At the same time, GDP per capita estimates show that for 2006, Brazil was
considered a middle income country with a GDP per capita of about US$5,700
compared with about US$2,000 for China and US$800 for India considered
lower-income countries. The historical data presented in Figure 4 shows
that, in terms of GDP per capita growth, Brazil, which led the pack in the
1960s and 1970s, fell drastically compared to the sharp acceleration of
India, and most notably China.

 In a recent World Bank report (World Bank, 2007), analyzing the effects of
knowledge and innovation in competitiveness and growth, these two factors,
and not natural resources or cheap labor have been shown to comparatively
contribute most to the success stories of China and India, in relation to
that of Brazil. This is the case of the Indian software industry and of the
Chinese manufacturing sector.1 The period of high growth for China and
India, beginning in the 1980s, was the same in which Brazil faced increased
macroeconomic instability, and only later in the 1990s stabilize its
economy, began a slow process of trade liberalization, some structural
reforms, but continue to lag with respect to education, despite the relative
large size of government spending.

Brazil's Growth Performance: From High Growth to Stagnation and Low Growth

The long-term growth of the Brazilian economy seems to have gone through a
structural change in the 1980s, when GDP growth collapsed compared to the
high growth of the previous decades. The main characteristics of the process
of growth in Brazil did in fact change dramatically from a long-term high
growth period (before 1980) to stagnation in the 1980s, and to low growth
afterwards. Recent literature on this process, including Pinheiro et al.
(2004) and Bacha and Bonelli (2004), coincide in the analysis of a
structural break in 1980, but offer different explanations of the
interruption of long-term growth. While Pinheiro et al. (2004) concentrate
on the set of unique economic policies that reigned in the period 1930-1980
to explain changes in total factor productivity and high growth, as well as
the policies that produced the stagnation of the 1980s and low growth
afterwards, Bacha and Bonelli (2004) analyze the national accounts for the
period 1940-2002 in the context of a growth model of capital accumulation
and suggest that a structural break occurred in the 1980s on the
relationship between the savings rate and the capital stock growth rate as
the relative price of investment rose after 1980.

In this section we will analyze the causes of the so-called "structural
break" by concentrating on the economic policies and structural aspects of
the Brazilian economy and its effects on investment and growth and its
effects on investment and growth and the evolution of total factor
productivity, and the contribution of trade orientation to the export sector
and growth.

The three periods in which we divide the recent Brazilian experience begin
with the so-called "Brazilian Economic Miracle" between 1964 and 1980 that
was marked by high growth rates, on average, but with moderate volatility,
as a result of some external shocks and changes in economic policies. The
second period of crisis and stagnation between 1981 and 1993 begins with a
sharp output contraction and a period marked by large macroeconomic
imbalances and large output volatility. The third period, following the
successful stabilization program under the Real Plan in 1994, until today,
shows very moderate average growth rates but a lot less volatility.
Source: Institute of International Finance