Download Is Brasil ready for growth?

Is Brazil Ready For Growth?
February 01
José A. Scheinkman
Princeton University
Growth rate 1990-99
(per-capita)
12
10
8
6
4
2
Soutrce: World Bank
t.
La
Br
az
Am
il
a
in
nt
ge
Ch
ile
Ar
Th
ai
la
ea
K
or
na
hi
C
nd
0
Fiscal adjustment 97-99
• Primary surplus: from -.9% of GDP to
3.2%.
• Government has instruments to maintain
fiscal surplus.
• Debt/GDP under control.
Monetary Policy
• Successful devaluation.
– Change in relative prices.
– Inflation target.
• Inflation (IPCA) less than 9% in 1999.
• IPCA 2000 ~ 6%.
Other Fundamental Reforms
• Privatization
• Deregulation
• Trade Liberalization
Spreads (Global)
Date
Pré 10/97
Jan./Mar. 99
September 99
February 06
Mexico
~ 70 b.p.
495 b.p.
330 b.p.
315 b.p.
Argentina
~ 50 b.p.
390 b.p.
170 b.p.
72 b.p.
GDP Growth 2000 (est.)
10
8
6
4
2
Source: The Economist, Goldman Sachs
Br
az
il
a
in
nt
ge
Ar
Ch
ile
M
ex
ic
o
In
di
a
C
hi
na
Ko
-2
re
a
0
Growth Accounting
• Increase in capital (investment)
• Increase in labor
– Increase in work force
– Increase in quality of work force
• Increase in productivity (residual)
Average Investment rate 90-99
(% GDP)
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Korea
China
Source: World Bank
Chile
Brazil
Gross Investment (1999)
Dom. Sav.
Ext. Sav.
Source: Brazilian Central Bank
Labor
• In the next few years economically active
pop will grow at 2.5% a.a. but total pop will
grow 1% a.a.
• Improve labor quality
Education
• Brazil invested little in the past and has
labor force with low level of education.
• Current investment 5.5% of GDP.
– 3.5% of GDP in primary and secondary
education.
Productivity
• Large productivity gains during the
90’s.
• With same quantity and quality of
capital and labor, Brazilian firm
produces, on average, less than 75% of
an American firm’s output.
Reasons for low productivity
•
•
•
•
Excessive regulation.
State firms.
Fiscal system.
Low level of integration with rest of the
world.
Tax system
• The tax system encourages informality.
• Informal firms are less productive:
– In food distribution, worker of formal sector is
4x more productive.
– In residential construction 2x.
• Informal sector survives because it pays less
taxes.
(Exp.+Imp.)/GDP-1998
(GDP in PPP)
60
50
40
30
20
10
il
az
nt
ge
Ar
Source: World Bank
Br
in
a
le
hi
C
M
ex
ico
SA
U
m
er
G
K
or
an
ea
y
0