COINCIDENT GROWTH COLLAPSES: BRAZIL AND MEXICO SINCE THE EARLY 1980s

BACHA, EDMAR; BONELLI, REGIS

doi:10.25091/S0101-3300201600020009

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ARTICLES • Novos estud. CEBRAP 35 (2) • July 2016 • https://doi.org/10.25091/S0101-3300201600020009 copy

COINCIDENT GROWTH COLLAPSES: BRAZIL AND MEXICO SINCE THE EARLY 1980s¹ 1 Paper prepared for a seminar in honor of Albert Fishlow, held at Casa das Garças, Rio de Janeiro, on July 3, 2015. The authors are indebted for comments to Santiago Levy, Aldo Musacchio, Guillermo Ortiz, Armando Castelar Pinheiro and participants in seminars at Banco Nacional de Desenvolvimento Econômico e Social (BNDES), Casa das Garças, Instituto Brasileiro de Economia/Fundação Getulio Vargas (IBRE/FGV), Centro de Debate de Políticas Públicas (CDPP), and Centro Brasileiro de Análise e Planejamento (CEBRAP). The authors thank Carolina Melchert Marques and Marina Goulart Lopes for competent research assistantship; Vinicius Botelho, from IBRE, who offered helpful advice on statistical tests; Aurelio Bicalho, from CSHG Gauss Investimentos, and Jesús Garza and João Pedro Resende, from Itaú BBA, who developed useful statistical information; and André Hofman, from United Nations Economic Comission for Latin American and the Caribbean (ECLAC/UN), and Jaime Ros Bosch, from Universidad Nacional Autónoma de México (UNAM), who advised on Mexican data sources and commented on an earlier draft. Errors and omissions are the authors’ sole responsibility.

Dois colapsos de crescimento: Brasil e México desde o início dos anos 1980

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

Brazil’s and Mexico’s economies collapsed almost simultaneously in the early 1980s. Their respective outputs per worker remained in a state of near stagnation since then. We develop a comparative analysis to try to understand what went wrong. Macroeconomic magnitudes (capital accumulation and technical progress) exhibit more similarities than differences. These appear more starkly when productivity changes are analyzed at disaggregated levels: by regions, sectors of activity, tradability, firm size, and labormarket informality. Our empirical findings are consistent with a view that Brazil’s economic failure is associated to excessive protectionism; Mexico’s to heightened domestic polarization.

KEYWORDS:
Brazil; capital accumulation; labor productivity; Mexico

	Brazil	Mexico	Brazil’s average GDP growth	Mexico’s average GDP growth
Post-WWII Golden Age	1950-1980	1950-1981	7.4%	6.8%
Post-1980 Near Stagnation	1981-2014	1982-2014	2.6%	2.2%
Lost Decade	1981-1992	1982-1993	1.4%	1.6%
Reforms with Subpar Growth	1993-2003	1994-2001	2.8%	3.0%
China Syndrome	2004-2010	2002-2010	4.5%	1.9%
Day after the Great Recession	2011-2014	2011-2014	2.1%	2.9%

BRAZIL	Periods	K’	s	v	p	δ*
Post-WWII Golden Age	1950-1980	8.8%	19.4%	0.506	0.784	3.6%
Lost Decade	1981-1992	3.3%	20.9%	0.357	1.009	4.1%
Reforms with Subpar Growth	1993-2003	2.1%	18.3%	0.352	1.013	4.2%
China Syndrome	2004-2010	2.8%	18.5%	0.382	1.024	4.1%
Day after the Great Recession	2011-2014	4.0%	20.3%	0.383	0.973	4.0%
Post-1980 Near Stagnation	1981-2014	2.9%	19.5%	0.364	1.009	4.1%

MEXICO⁸ 8 A direct calculation of p yields results only slightly different from those in Table 3. Thus, for instance, p in 1950‑1981 estimated directly from the PENN World Tables is equal to 0.833 with 1980 = 1.0. It equals 0.943 in 1982‑1993 and 0.910 in 1982‑2014. Therefore, relative changes are similar under both alternatives. The savings rate in current prices (s) for Mexico was estimated by the authors from Hofman’s investment rate in 1980 prices multiplied by the relative price of investment goods in the PENN Tables, with 1980 set equal to 1.0.	Periods	K’	s	v	p*	δ**
Post-WWII Golden Age	1950-1981	8.0%	16.4%	0.656	0.795	5.6%
Lost Decade	1982-1993	3.3%	17.3%	0.470	0.915	5.6%
Reforms with Subpar Growth	1994-2001	3.7%	17.5%	0.443	0.842	5.5%
China Syndrome	2002-2010	3.5%	22.2%	0.410	0.967	6.0%
Day after the Great Recession	2011-2014	2.8%	21.5%	0.391	0.919	6.3%
Post-1980 Near Stagnation	1982-2014	3.4%	18.5%	0.438	0.887	5.8%

Periods	y’	L’	α*k’	TFP’
1951-1980	4.2%	3.1%	2.5%	1.7%
1981-1992	-0.8%	2.2%	0.7%	-1.4%
1993-2003	0.3%	2.5%	-0.2%	0.4%
2004-2010	2.2%	0.5%	0.2%	2.0%
2011-2014	1.1%	1.0%	1.3%	-0.2%
1981-2014	0.4%	2.2%	0.4%	0.0%

Periods	y’	L’	α*k’	TFP’
1951-1981	3.4%	3.2%	2.1%	1.3%
1982-1993	-1.7%	3.4%	0.1%	-1.8%
1994-2001	0.7%	2.3%	0.6%	0.1%
2002-2010	0.3%	1.6%	0.9%	-0.5%
2011-2014	1.0%	1.9%	0.4%	0.6%
1982-2014	-0.2%	2.5%	0.5%	-0.7%

Brazil and Mexico, 1981-2014 (34 observations)
	Dep. Var.	Dep. Var.	Dep.Var.	Dep. Var.
Variable	TFP’ Brazil (1)	TFP’ Brazil (2)	TFP’ Mexico (3)	TFP’ Mexico (4)
Constant	-0,073	0,098	-0,210	-0,449
(t-ratio)	(-0,26)	(-0,42)	(-0,76)	(-2,18)
Terms of trade rate of change	0,080	0,065	0,177	0,092
(t-ratio)	(-1,94)	(-1,93)	(-4,63)	(-2,95)
Utilization gap change (Brazil)	-0,915
(t-ratio)	(-5,66)
Output gap change (Bra) HP filter		-0,876
(t-ratio)		(-7,80)
Unemployment rate change (Mex)			-1,604
(t-ratio)			(-5,50)
Output gap change (Mex) HP filter				-0,712
(t-ratio)				(-8,96)
Adjusted R2	0,671	0,775	0,669	0,818
Standard error of regression	1,60	1,33	1,58	1,18
DW	1,68	1,21	1,90	1,61
F-ratio	34,68	57,68	34,29	75,02

Firm size	Employment share (%)	Productivity growth (%)
Firm size	1999	1999-2008
0 - 10	40	-6.5
11 - 30	11	-2.2
30 - 100	12	0.2
101 - 250	10	2.9
251 - 500	8	2.4
501	+ 20	5.9
Total	100	2.0

Average Productivity Growth Rates (% p.a.)
Firm size Employment share	(average 2007-13)	1996-2007	2007-2013	1996-2013
Less than 10 employees	9.5	--	3.8	--
10 to 29	13.5	--	1.5	--
30 - 99	16.4	-2.3	0.5	-0.7
100 - 249	11.1	-1.3	-0.2	-1.2
250 - 499	8.6	0.0	-3.2	-1.3
500 +	40.8	0.0	-2.8	-0.7
Total	100.0	-0.3	-1.6	-0.7

Variables
Constant	266.80
(t-ratio)	(-15.01)
Log PIB pc PPP	-22.77
(t-ratio)	(-12.04)
Dummy Mexico	10.49
(t-ratio)	(-6.26)
Dummy Campeche	49.97
(t-ratio)	(-6.74)
Adjusted R-squared	0.73
S.E. of regression	6.21
Number of observations	59
F-statistic	53.29

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E-mail: novosestudos@cebrap.org.br

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[1] EDMAR BACHA is an economist and director of the Institute of Economic Policy Studies at the Casa das Garças. He has been a member of the Plano Real economic team, and president of the BNDES bank and of the IBGE institute. He is also a professor at the PUCRio, UFRJ and UNB universities, as well as at the Getúlio Vargas Foundation in Rio de Janeiro (FGVRJ). He has been visiting professor at Columbia, Yale, Berkeley and Stanford universities, and associate researcher at Massachusetts Institute of Technology (MIT) and the University of Harvard. In this article he was responsible for analysing microeconomic and structural topics.