Class 5

Question 1

According to prof. Delfim Neto, what is Economic Development?

Answer 1

“Economic Development is just the increase in labor productivity”

Question 2

How to measure productivity of countries? (2)

Answer 2

1. Labor productivity - L.P. is calculated by dividing GDP by the number of hours worked

• Consider only the part of the population that is working or at least has capacity and potential to work → Exclude old and young people, normally above 65 and below 18.

2. Total Factor Productivity – T.F.P. measures the efficiency with which labor, capital and technology are used in production

Question 3

How to make GDP grow?

Answer 3

• Increase labor productivity or increase the participation of active labor
• But the population is aging, so the only thing left to do is increase productivity

Question 4

What happened in Brazil from the 50’s to the 70’s? (6)

Answer 4

• Modernization of agriculture –> workers went to the cities
• Consequence: large investments in infrastructure in the urban areas + growth of productivity = generalized increase in production and wages.
• Similar to what happened in China after the 80’s

Question 5

What are the similarities (2) and differences (2) between the Brazilian and Chinese development models?

Answer 5

• Similarities: Brazil and China invested heavily in infrastructure over 20 years –> created jobs that transformed peasants into industrial workers in the cities
• Differences (2): Brazil went into debt (got foreign loans to invest) and China used its own savings + Brazil invested little in education and did not transform the educational system while China invested much more and revolutionized Education
• Productivity grows as the stock of capital available to each worker increases or at least the level of innovation.

Question 6

What is the consequence of Brazilian’s development models? (6)

Answer 6

Brazil (and Latin America) are stuck in the middle income trap:

• The population of the country is no longer mostly poor, but is still many years behind the standard of the developed world
• More inclined to go through a period of economic stagnation
• We could no longer compete with countries whose wages were even lower –> focus on the export of commodities (competing with poor countries)
• We also could not make the leap to the top –> in industry / manufacturing we can’t offer sophisticated and innovative services because we’re not competitive.