Distortions in the investment goods sector and productivity decline

Pedro Ferreira, Samuel de Abreu Pessôa and Fernando A. Veloso

No 755, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We study the impact of distortions in the investment goods sector on aggregate total factor productivity (TFP). We develop a two-sector neo-classical growth model in which TFP in the capital goods sector relative to TFP in the consumption sector is inversely related to the price of investment relative to consumption, so that we use relative prices to measure TFP in the investment goods sector. The model is calibrated to Brazil and we nd that distortions in the investment goods sector may explain most of the decline in Brazilian TFP relative to the United States since the mid-1970s.

Date: 2014-08-14
New Economics Papers: this item is included in nep-dge and nep-eff
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