BreaksinEconomicGrowth GrowthAccounting Trend,CyclesandTermsofTrade FromImportSubstitutingIndustrializationtotheEconomicMiracle
1 815.00 1980
2 810.16 1918,1980
3 808.75 1918,1967,1980
4 810.09 1918,1967,1980,1992
5 811.36 1918,1928,1967,1980,1992
6 812.66 1918,1928,1942,1967,1980,1992
7 813.89 1910,1928,1942,1955,1967,1980,1992
8 814.97 1918,1928,1942,1955,1967,1977,1987,1998
19511966 6.36 3.24 3.27 0.41 5.16 0.96
19671979 8.90 6.22 5.67 0.02 6.51 3.08
19802008 2.47 0.77 0.38 1.35 0.14 1.13
The significant increase in the rates of growthfrom the first regime (19511967) to thesecond (19681980) resulted from the growthin the rates of TFP growth.
The change to the third regime (19812008) ismarked by a fall in both the growth inproductivity and the rate of accumulation ofcapital by worker
10 20 30 40 50 60 70 80 90 008
55 60 65 70 75 80 85 90 95 00 059
10 20 30 40 50 60 70 80 90 0011
The increase in risk, both political and economic, experienced bythe Brazilian economy for the majority of the period starting after
1980 would have inhibited investment, braking economic growth.
A fall in productivity implies in a fall in the marginal product ofcapital and, consequently, of investment. Thus, the fall in the
accumulation of capital could be seen also as a consequence of
the fall in productivity.
Mussolini and Teles (2009) find the explanation for the variationsin productivity growth in Brazil in the behavior of public
The very high inflation rates of the 1980s may also be a reason forthe downbreak of trend growth observed after 1980. 15
Between 2002 and 2008, Brazil benefited from globalgrowth with its demand for commodities, theproduction of which Brazil has an undeniablecomparative advantage. Between August of 2002 andAugust of 2005, the price of Brazils semimanufacturedexports rose by 43 percent and the price of its basicproducts by 59 percent. The benefits wrought by thepositive shock of the terms of trade to the economywere visible. The exchange rate appreciation allowed fora reduction in the external debt and the increase in theprices of exports on investment for the production ofraw materials was remarkable. Such prosperity cameunder threat in the second half of 2008 as a result of theglobal financial crisis. 16
In the past, exchange rate devaluation resulting fromexternal shocks would cause at least two serious problems:an inflationary impact and an increase in the publicdebt/GDP ratio (because part of the debt was indexed tothe dollar). The Central Bank would be forced to increasethe interest rate in order to control the inflationary effectof the currency devaluation. In turn, this measurecontributed to a new rise in public debt. To maintainconfidence in the solvency of the public sector, thegovernment would have to increase the primary surplus.Both the monetary and the tax policies multiplied theexternal shocks contracting impact, aggravating therecession induced by the external shock.
As opposed to what has occurred in the past, the devaluationof the real did not translate into an increase of the public debtduring the crisis at the end of 2008 in fact, there was a profitthat created a margin for emergency financial aid actions. Thehigh international reserves served to soften part of thedevaluation shock, which brought losses for companies thatspeculated in the exchange rate derivatives market, but therewas no capital flight. And the Central Bank was also able toreduce interest rates.
After stabilization in the mid1990s, the country seems to bemending its way to judge from the economys response to the lastinternational crisis. Yet, Brazils fiscal strategy remainsquestionable. The government has relied on a steadily rising taxburden to finance steadily rising fiscal spending. In 2008, taxcollection amounted to 36 percent of GDP, nearly 14 percentagepoints higher than levels between 1991 and 1993.
By mid2009, Brazils short term fiscal picture looked undercontrol despite some deterioration. However, both the primarysurplus and the budget deficit have weakened lately. In mid2009,the ratio of the primary surplus relative to GDP had declined byabout 2 percentage points in less than a year and, despite thedecline of the burden of fiscal interest payments, the budgetdeficit had worsened to 3.2 percent of GDP.
Brazils fiscal deterioration appears mild by recentinternational standards. Countercyclical policies,however, have to be temporary. It is true that recenttax breaks fit this description, but the rise in spendinginspires caution. Federal expenditures have risen inareas such as public sector wages and hiring, whichseem hard to unwind quickly if necessary. There is alsoreason for concern in the potential quasifiscal costsassociated with the current aggressive expansion ofcredit by public sector banks.
From the point of view of stimulatingBrazils growth potential, it appears thatimportant fiscal reforms and infrastructureinvestment will be needed for leadingproductivity to a higher and sustainablepath. A hypothesis worth investigating infuture work is whether high and complextaxation is one reason for the poorperformance of GDP growth in Brazilrelative to other emerging countries.
A BRIEF HISTORY OF BRAZILS GROWTHSummarySlide Number 3Slide Number 4Slide Number 5Slide Number 6Changes in Growth RegimeSlide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14After the 1980sA New Era?Slide Number 17Past CrisesIn the current crisis, Brazilian credit and external accounts suffered a significant impact during the final months of 2008. Since then the country has been able to partially contain its effects.Concluding RemarksSlide Number 21