Abstract
In this paper, we use the Domar aggregation approach to study the evolution of Brazil’s productivity growth from 2000 to 2014, thus allowing us a disaggregated assessment of the issue. We found that the Brazilian economy’s overall performance is the outcome of a decrease in the economy’s density, as defined by the existing backward and forward connections amongst industries in intermediate inputs chains. It also can be explained by the poor performance of its sectors. Despite the relatively high density of the manufacturing sector, it performed a negative role concerning aggregate productivity growth both directly and indirectly. Directly insofar as that sector had negatives productivity growths during the period under consideration, and indirectly due to its high interconnection, which spread negative rather than positive productivity gains across the economy. Therefore, to improve the Brazilian economy’s poor performance, it is mandatory to restore the manufacturing sector’s capability to yield and spread productivity gains.
Highlights
At least since Adam Smith, economists acknowledge productivity growth as the primary source of the wealth of nations
We aim to focus on the productivity gains that spread amongst industries via circulating capital due to increased productivity and lower costs
The manufacturing sectors were the ones with higher average intermediates inputs to gross domestic product (GDP) share—or density as defined in the last section— compared to services and primary industries macrosectors
Summary
At least since Adam Smith, economists acknowledge productivity growth as the primary source of the wealth of nations. Solow’s (1956) growth model highlights that the growth rate of per capita output, capital and consumption is given by the exogenous technological change. Within that framework, the total factor productivity (TFP) is calculated as a residual, somewhat unsettling. Several authors have worked on what became known as growth accounting [see, e.g., Hulten (2010) and Jorgeson et al (1987)]. Notwithstanding the considerable literature that followed Solow’s (1957) first attempt to measure TFP, they underestimate the contribution of intermediate inputs insofar as they are not explicitly considered. We fill this gap, paying particular attention to intermediate inputs’ role in analysing the Brazilian economy’s productivity growth from 2000 to 2014
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