Why Brazil Lags Behind in Economic Growth: An Analysis of Economic Complexity and Industrial Policy

Brazil, with its vast natural resources and massive GDP, often lags behind economically when compared to nations such as Japan. This paradox has puzzled many, with the most common explanations often proving inadequate. The most popular answers fail to capture the intricacies of why Brazil has not achieved the same level of economic prosperity as Japan. This article delves into the critical concept of economic complexity and industrial policy to provide a more comprehensive understanding of the issue.

The Paradox of Economic Size and Prosperity

Brazil is a nation rich in natural resources, yet its GDP per capita does not reflect the overall wealth of its citizens. This disparity is further highlighted by the GDP size, where a country like Japan, with an economy 23 times smaller than Brazil's, boasts a higher GDP. These figures raise questions about how a nation can have such economic complexity yet not achieve equitable growth for its population. (Source: The World Bank Data)

Economic Complexity: The Key to Understanding Prosperity

One of the most compelling explanations for Brazil's economic situation comes from the concept of economic complexity. This concept was introduced by Ricardo Hausmann, César Hidalgo, and other prominent economists in their book, The Atlas of Economic Complexity (2011). Economic complexity refers to the interconnectedness and diversification of an economy, which is a crucial determinant of its growth potential.

The Atlas of Economic Complexity measures the diversity and interconnectedness of an economy by analyzing the network of products and industries that it produces. Countries with higher levels of economic complexity tend to have higher GDP per capita, as they are better equipped to handle the complexities that come with industrial diversity and innovation. (Source: Harvard Atlas of Economic Complexity)

Brazil's economic complexity is relatively low, which is why its GDP is not as high as it could be. Instead of a diversified economy, Brazil relies heavily on industries such as petroleum and mining, which are less complex and less diversified than the industries found in more advanced economies like Japan.

Industrial Policy and Economic Growth

To address this gap, Brazil needs a more strategic and industrial policy. The country has had a history of missteps in economic policy, especially during periods of military dictatorship and subsequent administrations. These policies often favored private sector interests over industrial growth, leading to an underdeveloped and inefficient productive sector.

Private initiative in Brazil has been neither sound nor effective. Examples of this include the failure of major retail companies and the bankruptcy of Jorge Paulo Lemann's businesses. These failures highlight the need for a more structured and managed approach to industrial development. (Source: Brazil’s economic history and current data)

Other administrations, such as those of Sarney, Collor, Itamar Franco, Lula, and Dilma, also failed to implement successful industrial policies, further exacerbating the problem. Bolsonaro's administration has been particularly detrimental, as it has continued the trend of underinvestment in industrial growth.

Comparing Brazil to Japan: A Study in Industrialization

To illustrate the difference, let's compare Brazil to Japan. The Japanese economy, despite being much smaller in GDP terms, has achieved a higher level of GDP per capita due to its industrial complexity. Unlike Brazil, Japan has a highly diversified and intricate industrial network, which includes renowned companies such as Toyota, Sony, and Nintendo. These companies not only thrive domestically but also export high-quality products worldwide, driving the country's economic growth.

In contrast, Brazil's major industrial players, such as Petrobras and Vale, are often criticized for their inefficiencies and corruption. The lack of a strong and diversified industrial base has hindered Brazil's ability to achieve higher GDP per capita.

Conclusion

Brazil's economic growth is stifled by a lack of economic complexity and the failure to implement effective industrial policy. While natural resources play a role, the true drivers of economic prosperity are the industries and the interconnectedness within the economy. By focusing on diversification and strategic industrial development, Brazil can achieve higher productivity and economic stability, potentially closing the gap with nations like Japan.

Keywords: Brazil economy, GDP per capita, economic complexity, industrial policy