Manufacturing, Services and the Productivity Gap
20 Pages Posted: 5 Mar 2017
Date Written: February 28, 2017
We examine a little explored and yet important aspect of the poor productivity in Brazil: the performance of the service sector. The characteristics of the services sector in Brazil are well known – the sector is composed mainly of small, underfunded, poorly equipped and poorly managed firms, competition is weak in several segments, and services quality and availability are limited, while prices are generally high. We show evidences that the meagre long-term performance of the services sector is a key factor explaining the poor aggregate productivity and manufacturing competitiveness in Brazil. The reasons for that are twofold. First, Brazil is experiencing a profound structural transformation in favor of the services sector mainly at the expense of the manufacturing sector to the point that the shares of services in output and in employment have become unusually high by emerging market standards. Second, manufacturing firms in Brazil are increasingly outsourcing all types of services to the point where the share of services in total costs have become comparable to that of advanced economies.
Keywords: productivity gap, growth, service sector, manufacturing sector
JEL Classification: E01, L1, L8, L9, O14
Suggested Citation: Suggested Citation