How Brazil can grow

By Rodrigo Couto, Heinz-Peter Elstrodt, Diana Farrell, Jorge Fergie, William Jones, Martha Laboissiere, Gianni Lanzillotti, Bruno Pietracci, Leonardo Ribeiro

A sector-based analysis maps the barriers to productivity in Brazil and identifies the path to higher growth.

Building on a previous analysis conducted in 1998 and similar MGI studies undertaken in 16 other countries, MGI compared the performance of Brazil’s economy with that of the US in eight sectors—agriculture, automotive, food retailing, government, home construction, retail banking, steel, and telecommunications. Together these sectors account for 37 percent of Brazilian employment and 46 percent of the country’s GDP.

The new analysis makes clear that the chief culprit for Brazil’s underperformance has been its failure to boost growth in labor productivity—the primary determinant of a nation’s GDP per capita.

The research revealed that around one-third of the difference in productivity between Brazil and the US is due to structural factors inherent to Brazil’s stage of economic development, and these will work themselves out. What matters most are the remaining two-thirds of Brazil’s productivity gap. MGI found five primary barriers to raising productivity in Brazil: the large informal sector, macroeconomic factors hampering investment, regulatory constraints, inefficient public services and the country’s infrastructure.

While these barriers look formidable, the good news is that all of them can be tackled with the right policies, the research suggests.

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