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Institutions and economic development in Brazil

  • Cavalcanti, Tiago V.
  • Magalhães, André M.
  • Tavares, José A.

This paper investigates the effects of institutional reforms in Brazil. It first provides a comparative assessment of the level of institutional development of Brazil with other Latin American countries such as Chile and Argentina. It considers institutional indicators on "doing private business", including those related to the start up costs, employment rigidity, the expropriation of private investment and bankruptcy law. In general, Brazil presents a lower level of institutional development than Chile and Argentina. As an example, the number of procedures to start a business in Brazil is roughly twice as large as in Chile. We evaluate the importance of institutional differences on economic development using data for a wide cross-section of countries. As in Acemoglu, Johnson, and Robinson [Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369-1398], we use the European mortality rate in the colonial period and the "legal origin" to exploit exogenous variation in the level of institutions. We identify issues where institutional reforms are likely to significantly affect per capita gross domestic product (GDP), the ratio of private credit to GDP and the ratio of investment to GDP. We then construct three indices developed in Tavares [Tavares, J. (2004). Institutions and economic growth in Portugal: a quantitative exploration. Portuguese Economic Journal, 3, 49-79] that measure the potential of institutional reforms by using institutional distance, in our case between Brazil and Chile. The most promising reforms for the Brazilian economy, as far as their effects on output per capita, are, in decreasing order: (i) reducing the number of procedures to open a business; (ii) decreasing the average time involved in insolvency proceedings; (iii) increasing labor market flexibility; and (iv) increase effective creditor's protection.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 48 (2008)
Issue (Month): 2 (May)
Pages: 412-432

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Handle: RePEc:eee:quaeco:v:48:y:2008:i:2:p:412-432
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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  1. Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
  2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  3. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  4. Tiago V. de V. Cavalcanti & Álvaro A. Novo, 2005. "Institutions and economic development: How strong is the relation?," Empirical Economics, Springer, vol. 30(2), pages 263-276, 09.
  5. Kenneth L. Sokoloff & Stanley L. Engerman, 2000. "Institutions, Factor Endowments, and Paths of Development in the New World," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 217-232, Summer.
  6. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  7. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  8. Araújo, Aloísio Pessoa de & Funchal, Bruno, 2005. "Past and Future of the Bankruptcy Law in Brazil and Latin America," Economics Working Papers (Ensaios Economicos da EPGE) 599, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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