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BRAZIL’S GROWTH POTENCIAL: SOME NUMERICAL EXERCISES

BRAZIL’S GROWTH POTENCIAL: SOME NUMERICAL EXERCISES. EDMAR BACHA Seminário Para Onde Vai a América Latina? IBRE-FGV 08/10/2012. EXERCISES ARE ON GDP GROWTH SERIES FROM 1948 WITH EMPHASIS ON POST-2004 PERIOD. A SOLOW DECOMPOSITION: y’ = (Y/L)’ = TFP’ + α ( uK /L)’. TWO STYLIZED FACTS.

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BRAZIL’S GROWTH POTENCIAL: SOME NUMERICAL EXERCISES

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  1. BRAZIL’S 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 deepeningallcollapsedafter 1980 • TFP recovered more recently, but capital accumulationremainsunder par

  5. DETERMINANTS OF CAPITAL ACCUMULATIONK’ = s(1/p)uv

  6. STYLIZED FACTS ABOUT K’ • Capital accumulationcollapsedafter 1980 • “Nominal” savings as such does notseem to bethemainproblem. Criticalissue is “real” savings: lossofpurchasingpowerofsavings 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 lowerthanbefore • Modestrecoveryof K’ more recently

  7. RECENT K’ RECOVERY SEEMS TO BE BASED ON EXTERNAL BONANZA

  8. BONANZA FORMULA IN NEXT PAGE EXPLAINED • Domesticspendingequalsdomesticincomeplusforeigntransfers: • PAA = PYY + F • Foreigntransfersequalstheexcessofimports over exports: • F = PMM - PXX • Externalbonanza is measured as theexcessofdomesticspending over income in constant 2005 prices: • A/Y - 1= (P – 1) + Z where: P = PY/PA (‘termsof trade’ effect) Z = F/PA Y (foreigntransfereffect)

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

  10. ...doubtful, unlessBrazil opens up(range ofimportsG&S/GDP, 2007-11, %) • Argentina 16-22 • Brazil 11-13 • Chile 32-40 • Colombia 17-20 • Mexico 29-32 • Peru 20-27 • China 22-30 • India 24-30 • Russia 20-22 • SouthAfrica 28-34 • Average (except BR) 23-28

  11. CONCLUSIONS • Brazil’s GDP growthand capital accumulationcollapsedafter 1980 • Recently, therehasbeen some recoveryof GDP growthand capital accumulation (plus TFP’) • Extraordinaryexternalbonanzamayexplainwhyrecoveryof K’ occurred (TFP’ too?) • Oncethebonanza is over, ceterisparibus, Brazil’sgrowthshouldretreat to under 4% p.y. • Mainproblemseems to bethatBrazil is closed to imports. Whichsuggeststhatincreasedopenness is theway to highergrowth.

  12. REFERENCES • EdmarBacha 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. Bachaand M. de Bolle (eds.), O Futuro da indústria no Brasil: desindustrialização em debate. Civilização Brasileira, 2012.

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