The Political Economy of Productivity

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Inter-American Development Bank


From the 1930s to the mid-1970s, Brazil was one of the fastest growing economies in the world. Since then, average growth rates have been below par and highly volatile as the country successively failed to regain the previous level of performance, leading to the common jest that “Brazil is the country of the future, and always will be.” Even with the taming of inflation since 1994 and clearly more responsible macroeconomic policy since 1999, as well as a recent prolonged period of high prices of its main commodities, productivity and economic growth have remained depressed, with Brazil frequently below the Latin American average. This puzzling inconsistency between Brazil’s potential and actual performance has prompted several analysts to attempt to explain the main constraints that are holding the country back (Adrogué, Cerisola and Gelos, 2006; Bacha and Bonelli, 2005; Blyde, Pinheiro, Daude and Fernandez-Arias, 2008; Hausmann, 2008; Hausmann, Rodrik and Velasco, 2005; Pessoa, 2006; Pinheiro, Gill, Servén and Thomas, 2004). In Section 2, we review this literature and show that a common set of problems emerge as the most constraining, even though each group of authors ranks them somewhat differently. What does not emerge from this literature is an analysis of the political economy determinants of the policy choices that have led to these constraints and impeded the reforms that would tackle or ameliorate them.

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