In this paper we ask if the Cass-Koopmans model can account for the behavior of the Brazilian economy from 1970 to 1998. We divide this period in two subperiods. In the first one, the 70s, the GNP per working age person grew at 5.05% a year. In contrast with GNP per working age person, Total Factor Productivity (TFP) grows only until 1974, declining in the rest of the decade. After 1974 the growth rate of GNP per Working age person was sustained through an increasing investment share of GNP due to the increment in the public (government plus state owned enterprize) and in the private investment. To increase private investment with a declining TFP, government subsidies to the private sector goes from 1% of GNP to 4% in the second half of the 70s. In the second subperiod, the 80s and 90s, TFP as well as GNP per working age person decrease until 1993, increasing since. Here we also find in the second half of the 80s that investment share is increasing while TFP is decreasing. In this second case it goes up mainly as a result of the increment of price of capital relative to consumption. Once the investment series is adjust for this government behavior as well as the relative price changes, the neoclassical theory is able to fairly describe the investment behavior, hence the dynamics of the Brazilian economy during the period under study.
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number
c010_009.
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