From a Miracle to a Disaster: the Brazilian Economy in the Last 3 Decades

After showing a persistent and high growth rate since the World War II, in the beginning of the eighties the Brazilian growth rate of per capita GNP fell abruptly. In this paper we ask if this fall can be explained by the behavior of technological progress (measured by Total Factor Productivity or TFP). We study the period between 1970 and 1998. We divide this period in two sub-periods. In the first, the seventies, per capita GNP grew at 5.05% a year. In contrast with per capita GNP, TFP grew only until 1974, declining in the rest of the decade. After 1974, the growth rate of per capita GNP was sustained by an increasing investment as a share of GNP due to the increase in public (government plus state-owned firms) and private investments sustained by government subsidies that went from 1% to 4% of GNP in the second half of the seventies. In the second sub-period, the eighties and nineties, both TFP and per capita GNP decreased until 1993, increasing thereafter. We also find in thesecond half of the eighties that investment share was increasing while TFP was decreasing. In this second case it went up mainly as a result of the higher cost of capital relative to consumption. Our main conclusion is that the behavior of the technological progress can fairly describe the dynamics of the Brazilian economy during the period under study.