Bowman Speaks at Federal Reserve in Atlanta on Limits to Sustainable Growth in Brazil

Nov 7, 2011 | Atlanta, GA

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During an October 19th roundtable event at the Federal Reserve Bank in Atlanta emphasizing new research on the economic outlook for Latin America, Kirk Bowman forecasted a cautious outlook for sustainable growth in Brazil.

“The past several years have witnessed the highest levels of sustained growth in the history of the Southern Cone, growth led by some good fortune of historically high prices for commodity exports such as soy and iron ore to China, but also led by some excellent policy decisions,” said Bowman, Associate Professor in the Sam Nunn School of International Affairs.  “In the case of Brazil, raising the minimum wage, increasing human capital, incentivizing R&D, and expanding access to capital has lifted tens of millions of people from the lowest two income classes to the middle class. Unfortunately, while laudable, this growth has been achieved by picking the low hanging fruit. “

Bowman shared conclusions from a decade-long research project indicating that long term, sustainable growth in Brazil faces challenges from poor infrastructure, a barely comprehensible tax code, limited high quality tertiary education, and an ineffective bureaucracy in some sectors handicapped by the electoral system.  He utilized international tourism over the period 2000 to 2010 to illustrate the “underappreciated limits to growth in Brazil” and contrasted that with the potential for growth in Argentina. 

Global tourism increased by 37.8 percent from 2000-2010.  Argentine international tourism grew by 82.3 percent over the same period, while tourism in Brazil shrunk by 2.8 percent.  In 2000, 5.31 million tourists visited Brazil and 5.16 million in 2010.  Only 2.9 million tourists visited Argentina in 2000, but in 2010 the country surpassed Brazil with 5.3 million tourists. 

Bowman explained what his research shows has accounted for this differential.

“Cabinet formation is a scandal factory in Brazil with real consequences to the economy, jobs, and growth.  Rio de Janeiro, for example, has six different police forces, all with different patrons and turf wars.  Stadiums, airports, and other infrastructure are antiquated and renovations are behind schedule because of turf wars, bureaucratic rigidity, and weak leadership.  If Brazil were to have experienced the regional average of tourism growth in the past decade, it would create hundreds of thousands of permanent jobs and billions of dollars.   If commodity prices do fall and the economy slows, Brazil might wish that it had not chosen a lost tourism decade.  The mismatch of economic and democratic development on one hand, and institutional and bureaucratic weakness on the other threatens the country’s commitments to the World Cup and the Olympic Games and is a limiting factor for the country.”

Bowman contended that the same characteristics of tourism are found throughout Brazil and result in the performance differences between Argentina and Brazil which he said, “were not the result of chance, but of policy and institutions.  Institutions and capacity vary widely between and within countries.  Brazil has many highly functioning institutions, but the failing institutions are a cause for considerable concern.”

“Understanding or predicting economic growth must go far deeper than macro policies,” he summarized.  “Where you carefully examine bureaucracies responsible for growth, keep your focus on the four Cs: competence, cooperation, creativity, and continuation.  If you find conditions similar to those in Argentina's tourism institutions, you can expect growth that exceeds expected macroeconomic predictions.”

This is an edited version of Dr. Bowman's remarks which were delivered during the October 19th roundtable at the Federal Reserve Bank of Atlanta entitled “Transforming Opportunities into Realities: Achieving Latin America's Growth Potential”.  The roundtable brought together social scientists and policymakers from across the Southeast and Latin America to discuss new research on the economic outlook for Latin America.  The event was sponsored by the Federal Reserve Bank of Atlanta Americas Center and the University of Miami Center for Hemispheric Policy.