Side by side, it is evident that there has been a strong correlation between Brazil’s levels of TFP and their GDP per capita over time. Boom periods and periods where the GDP per capita has declined seem to line up with the TFP levels, which shows that GDP per capita must heavily rely on TFP. We can also see from the previous data that Brazil has experienced a somewhat turbulent growth in GDP per capita as well as capital stock per capita in relation to the USA. Periods of growth seem to have always been followed by periods of economic stagnation or decline, which when given historical context isn’t so surprising. The decreased growth in the 1970’s was likely an effect of the global oil crises at the time, the sudden spike in the early 1990’s was a result of the newly implemented “real plan” which aimed to save Brazil’s stagnating economy.[1]Following the period of growth in the 1990’s Brazil experienced low levels of international investment which Brazil has since been recovering from. The political climate of Brazil has closely followed the growth trends of the country as corruption scandals have been common throughout its history; particularly in the most recent years as there has been almost no growth during the 2010’s.[2]

Final Assessment

The data we have provided together with the results we have calculated suggest that, during the time period we have investigated, Brazil was not originally near its steady state but that it has potentially been progressing towards it. This is in accordance with economic theory as the Sollow Model suggests that Brazil’s strong growth in capital stock per capita may indicate that it is converging towards its steady state.[1]This would usually be seen as a positive sign for investors, however, the rest of the empirical data provides a less optimistic outlook. Although the levels of TFP have shown to have an overall upwards trend over time, this trend has been extremely small and their volatility and reactiveness to the economic and political climate may result in an uncertain future for Brazil.

With all these factors considered, we assume that Brazil will continue to experience growth in the long-run, however as it nears its steady state that growth will progressively slow down. We can also assume that even though the economy will potentially experience growth, there will very likely be periods of serious stagnation or decline as Brazil will react negatively to any strong international trends or local economic or political turbulence.

Short-run analysis

This section will focus on the current situation in Brazil and how the economy is affected. The main focus will be short run-output, inflation and shocks followed by a recommendation based on the report's findings.

Output

In this first section the aim is to provide a general picture of the state of the economy in recent years, to do this the component of potential output is measured. We have chosen to measure potential output by averaging out the actual output of surrounding years. The most recent GDP data is used from 2014, 2015 and 2016.[2]Potential GDP is calculated as follows: