Why did Brazil deindustrialize so much? An empirical investigation by Edmar L. Bacha, Victor S. Terziani, Claudio M. Considera, Eduardo A. Guimarães published by IEPE/Casa das Garças (7/2024).
Brazil’s GDP share of manufacturing fell from 14.5% in 1995.1 to 9.1% in 2022.1, a reduction of 5.4 pp, or 37%. This paper investigates possible causes of such sharp deindustrialization. We consider three hypotheses. The first is that Brazil’s deindustrialization is a case of the Dutch Disease; the second is that the country deindustrialized prematurely; the third is that Brazil’s industry would be a peculiar case of Baumol’s low-productivity-growth disease. We present the evolution of Brazil’s GDP manufacturing share and its possible determinants according to the three hypotheses. The econometric analysis reveals the significance of the Dutch Disease and the premature deindustrialization hypotheses but points to declining productivity as the main factor behind Brazil’s deindustrialization. Our findings suggest switching the focus of the analysis of deindustrialization from sectoral GDP shares to relative sectoral productivities.
