Daniela Costa is an economist with Penn Wharton Budget Model. She has broad research interests. The areas in which she has particular expertise are international trade, the macroeconomic impact of changes in health policy, and the theory of economic development. Daniela earned her M.A. and Ph.D. degrees in economics from the University of Minnesota. For more information and links to her research, visit her personal webpage.
Structural Transformation and Labor Productivity in Brazil
Abstract: This paper examines the labor reallocation across agriculture, manufacturing and services, and their impacts on aggregate labor productivity in Brazil from 1950 to 2010. We use a multisector model that features nonhomothetic preferences with constant elasticity of substitution and wedge distortions. This framework allows us to decompose the drivers of labor reallocation into supply-side, demand-side, and wedge distortions. For the 1950-2010 period, demand-side effects were responsible for most of the reallocation of labor away from agriculture towards manufacturing and services. On the other hand, if we focus only on the 1980-2010 sub-period, supply-side drivers become the biggest determinant for labor reallocation. In addition, we explore two important aspects of the Brazilian economy: the fast growth of manufacturing productivity from 1950 to 1980 and its subsequent sluggishness, and the decline of labor productivity in services after 1980. We find that the fast growth of manufacturing productivity between 1950 and 1980 is responsible for 14.5% of the aggregate productivity level in 1980. We also find that if services labor productivity had stayed constant at its 1980 level, aggregate labor productivity in 2010 would be 28.1% higher than observed.