Structural change and economic development: is Brazil catching up or falling behind?

We present a Kaldor–Thirlwall theoretical and empirical framework on the basic driving forces of the behaviour of productivity and economic development in the long run. By calculating the so-called Thirlwall equation, the main contribution of our research is to examine whether Brazil has been catching up or falling behind. We show some empirical evidence based on both descriptive statistics and econometric regressions for Brazil between 1970 and 2010. Some important indicators of descriptive statistics reveal that Brazil has entered into a process of early deindustrialisation. In addition, since our econometric estimates also show that there was a dramatic increase in the income elasticity of demand for imports between 1980–98 and 1999–2010 (from 1.97 to 3.36) and a small decrease in the income elasticity for exports during the same periods (from 1.36 to 1.33), we conclude that Brazil not only has already embarked on a trajectory of falling behind relative to the world economy and the international economic frontier, but also that it might show, in the absence of appropriate policies, lower growth rates in the long run. However, if the opposite occurs, it would face major long-term external constraints to growth.