Business Cycle Accounting of the Bric Economies

Abstract

We apply the Business Cycle Accounting methodology developed by Chari, Kehoe and McGrattan (2007) to study the economic resurgence of Brazil, Russia, India and China (BRIC) over the last decade. We document that while efficiency wedges do contribute in a large part to growth, especially in Brazil and Russia, there is an increasing importance of investment wedges especially in the late 2000s, noted in China and India. The results are typically related to the stages of development with Brazil and Russia coming off a crisis to grow in the 2000s, while India and China were on a comparatively stable growth path. Relating wedge patterns to institutional and financial reforms, we find that financial market developments and effective governance in BRICs in the last decade are consistent with improvements in investment and efficiency wedges that led to growth.