What’s holding back Brazil?

Otaviano Canuto – Project Syndicate, 2/21/2014

One often hears that Brazil’s economy is stuck in the “middle-income trap.” Since the debt crisis of the 1980’s, Brazil has failed to revive the structural transformation and per capita income growth that had characterized the previous three decades. But, with the right mix of policies, it could finally change its fortunes.

The prevailing explanation for Brazil’s failure to achieve high-income status lumps the country together with other middle-income economies, all of which transferred unskilled workers from labor-intensive occupations to more modern manufacturing or service industries. While these new jobs did not require significant upgrading of skills, they employed higher levels of embedded technology, imported from wealthier countries and adapted to local conditions. Together with urbanization, this boosted total factor productivity (TFP), leading to GDP growth far beyond what could be explained by the expansion of labor, capital, and other physical factors of production, thereby lifting the economy to the middle-income bracket.

Progressing to the next stage of economic development is more difficult, reflected in the fact that only 13 of 101 middle-income economies in 1960 reached high-income status by 2008. According to the dominant view, success hinges on an economy’s ability to continue raising TFP by moving up the manufacturing, service, or agriculture value chain toward higher-value-added activities that require more sophisticated technologies, higher-quality human capital, and intangible assets like design and organizational capabilities.

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Brazil: investing to win

Stephanie Flanders – BBC News, 06/30/2011

It’s not often you get to stand on the very spot where the next World Cup will begin – you can see me doing just that in my latest report from Brazil. Fingers crossed, the first game of the 2014 World Cup will kick off from the mountain of earth that is set to become the Corinthians’ new stadium in Sao Paulo.

It sounds like a story we’ve heard many times before: country wins chance to host World Cup, then world spends years worrying whether said country will be ready in time. If I had to bet, I’d reckon Brazil would pull it off at the last minute, at vast expense, just like any other World Cup host you can remember.

But there is a larger prize to be won for Brazil, because some of the key issues they have to grapple with in hosting a successful World Cup – not to mention the Rio Olympics in 2016 – are the same ones that have been hurting the economy for years.

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