What are the main economic factors that affect the productivity growth rate of Brazilian states?

Responsible researcher:  Viviane Pires Ribeiro

Article title: ECONOMIC GROWTH AND POLICIES OF INCOME DISTRIBUTION AND INVESTMENT IN EDUCATION IN BRAZILIAN STATES: THEORY AND ECONOMETRIC ANALYSIS

Authors of the article: Joilson Dias and Maria Helena Ambrósio Dias

Location of intervention: Brazilian states

Sample size: 130 observations

Major theme: Economic Policy and Governance

Type of Intervention: Income distribution and investment in education

Variable of main interest: Economic Growth

Evaluation method: Experimental Evaluation (RTC)

Assessment Context

Economic policies aimed at improving human capital and income distribution aim at long-term productivity growth and are evaluated at the country level. Dias and Dias (2007) state that the factors that make analysis at the country level difficult are the differences between their physical and organizational, social and cultural structures and, mainly, their economic policies. Such a set of differences implies explanatory results for the effects of inequality on economic growth that are ambiguous or difficult to interpret. In the study carried out by the authors, by focusing on Brazilian States, the effects of differences in results are minimized, allowing quantitative aspects of their specific economic policies on productivity growth to be analyzed.

In this way, Dias and Dias (2007) contribute to the literature by addressing different aspects of investment in education, income distribution and investment in technology, at a theoretical and empirical level, for Brazilian States.

Intervention Details

The econometric assessment of the economic growth of Brazilian states, considering data on the technology import variable, resulted in limiting the panel period between 1992 and 1996, due to data availability. Thus, the panel used by the researchers consists of 26 States (n=26) for a period of 5 years (T=5), totaling 130 observations (N=nT). The data used is sourced from Ipeadata and the National Household Sample Program (PNAD).

The dependent variable used in the model estimation process is the productivity growth rate of workers in Brazilian states (as a control variable). This variable results from dividing the States' Gross Domestic Product by the number of workers. The variable percentage of unemployed (control variable) is inserted to minimize variations in productivity resulting only from the relative influence of economic cycles in each State and to help control differences in the allocation of human capital between States. The other control variable is a composite variable, which represents the level of capital and technology in the State's economy. The other independent variables are: the ratio between the average education level of workers and employers; the level of taxation in the economy that is used as an investment in education; the distribution of income in the economy; the exogenous level of technology in the economy, represented by spending on technology imports in relation to each state's GDP.

Methodology

The model developed by Dias and Dias (2007) follows that of Person and Tabellini (1994) in relation to the incorporation of income distribution as an important element in determining a taxation policy in economies. However, the definition of income distribution was modified and comprises only two classes: employees and employers.

In empirical tests, one of the important variables is the ratio of education levels of employees and employers. In addition to this, a measure of technology and the following income inequality indices are used: i) income share of the poorest 40%; ii) participation in the income of the richest 10%; iii) participation in middle class income; and iv) the Gini coefficient and two other control variables: v) the percentage of self-employed workers; and vi) the unemployment rate. The panel data econometrics employed consists of unit root tests, to verify data stationarity, heterogeneity, autocorrelation, sectional dependence, and estimates of fixed, random and dynamic effects.

Result

The econometric results obtained by Dias and Dias (2007) demonstrate that the productivity growth rate of Brazilian States is positively affected: i) by the increase in the ratio of the educational level of employees vis-à-vis employers; ii) through income redistribution policies that favor the poorest 40% and the middle class; and iii) imported technology. However, investments in education by Brazilian states have negative effects on the growth rate of their productivity, acting as a tax that reallocates inputs from the goods production sector to the education sector in the short term.

Public Policy Lessons

The negative effects of income distribution on the economy's productivity growth rate were confirmed in econometric tests carried out by Dias and Dias (2007), especially when the authors consider the Gini index and the 10% income concentration variable. richer. However, it was found that the income proportion of the poorest 40% and that of the broad middle class indicate the benefits of income redistribution policies in favor of these classes on the productivity growth rate. As for the form of implementation, according to the theoretical model, for a positive association of these classes to occur with productivity growth, it must allow them greater access to education and technology.

The negative effects of short-term investments in education on the productivity growth rate found by the authors may prove the thesis that investment in education causes immediate reallocation of resources from the sector producing goods and services to the capital accumulation sector human, which may be one of the factors inhibiting greater investments in education in Brazilian states. Furthermore, the degree of interaction with foreign technologies is an important factor for economic growth, but at the same time a higher level of capital reduces the long-term growth rate, and may be indicative of convergence between States, when considering the other effects of variables as constants.

Econometric estimates indicate that the educational levels of employees and employers are important factors in the productivity growth rate of states. However, income inequality has the effect of generating higher tax levels; Even if these are fully invested in education, there will be negative implications for economic growth in the short term. Thus, awareness of this fact contributes to making investments in education continuous and lasting to obtain the expected human capital and, in the future, these will generate long-term productivity growth, offsetting this short-term social cost.

References

Dias, J., & Dias, MHA (2007). Economic growth and income distribution and investment in education policies in Brazilian states: theory and econometric analysis. Economic Studies (São Paulo) , 37 (4), 701-743.