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BRAZILS GROWTH POTENCIAL: SOME NUMERICAL EXERCISES EDMAR BACHA Seminário Para Onde Vai a América Latina? IBRE-FGV 08/10/2012.

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Presentation on theme: "BRAZILS GROWTH POTENCIAL: SOME NUMERICAL EXERCISES EDMAR BACHA Seminário Para Onde Vai a América Latina? IBRE-FGV 08/10/2012."— Presentation transcript:

1 BRAZILS GROWTH POTENCIAL: SOME NUMERICAL EXERCISES EDMAR BACHA Seminário Para Onde Vai a América Latina? IBRE-FGV 08/10/2012

2 EXERCISES ARE ON GDP GROWTH SERIES FROM 1948 WITH EMPHASIS ON POST-2004 PERIOD

3 A SOLOW DECOMPOSITION: y = (Y/L) = TFP + α(uK/L)

4 TWO STYLIZED FACTS GDP growth, TFP and capital deepening all collapsed after 1980 TFP recovered more recently, but capital accumulation remains under par

5 DETERMINANTS OF CAPITAL ACCUMULATION K = s(1/p)uv

6 STYLIZED FACTS ABOUT K Capital accumulation collapsed after 1980 Nominal savings as such does not seem to be the main problem. Critical issue is real savings: loss of purchasing power of savings over investment: s/p (68-73) = 19.5x1.25=24.4 s/p (05-11) = 18.3x0.98=17.9 Also, output/capital-in-use ratio (v) is much lower than before Modest recovery of K more recently

7 RECENT K RECOVERY SEEMS TO BE BASED ON EXTERNAL BONANZA

8 BONANZA FORMULA IN NEXT PAGE EXPLAINED Domestic spending equals domestic income plus foreign transfers: P A A = P Y Y + F Foreign transfers equals the excess of imports over exports: F = P M M - P X X External bonanza is measured as the excess of domestic spending over income in constant 2005 prices: A/Y - 1= (P – 1) + Z where: P = P Y /P A (terms of trade effect) Z = F/P A Y (foreign transfer effect)

9 IS THIS SUSTAINABLE?... A/Y -1 = (P-1) + Z

10 ...doubtful, unless Brazil opens up (range of imports G&S/GDP, 2007-11, %) Argentina16-22 Brazil11-13 Chile32-40 Colombia17-20 Mexico29-32 Peru20-27 China22-30 India24-30 Russia20-22 South Africa28-34 Average (except BR)23-28

11 CONCLUSIONS Brazils GDP growth and capital accumulation collapsed after 1980 Recently, there has been some recovery of GDP growth and capital accumulation (plus TFP) Extraordinary external bonanza may explain why recovery of K occurred (TFP too?) Once the bonanza is over, ceteris paribus, Brazils growth should retreat to under 4% p.y. Main problem seems to be that Brazil is closed to imports. Which suggests that increased openness is the way to higher growth.

12 REFERENCES Edmar Bacha and Regis Bonelli Accounting for the rise and fall of post-WW-II Brazil's growth, forthcoming. Edmar Bacha, Bonança externa e desindustrialização: uma análise do período 2005-2011, forthcoming in E. Bacha and M. de Bolle (eds.), O Futuro da indústria no Brasil: desindustrialização em debate. Civilização Brasileira, 2012.


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