Institutions and economic growth: An analysis of the brazilian economy

Brazil went through a process of economic change over the twentieth century that altered its primary-export structure, inherited from the Imperial period. From the 1930s, with the import-substitution process, the idea of economic development became associated to industrialization. The “developmentalism”, an ideology that has been considered similar in some aspects to Keynesianism in Western Europe, conditioned the functioning of the economy in general and the economic policy in particular. Not only formal institutions and organizations were created to support industrialization, but also new beliefs and values were shaped in the period. The structure of the country was reformed and a set of regulations was designed to sustain the project of development.

 The objective of this research is to evaluate the role of institutions in Brazilian economic development during the import-substitution period, with focus on the institutional impacts on the total factor productivity (TFP). The field of institutional economics has seen huge attainments lately, but two challenges remain: to find measures to institutions and to discover the mechanisms by which institutions influence economic development. In this paper I build indexes to measure the institutional aspects related to trade, size of the government, taxation and financial policies and use a model to evaluate the influence of these institutional variables on the total factor productivity.

 The results show that the main source of Brazilian economic growth in the period 1930-1980 was the physical capital accumulation, but TFP growth also was relevant to the growth dynamics. The institutions were important to explain the level of productivity in the economy.  The total factor productivity was affected by the size of the government, the trade policy, and the tax policy.