Accounting for Brazil's Growth Deceleration. The paper aims at explaining why Brazil's GDP growth plunged after 1980. Brazil's GDP grew at 7% yearly from 1940 to 1980 but at only 2.5% per year since then. Increases in the relative price of investment that reduced the purchasing power of savings, associated to declines in the productivity of capital, seem to have been the most important factors behind the observed loss of dynamism. The tentative conclusion is that inward-oriented economic policies since the 1970s and, perhaps, even as early as the 1950s, had negative long-run growth implications that were aggravated by populist policies in the early years of the post-1984 redemocratization.

This paper addresses aspects of the links between capital inflows through foreign direct investment (FDI) and industrial competitiveness in Brazil. It provides an analysis of the two-way theoretical relationship between FDI and competitiveness, as well as some empirical evidence drawn from the Brazilian experience in the 1990s. Inflows of FDI to Brazil increased significantly during the 1990s. Although manufacturing has been losing out in terms of its share in total FDI, the stock of foreign capital in the manufacturing sector more than doubled (in current US dollars) between 1990 and 1996. In addition, rapid growth of manufacturing productivity has been amply documented, in the same period of time. There seems to exist, therefore, a prima facie case for supposing that foreign investment has contributed to increased productivity and competitiveness in Brazil. When looking at data within the manufacturing sector linking the growth of competitiveness (whether measured by unit labour costs or export performance) to FDI, however, there does not appear to be a clear-cut relationship with either the growth of FDI or the share of foreign capital within different industries. The relationship applies to some industries, but not to others. In other words, if one interpreted the causation as running in the opposite direction, this evidence would suggest that there is no general tendency for FDI to be attracted primarily to industries where competitiveness is improving most rapidly. This has the implication that rapid productivity growth might be the result of factors other than FDI as well—such as trade liberalization, for instance.

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