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    • Table shows the relative evolution of capital and TFP of

    2018-10-23

    Table 5 shows the relative either of capital and TFP of the Brazilian states average in relation to the reference state, in 1970, 1980, 1990 and 2000. With K7, the estimates go to 2010. The difference between Table 5 top and bottom is that in the former the Brazilian states mean relative capital evolution is based on their simple average while, in the latter, their mean relative capital evolution are weighted by each state employed population participation on the Brazilian total employed population. In order to check how much the results depend on K1, the decomposition exercises were performed with the six above mentioned physical capital proxies. It is important to check two findings with these other proxies: (1) if the capital deepening process with respect to São Paulo has occurred, in the period 1970–2000, while relative TFP remained stable; (2) if the capital deepening and convergence processes have been sustained from 2000 to 2010. In Table 5, with the exception of the decomposition results with K2, the capital deepening process and the TFP relatively stability thought time with respect to São Paulo state took place. It is important to observe that K2 does not present the same pattern as K1 even from 1970 to 1980; period in which the latter was constructed with censuses data by Reis et al. (2005), casting doubt in K2 reliability as a physical capital proxy. The decomposition results with K4 are similar to those with K1. The average values of capital-output ratio are similar, and they present an increasing path over the decades. Additionally, TFP is relatively stable over the time. This result is important since these proxies are based on the best information available in the first two years (Reis et al., 2005) and the methodologies suggested by Reis et al. (2005) and by Coelho (2006) were employed to estimate the capital stocks in 1990 and 2000. It is interesting to observe the results with K3, since this is a very used proxy for physical capital in the Brazilian growth literature. Since K1 and K4 are based on censuses data, they are more reliable than the other physical capital proxies. If this is so, despite K3 presents the same capital/output ratio tendency, it underestimates the physical capital stock of the Brazilian states in relation to the reference one. As a consequence, Brazilian states TFP are higher than that of the reference state, but falling over time due to the strong capital-output ratio expansion. Other studies do not corroborate with the Brazilian state average TFP being greater than that of São Paulo state, such as Ferreira (2010) and Tavares et al. (2001). However, the results with the weighted averages – which seem to be more appropriate because it takes into account the weight of each Brazilian state in measuring its mean – reinforce the ones with the other physical capital proxies. The decomposition exercise with K5, also based in Reis et al. (2005) considering only machinery and equipment, shows again that a strong relative capital deepening process has taken place in the Brazilian “Economic Miracle” from 1970 to 1980. On the other hand, TFP gap in relation to the reference state increased in the same period of time. However, this series was interrupted in 1985. The results with K6 show a similar pattern of relative Brazilian states mean capital-output ratio expansion in relation to São Paulo state from 1970 to 2000, but at a slower pace in relation to K1, K3, and K4. Because of this, there is a relative TFP catching up in the same period of time. Nevertheless, from 2000 to 2010 capital-output and TFP ratios remain relatively stable. With K7, the conclusions are practically the same. In other words, the capital deepening has stopped, without any change in the path of total factor productivity.
    Conclusions The income level per worker decomposition was carried out according to two methodologies: based on capital-output decomposition and capital-labor decomposition. The exercises were carried out for 1970, 1980, 1990, and 2000. They were extended to 2010 to infer about the capital-output and TFP patterns in more recent period. Unfortunately, the most reliable physical capital proxy is not available for 2010.