Session 2B: Fernando Filho

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.