Brazil Economy Case Study 2022

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Brazil
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Productivity is an important parameter as it serves as a signal to technical efficiency that
demonstrates how firms, industries, and different sectors or the state convert measured inputs
into finished products. The most common measures of productivity entail labor productivity and
total factor productivity (Araújo , et al., 2018). On the other hand, with regards discretion, the
monetary institution has the freedom to operate as per its judgment. A good illustration is if
legislation gave directives to the Federal Reserve to act in its best interest to ensure that the
economy is performing at its best and gifted the monetary authority the tools that it has, the
Federal Reserve, in this case, would be said to be exercising discretionary monetary policy. A
rule, on the other hand, is a limitation on the monetary authority’s discretion. Thus, a rule entails
regulating actions of the monetary authority.
The derivation of total factor productivity entails obtaining the residual of out after the
effect of all evaluated inputs gets accounted for, importantly, labor which entails the
augmentation regarding the quality of human capital, and capital. Thus, TFP encompasses the
efficiency where all inputs are integrated into the production process. TFP, as an evolving
concept, can be thought of as an economic parameter that evaluates technical progress. The
growth of TFP can be a result of reallocating resources to firms that are more efficient across
industries or also due to innovations. Innovation in this context can be as a result of developing a
new product and technology and adapting existing technologies and processes. Thus, the primary
determinant of variations in the rates of economic growth is how various countries use
disposable inputs.
Brazil’s total factor productivity has recorded slow pace in growth exhibiting a negative
contribution in the period between 1996-2015 (de Souza & da Cunha, 2018).TFP’s
contribution to economy-related growth moved from negative 29% during 1996-2003 to positive

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39% during 2003-2009, to again negative 57% in 2009-2015 (Araújo , et al., 2018). This
fundamentally portrays that the calculation of TFP as a residual as per the accounting concepts
regarding standard growth. Thus, the latest phase of a growth slowdown and recession seems to
have arisen from the negative contribution of productivity, though this might have been caused
by unobserved elements that are integrated into the TFP residual, for instance, the increment in
spare capacity and inventories. As such, the outcome of the analysis reveals overtime that the
Brazilian economy may not have grown following improvements in productivity.
Figure 1. Downward trend in growth, particularly during 1974-1981
and after 2010
-5
-3
-1
1
3
5
7
9
11
13
15 (real GDP growth and its trend, percentage points)
GDP growth rate Trend, HP filter
Source: WDI
Figure 2. TFP has been volatile, but did not contribute to GDP
growth on average over the entire period.