Economy & Energy
Year X -Nº 56:
June-July 2006

ISSN 1518-2932 

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Impact of Capital Productivity Increment  on Economic Growth

New Version of the Macroeconomic Module of the projetar_e Program:
Calculation Approach and Results for the Reference Scenario

Follow-up of the Partnership Contract between e&e and MCT:

1. Basis for a Capital Productivity Increment Program

2. Consolidation of Carbon Balance  

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Text for Discussion

Evaluation of the Impact of Capital Productivity Increment Ion Economic Growth [1]

Carlos Feu Alvim, Frida Eidelman, Olga Mafra, Omar Campos Ferreira

feu@ecen.com

The capital productivity decrease, mentioned in various articles of the e&e periodical and other publications, is identified as the cause of stagnation in the lost decades and one of the biggest problems of resuming growth. This is not a phenomenon restricted to the Brazilian economy since it has occurred in several developed and developing countries as it has been recently shown in a collection of studies published by the Ministry of Industry and Foreign Trade (MDIC), the Euvaldo Lodi Institute and the National Industry Confederation (CNI).[2]

Data from the study conducted under the Partnership Contract between e&e and the MCT about capital productivity previously mentioned reveal that some countries have increased the total factors productivity  including that of capital. Using the projetar_e program one can evaluate the possible impact of increasing capital productivity on the economic growth of Brazil. It was assumed that instead of following the trend of fixing this value as 0.37 (one thousand reais of capital stock would produce an annual product of R$ 370), this value would be 0,400 (limit of capital stock/product ratio: K/Y=2.5). The capital productivity behavior[3] would be that shown in Figure 1 compared with that of the reference scenario (limit of K/Y ratio 2.7).

With this change we would be constructing a new scenario in which it is assumed an increment in the capital productivity that is considered attainable along one decade, which means an important modification in the results of the projected growth as it will be shown in the comparison among the scenarios.

Increase the capital productivity means to use the productive park more efficiently. This can be made, for example, increasing the work shifts (or decreasing their duration), eliminating production hindering and investing in activities that are less capital-intensive. The idea is to generate more product and jobs using the same capital stock

Figure 1: Comparison between the two hypotheses regarding capital productivity evolution. In the first case it is maintained the long term trend of the capital productivity that would reach 0.37 in 2030; in the second case a capital productivity incentive policy would make possible an increase of 8% relative to the present trend.

The alternative path seems attainable mainly when one considers that the value observed in the last two years was 0.38. This means that the additional increment would be about 5% relative to these years. Furthermore, the capital productivity in Brazil is very low for the development level in which we are. Anyway it would be necessary an effective policy regarding the increase of this productivity.

The difference in the attainable GDP growth rate would be about 1.2% annually and the foreseen average growth would change from 4.5% to 5.7% annually (Figure 2). In the next six years the capital productivity could increase from 3.5% to 5% annually.

In terms of per capita product the difference would be to reach 8600 US$/inhab in 2026 by increasing the capital productivity instead of 6800 of the present trend. Table 1 summarizes the results of the studied alternatives. In order to make the comparisons easy some supplementary gains that can be achieved by increasing the capital productivity were not calculated. In effect the net external liability in 2026 is 44% of the GDP in the first hypothesis; by increasing the capital productivity it is possible within the same considered hypothesis to reach an external liability of 30% of the GDP. If it is considered the same degree of commitment, it is possible to reduce the foreign remittances and increase the economic growth.

Figure 2: Comparison between the GDP growth with and without capital productivity increase

The test regarding the effect of a productivity increase policy on the growth of the country has shown the large potentiality of this type of action. An increase of 8% of the capital productivity can result in a per capita product 26% higher in 2026

Table 1: Summary Values for a Scenario with Capital Productivity Increase

Summary Values

Scenario:

 

Increase of 
the  Capital Productivity

Present

Year:

2006

 

Last

 Year
:

2005

Variable

Unit

2005

2006

2007

2008

2011

2016

2021

2026

 

 

 

 

 

 

 

 

 

 

GDP

US$bi 2004

619

642

678

715

829

1062

1438

1980

Variation

% year

 

3,8%

5,6%

5,4%

5,1%

5,1%

6,2%

6,6%

 

 

 

 

 

 

 

 

 

 

Capital/Product Ratio

 

2,65

2,59

2,53

2,49

2,45

2,49

2,47

2,47

Investments

US$bi 2004

123

135

150

162

198

259

365

511

Variation

% year

 

9,5%

11,0%

8,1%

6,9%

5,5%

7,1%

7,0%

 

 

 

 

 

 

 

 

 

 

 External  Trade[(X+M)/2]

US$bi 2004

74

77

81

84

94

120

167

238

Exports

US$bi 2004

91

91

93

95

102

130

178

252

Variation

% year

 

-0,1%

1,5%

2,7%

2,4%

5,0%

6,4%

7,2%

Imports

US$bi 2004

57

62

69

74

85

109

156

223

Variation

% year

 

10,0%

10,5%

6,9%

5,1%

5,0%

7,5%

7,3%

Commercial Balance

US$bi 2004

35

29

24

21

17

21

22

30

 

 

 

 

 

 

 

 

 

 

Goods and Services Non Factors

 

 

 

 

 

 

 

 

 

Exports B&S NF

US$bi 2004

104

106

108

110

119

152

207

293

Imports B&S NF

US$bi 2004

77

84

91

97

111

142

202

286

Transfers Abroad

US$bi 2004

27

22

16

13

7

9

5

7

 

 

 

 

 

 

 

 

 

 

Apparent Consumption

US$bi 2004

468

486

512

539

624

794

1067

1461

Population

Million inhab

184,2

186,8

189,3

191,9

199,3

210,7

221,1

230,7

 

 

 

 

 

 

 

 

 

 

Per  capita Consumption

US$2004/inhab

2543

2600

2705

2811

3131

3769

4828

6332

Variation  Per  Capita Consumption

% year

 

2,3%

4,0%

3,9%

3,7%

3,8%

5,1%

5,6%

Per Capita GDP

US$2004/inhab

3359

3440

3582

3725

4160

5043

6502

8580

Variation Per  Capita GDP

% year

 

2,4%

4,1%

4,0%

3,7%

3,9%

5,2%

5,7%

 

 

 

 

 

 

 

 

 

 

FBCF

US$bi 2004

123

135

150

162

198

259

365

511

Internal Saving

US$bi 2004

150

157

166

175

205

268

370

519

Transfers Abroad

US$bi 2004

27

22

16

13

7

9

5

7

Commercial Balance

US$bi 2004

35

29

24

21

17

21

22

30

Services Non Factors

US$bi 2004

-8

-7

-8

-8

-9

-12

-16

-22

 


 

[1] The present report is part of the Partnership Contract No 0017/2005 between e&e and MCT regarding the specific item :Evaluation of the perspectives of national and regional growth and the impact of improving capital productivity on that growth using the projetar_e program..

[2] The Future of Industry: Capital Productivity/ Ministry of Development Industry and Foreign Trade, Euvaldo Lodi Institute/ Central Nucleus. Brasília MDIC/STE: IEL/LC, 2005.

[3] Transition time constant, based on the Poisson curve, of 6 years

Graphic Edition/Edição Gráfica:
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Revised/Revisado:
Tuesday, 14 August 2007
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