsof savings

-10

-8

-6

-4

-2

0

2

4

6

8

10

1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003

CAB/GDP Cycle HP-component

High Intermediation spreadsHigh Intermediation spreads

ARG

BLZ

BOL

BRA

CHL

COL

CRI

DOM

ECU

GTM

GUY

HND

HTI

JAM

MEXNIC

PAN

PER

PRY

TTO

URY

VEN

01

02

03

04

0E

x-p

ost R

ea

l S

pre

ad

(%

)


Ex-Post Real Intermediation Spread (annual %) Ex-Post Real Intermediation Spread (annual %)

… … are correlated with funding rateare correlated with funding rate

22

23

24

25

26

2 4 6 8 10 12 14 16 18

Real Ex-ante SELIC (%)

Rea

l Ex-an

te S

prea

d (%

)

Monthly Real Ex-Ante Rates November 2001 – May 2007 Monthly Real Ex-Ante Rates November 2001 – May 2007

but high funding rate is only a but high funding rate is only a small fraction of the storysmall fraction of the story

Real_spread = 22.70 + 0.14 Real_SELIC

(0.46) (0.03)

R-squared = 0.14

Micro factors matterMicro factors matter

Net Interest Margins are high Net Interest Margins are high despite low concentrationdespite low concentration

LUX

RUS

USA

ITAIND

JPN

PAN

COL

LBN MYS

BGR

BGD

PHL

NGA

POL

PRYGTM

VEN

UKR

BRA

ARG

KORTUN

ECU

GBRPAK THA

BOL

TUR

LVA

IRL

HND

CAN

ROM

EGY

HRV

MDA

NPL

URY

FRASAU

IDNCHL

CRIKEN

HUNKAZKHM

CHN

TZA

MEX

CZE

LKA

ARM

UGA

NLD

ZMB

AUS

ESPKWTDEUGRC

SEN

HKG

GEO

CMR

GHA

SVN

AUT

DOM

PERNIC

BFA

MAR

SVK

MKD

MACLTU

ZAF

NZL

BWA

SLV

BLR

ISR

DNK

BHR

VNM

AZE

CIV

BEL

JAM

MLT

MUS

MNG

COG

TTO

CHE

JORETH

IRN

PRT

MOZ

CPV

FIN

SDN

SYR

RWA

GUY

ESTUZB

SWE

YEM

SGP

MLI

SLE

NERNAM

NOR

GMB

SWZLSO

MDG

BEN

KGZ

0.0

5.1

.15

Ne

t In

tere

st M

arg

in / In

tere

st B

ea

ring

Assets

6 7 8 9 10 11GDP per capita (logs)

Operating costs are also high, Operating costs are also high, pointing towards low efficiencypointing towards low efficiency

LUX

RUSUSA

ITA

INDJPN

PAN

COL

LBN MYS

BGR

BGD

PHL

NGA

POL

PRY

GTM

VEN

UKR

BRA ARG

KOR

TUN

ECU

GBR

PAK THA

BOLTUR

LVA

IRL

HNDCAN

ROM

EGY

HRV

MDA

NPL

URY

FRA

SAU

IDNCHL

CRIKENHUN

KAZKHM

CHN

TZAMEX

CZELKA

ARM

UGA

NLD

ZMB

AUSESP

KWT

DEU

GRC

SEN

HKG

GEO

CMR

GHA

SVN

AUT

DOM

PER

NIC

BFA

MARSVK

MKD

MAC

LTU

ZAF

NZL

BWASLV

BLR

ISR

DNK

BHRVNM

AZE

CIV

BEL

JAM

MLTMUS

MNG

COG

TTO

CHE

JOR

ETH

IRN PRT

MOZ

CPVGAB

FIN

MWI

SDN

RWA

GUYEST

UZB

SWEYEM

SGP

MLI

SLENER

NAM

NOR

GMB

SWZ

LSO

MDG

BEN

KGZ

0.0

5.1

.15

.2

Overh

ea

d C

osts

/ T

ota

l A

ssets

6 7 8 9 10 11GDP per capita (logs)

Decomposition of SpreadsDecomposition of Spreads

Total Private Banks

Public Banks

Deposit Insurance (FGC) cost 0.2 0.3 0.3 Overhead Adm. Costs 28.3 22.5 38.3 Reserve requirement cost 8.3 9.8 7.2 Taxes 12.3 12.8 11.8 Losses due to default 27.3 25.4 30.4 Net Interest margin 23.5 29.4 12.0 Total 100.0 100.0 100.0

Source: Costa and Nakane (2004)

Effective Creditor Rights are lowEffective Creditor Rights are low

… … and so are recovery ratesand so are recovery rates



Low domestic savingLow domestic saving Bad intermediationBad intermediation?

Is the cost of financing Is the cost of financing really that high?really that high?

•Directed and subsidized creditDirected and subsidized credit

•Other source of financingOther source of financing

Earmarked funds are still 30% of Earmarked funds are still 30% of bank creditbank credit

0

10

20

30

40

50

60

70

80

90

100

%

Non-Earmarked Funds/Total Credit Lending by Private Institutions/Total Lending

Source: BCB

… … and at subsidized rates and at subsidized rates slightly above the TJLPslightly above the TJLP

0

10

20

30

40

50

60

70

80

90

TJLP

SELIC

Non-earmarked funds do not Non-earmarked funds do not finance much investmentfinance much investment

Nominal Spread (%) Share in total credit (%) Avg. Duration

(Days) Credit Line 2005 2006 May 2007 2005 2006 May 2007 2006

Hot Money 34.2 37.4 36.6 0.3 0.2 0.3 12.5 Discount of trade bills 23.8 23.7 21.5 6.1 5.7 5.4 32.2 Discount of promissory bills 34.0 36.0 33.6 0.1 0.1 0.1 38.4 Working capital 19.9 19.2 19.2 27.7 29.7 32.1 350.2 Guarantied Overdraft 51.5 53.2 52.0 17.2 16.8 15.7 21.8 Vendor 5.1 5.4 4.5 5.7 5.3 4.3 92.64 Acquisition of goods/real estate 11.8 12.1 7.8 6.1 6.9 7.0 283.3 Others/1 - - - 36.7 35.4 35.2 - Total 25.0 25.4 23.8 100.0 100.0 100.0 221.8

/1 includes mainly anticipation of exchange related to exports and foreign on-lending

Other ways of financing are Other ways of financing are quite developedquite developed

Low InvestmentLow Investment

Low Returns to InvestmentLow Returns to Investment High Cost of FinanceHigh Cost of Finance

Low Returns to InvestmentLow Returns to Investment

Low Social Returns Low Social Returns Low AppropriabilityLow Appropriability

BadBad

InfrastructureInfrastructure

Low Human Low Human CapitalCapital

Low Returns to InvestmentLow Returns to Investment

Low Social Returns Low Social Returns Low AppropriabilityLow Appropriability

Government Government FailuresFailures

Market Market FailuresFailures

Low AppropriabilityLow Appropriability

Government Failures Government Failures Market FailuresMarket Failures

High Price of InvestmentHigh Price of Investment

Business EnvironmentBusiness Environment

InformalityInformality

TaxesTaxes

Lack of InnovationLack of Innovation

Low self-discovery and Low self-discovery and structural transformationstructural transformation


Increase in relative price of investment Increase in relative price of investment reduced the “purchasing power” of savingsreduced the “purchasing power” of savings

But national accounts revision showed this But national accounts revision showed this rise was less substantial than earlier estimatedrise was less substantial than earlier estimated

Indicators for Brazil compare well with those Indicators for Brazil compare well with those of countries with similar income levelof countries with similar income level

Substantial rise in relative price of Substantial rise in relative price of investmentinvestment

Ratio of fixed investment to GDP deflators (1980 = 100)Ratio of fixed investment to GDP deflators (1980 = 100)

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

IBGE PWT

But a similar process took place in But a similar process took place in other countriesother countriesRatio of investment to GDP pricesRatio of investment to GDP prices

1970-73 2000-03 Argentina 1.30 1.26 Brazil 0.75 1.40 Chile 0.83 1.06 China 1.11 1.49 Korea 1.14 0.87 Malaysia 1.15 1.28 Mexico 1.12 1.12 Peru 1.10 1.22 Philippines 1.64 1.44 South Africa 1.93 2.08 Thailand 0.88 1.14 Turkey 1.78 1.29 "World" median1 1.53 1.74 LAC Avg 1.65 1.62

Source: PWT

And investment prices do not seem And investment prices do not seem to be out of lineto be out of line

Investment pricesInvestment prices

1970-73 2000-03 Argentina 102.3 55.6 Brazil 70.4 55.1 Chile 49.8 40.2 China 84.4 35.3 Korea 44.7 58.5 Malaysia 54.7 44.4 Mexico 63.8 82.1 Peru 39.0 56.4 Philippines 40.0 34.6 South Africa 94.3 72.1 Thailand 30.7 32.5 Turkey 103.3 63.5 "World" median1 67.1 72.1 LAC Avg 74.1 85.9

Source: PWT

Nor the relative price of investmentNor the relative price of investmentRatio of investment to GDP prices in 2000-03Ratio of investment to GDP prices in 2000-03

S

-0.5

0

0.5

1

1.5

2

6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11

ln(income)

ln(r

atio

of

defla

tors

)

Brazil

Source: PWT


Brazil LAC OECD

Procedures (number) 17 10.2 6.2

Duration (days) 152 73.3 16.6 Starting a Business

Cost (% of GNI per capita) 9.9

48.1

5.3

Time to complete procedure (years) 4 2.6 1.4

Cost of bankruptcy proceedings (% of estate) 12 13.6 7.1 Closing a Business

Recovery rate (cents on the dollar) 12.1 25.7 74

Difficulty of hiring a new worker index 67 34 27

Job security index (Botero et al, 2004) 0.69 0.5 0.33

Employing workers

Firing costs (weeks of wages) 37 59 31

Cost of doing businessCost of doing business

Brazil

Quality of RegulationQuality of Regulation

Brazil

Rule of LawRule of Law

Brazil

0

10

20

30

40

50

60

70

80

90

Entrepreneurs’ perceptionsEntrepreneurs’ perceptions


•Informal firms invest little, have low productivityInformal firms invest little, have low productivity

•Disrupt incentives in the formal economyDisrupt incentives in the formal economy

Some Basic Facts About Informal Firms in Brazil % Size Percentage of informal firms with only one worker 80

Sector Percentage of informal firms in manufacturing 16

Percentage of informal firms in services 84

of which:

Construction 21

Retail sales and repair 40

Other 39

Education Percentage of workers in informal firms with elementary school not completed 44

Percentage of workers in informal firms with high school not completed 69

Percentage of workers in informal firms with college completed 7

Reasons to start Percentage of firms declaring "could not find a job" 31

an informal firm Percentage of firms declaring "complement household income" 17

Percentage of firms declaring "experience in the area" 8

Main difficulties Percentage of firms declaring "lack of clients" 49

encountered in Percentage of firms declaring "large competition" 44

previous year Percentage of firms declaring "lack of credit" 13

Percentage of firms declaring "lack of appropriate infrastructure" 8

Tax BurdenTax Burden

0

5

10

15

20

25

30

35

40

Tax BurdenTax Burden

Tax rates are high…Tax rates are high…

Brazil

Percentage of firms indicating tax rates as a major problemPercentage of firms indicating tax rates as a major problem

…….paying taxes is cumbersome.paying taxes is cumbersomeTime (hours) paying taxesTime (hours) paying taxes

Evidence from sector’s dataEvidence from sector’s dataSector performance and tax burdenSector performance and tax burden

Evidence from firm’s dataEvidence from firm’s dataAverage growth rate of salesAverage growth rate of sales






TaxesTaxes




Selected Innovation Variables

Brazil Latin

America Western Europe

Total Expenditure for R&D as % of GDP 0.9 0.3 1.9

Science Enrolment Ratio (%) 8.4 8.5 11.0

Patents Granted by USPTO / Mil. People 0.85 0.8 77.6

Scientific and Technical Journal Articles / Mil. People 47.9 22.8 628.5

Royalty and License Fees Payments (US$/pop.) 6.5 7.5 452.1

Lack of InnovationLack of InnovationR&D / GDPR&D / GDP

Lack of InnovationLack of InnovationR&D / GDP: deviations from the medianR&D / GDP: deviations from the median

Finland

Korea

Brazil Greece

Mexico

Lack of InnovationLack of InnovationObstacles to innovation (% of firms responding)Obstacles to innovation (% of firms responding)

0

10

20

30

40

50

60

70

80

90

Structural TransformationStructural Transformation

•There is a positive relationship b/w the level of sophistication There is a positive relationship b/w the level of sophistication of exports and subsequent growth (what you export matters!)of exports and subsequent growth (what you export matters!)

•Many countries have seen negative per capita growth for a Many countries have seen negative per capita growth for a very long timevery long time

•There have been growth collapses that have lasted long There have been growth collapses that have lasted long periods of timeperiods of time

•Most growth collapses coincide with export collapsesMost growth collapses coincide with export collapses


Brazil

EXPY vs GDP per capitaEXPY vs GDP per capita


Brazil

Export sophistication and subsequent growthExport sophistication and subsequent growth

What determines the evolution of the What determines the evolution of the sophistication of exports?sophistication of exports?

•Every product requires a unique set of capabilities: labor Every product requires a unique set of capabilities: labor skills, infrastructure, property rights, physical assetsskills, infrastructure, property rights, physical assets

•Producing new goods require adapting existing capabilities, Producing new goods require adapting existing capabilities, which are imperfect substitute for the new capabilitieswhich are imperfect substitute for the new capabilities

•So future structural transformation depends on what is So future structural transformation depends on what is ‘close’ to your current production‘close’ to your current production

Brazil 1975

Brazil 1980

Brazil 1985

Brazil 1990

Brazil 1995

Brazil 2000

Ecuador 1995


Open Forest, Comparative

0

200000

400000600000

800000

1000000

1200000

14000001600000

1800000

2000000

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Argentina

Brazil

Colombia

Mexico

South Africa

Malaysia






TaxesTaxes



COMPETITIVENESS AND GROWTH IN BRAZIL Juan Blyde, Armando Castelar Pinheiro, Christian Daude, Eduardo...

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Transcript of COMPETITIVENESS AND GROWTH IN BRAZIL Juan Blyde, Armando Castelar Pinheiro, Christian Daude, Eduardo...