Transcript Brazil

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)
15.0
15.0
12.5
12.5
10.0
10.0
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
0.0
1966
0.0
1963
2.5
1960
2.5
1957
5.0
1954
5.0
1951
7.5
1948
7.5
-2.5
-2.5
-5.0
-5.0
Annual change
10-year MA
Decomposition of growth in GDP
per worker
(average annual change in variables)
Variables
1947-60
1961-80
1981-94
4.5%
4.0%
-0.2%
Capital/worker
7.4%
5.0%
0.7%
TFP
1.0%
1.7%
-0.5%
GDP/worker
1995-2006
0.5%
-0.7%
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)
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 Capital

Brazil has historically invested little in human capital
Poor education indicators compared to other middleincome countries

High return to education indicates human capital is a
binding constraint

Municipalities with less educated population showed
lower subsequent GDP growth


Things improved when growth decelerated
But not in relative terms, so that the gap remains
wide

te
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Poor education indicators
Secondary Level Completed, 2000 (% of pop)
40
35
30
25
20
15
10
5
0
Poor education indicators II
Secondary Education and Development
Brazil
High returns indicate binding
constraint
Returns to Education and Development
Brazil
Firms rank it middle of the way
Obstacles to Firm Growth
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: ICS, World Bank.
Skills and education
of workers
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 I
Average Years of Schooling Total Population Aged 25 and Over
7
6
IPEA
5
4
Barro&Lee
3
2
1
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
0
Source: IPEADATA and Barro and Lee dataset.
Things are improving II
Returns and Years of Schooling
And is widening in certain dimensions
Differences b/w Brazil and benchmark in secondary level completed
Bad Infrastructure
Investment in infrastructure has declined
substantially


Significant slowdown in capacity expansion
Brazil still has indicators comparable to LAC
and consistent with its income level

Firms do not see infrastructure as a major
constraint to their growth

Substantial decline in investment
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
recent decades
Average annual rates of expansion (%)
Extension of road
network (km)
Paved
Total
Roads
Electricity
Telecom
(Generation
(Number of
capacity,
phone lines) 3
MW)
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 income
Differences 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
-96.2
-1.8
Air passenger / million inhab
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
as a major constraint
Obstacles to Firm Growth
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: ICS, World Bank.
Selected indicators of savings constrained
growth
Indicator
1998
2002
2006
3.2
2.7
0.4
4
1.5
-1.3
28.6
10.1
18.8
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
104.4
91.9
96.6
Net foreign debt / Exports (eop)
Current account deficit (% of GDP)
Net FDI ($ bn)
Net Brazilian direct invest abroad ($ bn)
Terms of trade (1996=100)
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 Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
High Real Lending Rates
50
Ex-Post Real Lending Rates in LAC 2005
30
40
BRA
20
PRY
DOM
10
PER
BOL
HTI
HND
BLZ
COL
CRI
URY
MEX
CHL
PAN
VEN
TTO
0
NIC
GUY
ECU
GTM
JAM
ARG
7.5
8
8.5
GDP per capita (log)
9
9.5
Ja
v-
01
nM 02
ar
M 02
ay
-0
Ju 2
lSe 02
pNo 02
v0
Ja 2
nM 03
ar
M 03
ay
-0
Ju 3
lSe 03
pNo 03
v0
Ja 3
nM 04
ar
M 04
ay
-0
Ju 4
lSe 04
pNo 04
v0
Ja 4
nM 05
ar
M 05
ay
-0
Ju 5
lSe 05
pNo 05
v0
Ja 5
nM 06
ar
M 06
ay
-0
Ju 6
l-0
Se 6
pNo 06
v0
Ja 6
nM 07
ar
M 07
ay
-0
7
No
…declining but still very high
60.00
Real Ex Ante Interest Rates (annual %)
50.00
Average Lending Rate (Individuals & Firms)
Average Lending Rate Firms
TBF (Deposit Rate)
Spread Firms
40.00
30.00
20.00
10.00
0.00
Co-movement in interest rates
and investment
Real Lending Rates and Gross Fixed Investment
37
2003
35
36
2005
2006
34
2001
33
2002
32
2004
.15
.155
.16
.165
Gros s Fixed Capital Inves tm ent / GDP
.17
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
cM 97
ar
-9
Ju 8
nSe 98
pDe 98
cM 98
ar
-9
Ju 9
nSe 99
pDe 99
c9
M 9
ar
-0
Ju 0
nSe 00
pDe 00
cM 00
ar
-0
Ju 1
nSe 01
pDe 01
cM 01
ar
-0
Ju 2
nSe 02
pDe 02
cM 02
ar
-0
Ju 3
nSe 03
pDe 03
c0
M 3
ar
-0
Ju 4
nSe 04
pDe 04
cM 04
ar
-0
Ju 5
nSe 05
pDe 05
cM 05
ar
-0
Ju 6
nSe 06
pDe 06
cM 06
ar
-0
7
De
Basis points
Spreads are significantly lower…
Comparison of Sovereign Spreads
2500
2000
1500
1000
EMBI
Non Latin
Brazil
Mexico
500
0
Source: JP Morgan
… also for the private sector
Comparison of Sovereign Spreads
3000
2500
2000
1500
EMBI Spread
Corporate Spread
1000
500
Source: Own calculations based on Cavallo and
Valenzuela (2007)
-II
20
06
-I
20
06
-IV
20
05
-II
I
20
05
-II
20
05
-I
20
05
-IV
20
04
-II
I
20
04
-II
20
04
-I
20
04
-IV
20
03
-II
I
20
03
-II
20
03
-I
20
03
-IV
20
02
-II
I
20
02
-II
20
02
20
02
-I
0
Brazil is a low-savings country
50
Savings/GDP Average 1995 – 2005 vs. GDP per capita
SGP
40
BWA
IRN
DZA
MYS
KOR
THA
NAM
VEN
RUS
GAB
30
TKM
IDN
PHL
10
20
TTOMUS
UKR
MAR
SVK
JOR
BLR
TUN
PAN
TUR
JAM
PER
DOM
CHL
EST MEX
ECU
KNA
SYR
KAZ
ATG HUN
EGY
TON
HRVPOL
SWZ
LVA
ARG
MKD
ZAF
PRY
ROM
BGR
COL
GRD
BRA
LTU
CRI
SLV
GUY
VCT
CPV
URY
VUT GTM
FJI
SUR
BLZ
LCA
DMA
8
8.5
9
GDP per capita in 1995 (log)
CZE
SAU
SVN
IRL
ESP
FIN
SYC
PRT
GRC
9.5
NZL
ISR
10
Returns on savings are high…
Ex-Post Real Deposit Rates in LAC 2005
5
10
BRA
DOM
BLZ
HND
ECU
PER
COL
CHL
0
BOL
MEX
PAN
URY
-5
NIC
GUY
GTM
PRY
CRI
VEN
TTO
ARG
-10
JAM
HTI
7.5
8
8.5
GDP per cap ita (lo g)
9
9 .5
…but in recent years savings
increased significantly,
28%
26%
24%
22%
20%
18%
16%
14%
12%
Savings Rate
Fixed Investment/GDP current prices
Fixed Investment/GDP constant prices
Investment/GDP current prices
05
03
20
01
20
99
20
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
19
61
19
59
19
57
19
55
19
53
19
51
19
49
19
19
19
47
10%
…driven by an increase in
private savings
19471967
19681978
19791986
19871989
19901994
19952002
20032006
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
-0.4
1.5
3.4
-0.4
-0.4
3.5
-1.0
Foreign savings
…substituting foreign financing
19471967
19681978
19791986
19871989
19901994
19952002
20032006
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
-0.4
1.5
3.4
-0.4
-0.4
3.5
-1.0
Foreign savings
Brazil is currently a net exporter
of savings
10
8
6
4
2
0
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
-2
-4
-6
-8
CAB/GDP
-10
Cycle HP-component
2003
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
High Intermediation spreads
40
Ex-Post Real Intermediation Spread (annual %)
30
BRA
20
PRY
HTI
CRI
GUY
10
BOL
NIC
HND
JAM
GTM
ECU
PER
DOM
COL
BLZ
PAN
VEN
URY
MEX
ARG
0
CHL
TTO
7.5
8
8.5
GDP per capita (log)
9
9.5
… are correlated with funding rate
Monthly Real Ex-Ante Rates November 2001 – May 2007
Real Ex-ante Spread (%)
26
25
24
23
22
2
4
6
8
10
12
14
Real Ex-ante SELIC (%)
16
18
but high funding rate is only a
small fraction of the story
Real_spread = 22.70 + 0.14 Real_SELIC
(0.46) (0.03)
R-squared = 0.14
Micro factors matter
Net Interest Margins are high
despite low concentration
SL E
.15
DOM
UGA
MOZ
BRA
.1
VEN
ZMB
RWA
NGA
GHA
LUX
0
.05
GTM PER
PRY
NIC
GEO ARM
TUR
TZA
MDA
IRN
CRI
HND AZE
MNG
JAMSLV
MEX
MDG KEN
ZAF
ROM
RUS
BOL
SWZ
BL
R
UKR
MLI
L
SO
NER
BFA
COG
ECU
MKD
COL
BWA HUN
KHM
NAM
PHL
SEN
KAZ
ARG
CIV
IDN
BG R
BEN
SDN
CPV
YEM
URY
CHL
TTO
GUY
CMR
HRV
USA
LKA
MAR
UZB
POL
DNK
PRT
ETH
NPL
IND
SWE
EST
KGZPAK VNM
THA
SAU
ESP
JOR PAN
SVK KOR
SVN
MUS
GRC
HKG
DEU
GBR
BGD
KWT
FRA
NOR
LBN
TUN MYSLVA
LTU
ITA
ISR
CAN
CHN
CZE
AUS
AUT
MLT
BHR
MAC
EGY
NZL
JPN
SGP
CHE
FIN
NLD
BEL
SYR
IRL
GMB
6
7
8
9
GDP per cap ita (lo gs)
10
11
.2
Operating costs are also high,
pointing towards low efficiency
.15
PRY
URY
SLE
NER
MLIMOZ
.1
COG
UGA
ZMB
NGA
GMBGHA
RWA CIV
GTM
DOM
LUX
0
.05
BRA
ARG
ECU
VEN
BLR
ARM
SWZ
BEN
BFA
PER
GEO
SEN
COL
TZA
MWI
ZAF
MDA
ROM
MEX
CRI
AZE
TUR
KEN
UZB
JAM
HUN
UKR
BOL
LSO
CHE
NIC
MKD
DEU
RUS
SDN
GBR
KGZ
DNK
MNG
BGR
ITA
KAZ
SLV GAB
PHL
EST
CHL
TTO
CANUSA
BWA
KHM
FRA
HRV
CPV NAM
CMR
MDG
PAN
AUT
LTU
NLD
HND
IDNGUY
SVK
GRC
LKA
POL
LVA
SWE
ESP
AUS
BGD
TUN
YEM
CZE
JOR IRN
SVN
ISR FIN
IND MAR
BEL
PRT
HKG
NPL
PAK
NZL
THA
NOR
VNM EGYLBN
MUS
SAU
MAC
KOR
JPN
MYS
MLT
SGP
CHN
BHR
KWT IRL
ETH
6
7
8
9
GDP per capita (logs)
10
11
Decomposition of Spreads
Total
Deposit Insurance (FGC) cost 0.2
Overhead Adm. Costs
28.3
Reserve requirement cost
8.3
Taxes
12.3
Losses due to default
27.3
Net Interest margin
23.5
Total
100.0
Source: Costa and Nakane (2004)
Private
Banks
0.3
22.5
9.8
12.8
25.4
29.4
100.0
Public
Banks
0.3
38.3
7.2
11.8
30.4
12.0
100.0
Effective Creditor Rights are low
… and so are recovery rates
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
?
Bad intermediation
Is the cost of financing
really that high?
•Directed and subsidized credit
•Other source of financing
O
ct
Fe 96
bJu 97
n9
O 7
ct
Fe 97
bJu 98
n9
O 8
ct
Fe 98
bJu 99
n9
O 9
ct
Fe 99
bJu 00
n0
O 0
ct
Fe 00
bJu 01
n0
O 1
ct
Fe 01
bJu 02
n0
O 2
ct
Fe 02
bJu 03
n0
O 3
ct
-0
Fe 3
bJu 04
n0
O 4
ct
Fe 04
bJu 05
n0
O 5
ct
Fe 05
bJu 06
n0
O 6
ct
Fe 06
b07
%
Earmarked funds are still 30% of
bank credit
100
90
80
70
60
50
40
30
20
10
Source: BCB
0
Non-Earmarked Funds/Total Credit
Lending by Private Institutions/Total Lending
c9
Ap 4
r-9
Au 5
gDe 95
c9
Ap 5
r-9
Au 6
gDe 96
c9
Ap 6
r-9
Au 7
gDe 97
c9
Ap 7
r-9
Au 8
gDe 98
c9
Ap 8
r-9
Au 9
gDe 99
c9
Ap 9
r-0
Au 0
gDe 00
c0
Ap 0
r-0
Au 1
gDe 01
c0
Ap 1
r-0
Au 2
gDe 02
c0
Ap 2
r-0
Au 3
gDe 03
c0
Ap 3
r-0
Au 4
gDe 04
c0
Ap 4
r-0
Au 5
gDe 05
c0
Ap 5
r-0
Au 6
gDe 06
c0
Ap 6
r-0
7
De
… and at subsidized rates
slightly above the TJLP
90
80
70
60
TJLP
SELIC
50
40
30
20
10
0
Non-earmarked funds do not
finance much investment
Avg. Duration
Nominal Spread (%) Share in total credit (%)
(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
quite developed
High Cost of Finance
Access to international finance
Bad domestic finance
Low domestic saving
Bad intermediation
Low Investment
Low Returns to Investment
High Cost of Finance
Low Returns to Investment
Low Social Returns
Bad
Infrastructure
Low Human
Capital
Low Appropriability
Low Returns to Investment
Low Social Returns
Bad
Infrastructure
Low Human
Capital
Low Appropriability
Low Returns to Investment
Low Social Returns
Bad
Infrastructure
Low Human
Capital
Low Appropriability
Low Returns to Investment
Low Social Returns
Low Appropriability
Government
Failures
Market
Failures
Low Appropriability
Government Failures
Market Failures
High Price of Investment
Lack of Innovation
Business Environment
Low self-discovery and
structural transformation
Informality
Taxes
High Price of Investment
Increase in relative price of investment
reduced the “purchasing power” of savings

But national accounts revision showed this
rise was less substantial than earlier estimated

Indicators for Brazil compare well with those
of countries with similar income level

Substantial rise in relative price of
investment
Ratio of fixed investment to GDP deflators (1980 = 100)
IBGE
PWT
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
1947
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
But a similar process took place in
other countries
Ratio of investment to GDP prices
Argentina
Brazil
Chile
China
Korea
Malaysia
Mexico
Peru
Philippines
South Africa
Thailand
Turkey
"World" median1
LAC Avg
Source: PWT
1970-73
1.30
0.75
0.83
1.11
1.14
1.15
1.12
1.10
1.64
1.93
0.88
1.78
1.53
1.65
2000-03
1.26
1.40
1.06
1.49
0.87
1.28
1.12
1.22
1.44
2.08
1.14
1.29
1.74
1.62
And investment prices do not seem
to be out of line
Investment prices
Argentina
Brazil
Chile
China
Korea
Malaysia
Mexico
Peru
Philippines
South Africa
Thailand
Turkey
"World" median1
LAC Avg
Source: PWT
1970-73
102.3
70.4
49.8
84.4
44.7
54.7
63.8
39.0
40.0
94.3
30.7
103.3
67.1
74.1
2000-03
55.6
55.1
40.2
35.3
58.5
44.4
82.1
56.4
34.6
72.1
32.5
63.5
72.1
85.9
Nor the relative price of investment
Ratio of investment to GDP prices in 2000-03
2
S
ln(ratio of deflators)
1.5
1
0.5
Brazil
0
6
6.5
7
7.5
8
8.5
-0.5
ln(income)
Source: PWT
9
9.5
10
10.5
11
Business Environment
Brazil
Starting a Business
Closing a Business
Employing workers
Procedures (number)
Duration (days)
Cost (% of GNI per capita)
LAC
OECD
17
152
9.9
10.2
73.3
48.1
6.2
16.6
5.3
Time to complete procedure (years)
4
2.6
1.4
Cost of bankruptcy proceedings
(% of estate)
12
13.6
7.1
Recovery rate (cents on the dollar)
12.1
25.7
74
Difficulty of hiring a new worker
index
67
34
27
0.69
0.5
0.33
37
59
31
Job security index (Botero et al, 2004)
Firing costs (weeks of wages)
Cost of doing business
Brazil
Quality of Regulation
Brazil
Rule of Law
Brazil
om
ic
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pe
ut
ra
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tin
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pe
rm
its
El
ec
tri
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ty
ss
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la
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or
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an
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rd
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nt
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s
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qu
co
m
al
it y
m
un
ic
at
io
ns
M
ce
rt a
in
ty
in
st
ab
ili
ty
Co
rru
pt
io
n
Ta
An
Ac
x
t iad
ce
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ss
m
m
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to
pe
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fin
tit
ab
iv
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or
e
ce
re
or
gu
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l
fo
at
rm
io
ns
al
pr
ac
tic
es
Cr
im
e,
th
ef
t
Ec
on
Co
s
Entrepreneurs’ perceptions
90
80
70
60
50
40
30
20
10
0
Informality
•Informal firms invest little, have low productivity
•Disrupt 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:
Education
Construction
21
Retail sales and repair
40
Other
39
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
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
Tax Burden
40
35
30
25
20
15
10
5
0
Tax Burden
Tax rates are high…
Percentage of firms indicating tax rates as a major problem
Brazil
….paying taxes is cumbersome
Time (hours) paying taxes
Evidence from sector’s data
Sector performance and tax burden
Evidence from firm’s data
Average growth rate of sales
Low Appropriability
Government Failures
Market Failures
High Price of Investment
Lack of Innovation
Business Environment
Low self-discovery and
structural transformation
Informality
Taxes
Lack of Innovation
Selected Innovation Variables
Brazil
Latin Western
America Europe
0.3
1.9
Total Expenditure for R&D as % of GDP
0.9
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 Innovation
R&D / GDP
Lack of Innovation
R&D / GDP: deviations from the median
Finland
Korea
Brazil
Greece
Mexico
La
ck
in
n
in
ra
tio
n
ar
ke
t
s
na
lr
eg
i
s
er
s
di
t ie
su
m
se
rv
ic
es
co
n
te
ch
.
pe
tm
rm
og
y
no
ol
ne
l
rc
es
rs
on
to
co
o
fr
om
of
za
tio
ns
e
O
rg
an
i
re
sp
o
La
ck
pt
ab
ou
of
fo
.
pe
ia
ls
ou
n
ris
ks
no
va
tio
si
ve
in
te
ch
n
ad
a
ou
t
to
ab
La
ck
of
an
c
al
ifi
ed
f in
qu
ic
ul
ty
at
io
of
La
ck
Di
ff
fo
rm
W
ea
k
of
La
ck
of
Ex
ce
s
co
st
s
of
h
La
ck
Hi
g
Lack of Innovation
Obstacles to innovation (% of firms responding)
90
80
70
60
50
40
30
20
10
0
Lack of Innovation
Structural Transformation
•There have been growth collapses that have lasted long
periods of time
•Many countries have seen negative per capita growth for a
very long time
•Most growth collapses coincide with export collapses
•There is a positive relationship b/w the level of sophistication
of exports and subsequent growth (what you export matters!)
Structural Transformation
EXPY vs GDP per capita
Brazil
Structural Transformation
Export sophistication and subsequent growth
Brazil
What determines the evolution of the
sophistication of exports?
•Every product requires a unique set of capabilities: labor
skills, infrastructure, property rights, physical assets
•Producing new goods require adapting existing capabilities,
which are imperfect substitute for the new capabilities
•So future structural transformation depends on what is
‘close’ to your current production
Brazil 1975
Brazil 1980
Brazil 1985
Brazil 1990
Brazil 1995
Brazil 2000
Ecuador 1995
Structural Transformation
Open Forest, Comparative
2000000
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
Argentina
Brazil
Colombia
Mexico
South Africa
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
Malaysia
Low Appropriability
Government Failures
Market Failures
High Price of Investment
Lack of Innovation
Business Environment
Low self-discovery and
structural transformation
Informality
Taxes