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Filling the Gap: Infrastructure Investment in Brazil

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Filling the Gap: Infrastructure Investment in Brazil

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Infrastructure bottlenecks have been identified as a key obstacle to growth affecting productivity and market efficiency, and hindering domestic integration and export performance. This paper assesses the state of Brazil’s infrastructure, in light of past investment trends and various quality and quantity indicators. Brazil’s infrastructure stock and its quality rank low in relation to that of comparator countries, chosen amongst main export competitors. We provide evidence that infrastructure affects domestic integration by analyzing price convergence of tradable goods across major cities. The government’s concession program will narrow part of the infrastructure gap, however, governance reforms will be crucial to improving investment efficiency.
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Journal of Infrastructure, Policy and Development (2018) Volume 2 Issue 2.
DOI: 10.24294/jipd.v2i2.828
Original article
Filling the gap: Infrastructure investment in Brazil
Carlos Góes1, Mercedes Garcia-Escribano2 and Izabela Karpowicz3*
1Department of Economics, University of California, San Diego, United States
2Fiscal Affairs Department, International Monetary Fund, Washington DC., United States
3European Department, International Monetary Fund, Washington DC., United States
ABSTRACT
Infrastructure bottlenecks have been identied as a key obstacle to growth affecting productivity and
market efciency, and hindering domestic integration and export performance. This paper assesses
the state of Brazil’s infrastructure, in light of past investment trends and various quality and quantity
indicators. Brazil’s infrastructure stock and its quality rank low in relation to that of comparator
countries, chosen among main export competitors. We provide evidence that infrastructure affects
domestic integration by analyzing price convergence of tradable goods across major cities. The
government’s concession program will narrow part of the infrastructure gap; however, governance
reforms will be crucial to improving investment efciency.
Keywords: infrastructure; public investment; domestic market integration
1. Introduction
Developing an economic strategy to scale up infrastructure investment
requires establishing the link between infrastructure provisions and growth,
determining the infrastructure gap, and identifying nancing and optimal
provisioning. Areas where Brazil’s competitiveness has lagged include,
but are not limited to, education, innovation, governance, and justice. Yet,
inadequate infrastructure is increasingly identied as the key bottleneck
behind low productivity, stagnating export performance, insufcient domestic
market integration, and weak growth potential. Market segmentation caused
by divergence in relative prices can have potentially severe social and
macroeconomic implications. Income inequality may also increase with
market segmentation, as low-income producers in rural areas are adversely
impacted by difculties accessing large consumer markets. Several years
of underinvestment in infrastructure have contributed to reducing potential
growth. It has been estimated that inefciencies due to inadequate infrastructure
subtract 10−15% from the country’s GDP (Credit Suisse, 2013).1
To underscore Brazil’s need for greater investment in infrastructure,
we attempt to throw some light on Brazil’s infrastructure gaps.
Infrastructure investment is often seen as a strategy to promote internal
integration and export competitiveness. Following this logic, we rst
1. According to Credit Suisse (2013), most of the R$1 trillion investment gap is
infrastructure related. Underinvestment is especially notable in greeneld projects
as browneld projects were granted to the private sector through concessions.
Airports, ports, and rail are the most constrained sectors.
ARTICLE INFO
Received: May 11, 2018
Accepted: July 9, 2018
Available online: November 9, 2018
*CORRESPONDING AUTHOR
Izabela Karpowicz, European
Department, International Monetary
Fund, Washington, D.C., United
States. E-mail: ikarpowicz@imf.org
CITATION
Karpowicz I (2018) “Filling the gap:
Infrastructure investment in Brazil.”
Journal of Infrastructure, Policy and
Development, 2(2): 1-18.
doi: 10.24294/jipd.v2i2.828
COPYRIGHT
Copyright © 2018 by authors(s). This
work is licensed under the Creative
Commons Attribution-NonCommercial
4.0 International License (CC BY-NC
4.0). http://creativecommons.org/
licenses/by/4.0/
Filling the gap: Infrastructure investment in Brazil
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look at how infrastructure affects domestic integration by analyzing price convergence across
major cities. Second, using quantity and quality indicators, we look closely at infrastructure gaps
across sectors against Brazil’s current income levels and against infrastructure levels and quality of
Brazil’s competitors in its export markets. We then document historical infrastructure investment
trends in Brazil and describe the authorities’ concessions program in light of the most pressing
infrastructure needs. Finally, we discuss policies that could help close the infrastructure gap.
2. How well integrated is the Brazilian domestic market?
We assess market segmentation in Brazil by analyzing the convergence of prices across major
metropolitan areas. We use the dataset constructed by Góes and Matheson (2015), to look for
evidence of domestic market segmentation by exploring the convergence of prices of tradable goods
between large metropolitan areas and Sao Paulo, which is used as reference city.2 The objective is
to assess whether infrastructure adequacy could help explain the domestic integration through the
study of prices and travel times between cities.
We take monthly price indices for 51 products across 10 metro areas over the past 14 years, and
test for panel unit root using the methodology developed by Im et al. (2003). Intuitively, we are
testing for the law of one price (LOOP): If goods markets are well integrated, the difference between
the log of price levels (pit) for tradable products in different i cities should be stationary, that is, mean
reverting, with relatively fast reversion to the mean after some shock causes a divergence to appear.
For each product m, we run individual Augmented Dickey–Fuller (ADF) regressions of the
differences in the price level *
(, ,) (, ,) ( ,)
()
≡ −
imt imt mt
p pp
for every city i, where
pmt
, is the log
of the price level in São Paulo. We include lags and select lag-lengths Km,i using the Akaike
Information Criterion to assure that residuals ηi,m,t approximate white noise, while allowing Km,i to
be heterogeneous among individuals. For those processes which are not explosive, we calculate the
half-life (hi,m) of the autoregressive parameter from the individual ADF regressions.
(1) pc pp
imti
k
K
imkimt ki imtim
mi
,,
*
,, ,,
*
,,
*
,
,
()=+ +− +
=
−−
1
1
1
φρη
,, ,,,...,
t
T
i=
[]
12 10
(2)
hi
m
im
im
im,
,
,
ln .
()
,,
=
()
<∀
05
1
ln
ρρ
Afterward, we collect individual t-statistics for i cross-sections (ti,T) and from their average
calculate a panel Zt-bar statistic, which should also be asymptotically normally distributed.
,, ,
| 1
imT im
Et
ρ

=

and ,, ,
[ | 1]
imT im
Var t
ρ
=
are obtained by interpolating the values from Im et al.
(2003) tables.
(3) Z
NN tN Et
NV
t bar
i
N
imTi
N
imTi
i
N
=
=
=
=−=
()
∑∑
1
1
1
1
1
1
1
,, ,,|
ρ
aar timTim
im im
[|
,, ,
,
]
,,
,
ρ
=
()
1
2
ρρσρ
Empirical results suggest that most tradables prices converge to the mean. We reject the null of
unit root for about ⅔ of the tradable products, for which the LOOP holds. These are most notably
2. The original works studies convergence to the national mean.
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Karpowicz
food and fuels. The majority of non-tradable products, on the contrary, fail to satisfy the LOOP,
which is consistent with economic intuition. Individual ADF equations show that, while only 5% of
tradable product prices have explosive processes, about 18% of non-tradable prices do.
Although most tradable satisfy the LOOP, we note that, following a shock to the relative price of
a tradable good, prices converge to the São Paulo benchmark only very slowly. The average time it
takes for half of the initial price discrepancy to disappear (the so-called “half-life”) is 14 months, with
the speed of convergence varying across cities signicantly. In Curitiba, for example, the average
half-life of tradables price convergence is 12.8 months, while in Belem it is 18.3 months. Around
90% of price convergence occurs over 3 years (Figure 1). For all products that satisfy the LOOP,
price convergence is considerably slower for non-tradable products (Figure 2). The average half-life
of non-tradable price convergence is 20 months, whereas the half-life of tradable price convergence
is 14 months. Price convergence in Brazil is also slower than in comparator countries. International
evidence using similar empirical approaches, also applied to monthly CPI data, points to signicantly
lower half-lives of price convergence in other countries. The average half-life of convergence for
China between 1993 and 2003 (Li and Huang, 2006) was 2.4 months, and the half-life for Canada
between 1978 and 1994 was 5 months (Fan and Xiangdong, 2006). The results for both countries
suggest that more than 90% of relative price shocks dissipate within 18 months, much faster than in
the case of Brazil (Figure 3).3
Robustness checks have conrmed slow price convergence and evidence of market segmentation
in Brazil. Góes and Matheson (2015) extended this analysis adopting a method proposed by Levin,
Lin and Chu’s (2002) and using the national average, rather than São Paulo, as the reference price
in the cointegration analysis. The results are consistent with ours, with somewhat more non-
3. Using the aforemenoned half-lives (h), we derive the autoregressive term as|ρ|=exp(ln(0.5)/h) and plot
their respecve response funcons.
Figure 1. Brazil: Metro-Area CPI Divergence Half-Lives (in months).
Sources: Authors’ estimates
Filling the gap: Infrastructure investment in Brazil
4
tradables failing to satisfy LOOP, while the estimated average half-life of tradable products price
convergence is slightly higher (16 months).
Next, we examine if poor infrastructure contributes to market segmentation. We nd a
correlation between slower domestic price convergence and longer commuting times between
Figure 2. Domestic Integration: Tradeables and non-tradeables (percent of ADF coefcients that are ≥1).
Sources: Authors’ estimates.
Figure 3. Path of Price Convergence: Response Functions (shock = 100, X-axis in months).
Sources: Authors’’ calculations. Canada and China calculated from half-lives estimated by Li and Huang (2006) and Fan
and Wei (2006).
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Karpowicz
cities. Half-lives of tradables price convergence are found to increase with the travel time between
cities (Figure 4). Market integration could, therefore, benet from an overall improvement in
transport infrastructure, namely roads or railways, that could bring down travel times between
cities. However, even controlling for physical distance, convergence occurs very slowly in Brazil
(see the vertical intercept of the chart below). This suggests that other barriers to Inter State Trade
are also important - for example, the state-level indirect tax (the ICMS), could be one of them.4
3.Infrastructure gap: The choice of comparator countries
One way of looking at infrastructure gaps is to assess the adequacy of Brazil’s physical capital
against that of its exports competitors. Infrastructure gaps are often measured in terms of distance from
a benchmark dened by a country’s level of development, or the level of infrastructure necessary to
reach the next development stage. However, a gap can also be considered to exist when infrastructure
quality (and quantity) falls below that of trading competitors. When gaps exist, countries should be
able to extract more rents from exports and possibly gain market share by decreasing business costs
from inadequate infrastructure.
The optimal infrastructure mix will also depend on the type of products exported. Brazil is a
diversied economy and a closed one, where exports of goods represent only around 11% of GDP.
However, Brazil is a leading exporter of some commodities, and the number-one exporter of soybeans,
cane sugar, meats, and coffee/tea. Over two-thirds of the world’s cane sugar is produced in Brazil. Yet,
other commodity exports, such as iron ore, of which Brazil is the second largest exporter, generate
higher revenues from exports (Figure 5).
4. The analysis of the ICMS is beyond the scope of this paper.
Figure 4. Brazil: Half Lives of Tradables and Driving Time to São Paulo (Y-axis: half-lives in months; X-axis, driving
time to São Paulo in hours).
Sources: Authors’ calculations and Google Maps.
Filling the gap: Infrastructure investment in Brazil
6
Who are Brazil’s main competitors? Brazil’s 10 largest commodity exports by value are used
to determine its competitors. Brazil’s prospective competitors in each of these products are
the 10−15 countries with the largest shares of world exports; Brazil’s main export competitors
are those countries that compete in at least three of Brazil’s top 10 export products. According
to this definition, Brazil’s closest competitor is the U.S., competing in six of Brazil’s export
categories, closely followed by Canada and India, competing in five export categories. Other
competitors include Argentina, Australia, China, Kazakhstan, Mexico, Russia, and South Africa.
3.1. The state of infrastructure
Infrastructure gaps are usually quantied by estimating the existing capital stock and comparing
it to a benchmark, typically based on the country’s development level. This method can take into
account evolving infrastructure needs along different stages of development and can provide an
estimate of underinvestment in a sector. Other quantitative indicators generally measure outputs such
as electricity generation, available km of roads, railroads, or waterways, or airline passenger trafc.
These indicators are valuable, but they may be difcult to compare across countries. In practice,
the information content of quantitative indicators is partial for a variety of reasons. For instance,
the indicator quantifying paved roads fails to take account of the state of road support services (gas
stations and emergency equipment), how well roads connect main business centers, and how many
lanes each road has. Maintenance is also an important unknown. Since obsolete infrastructure cannot
adequately support production, qualitative indicators should be used to complement the analysis,
ideally along with more detailed, and sector-specic surveys. Such an approach may shed light on
infrastructure quality and its suitability to meet the evolving needs of its users.
Brazil scores low on a large variety of qualitative indicators of infrastructure adequacy. Based
on overall infrastructure quality, Brazil ranked 120 out of 144 countries surveyed by the World
Economic Forum, in 2014, with particularly poor results for roads and air transport quality. In other
Figure 5. Brazil: Top 10 Commodity Exports (In share of and rank world exports of each commodity, respectively).
Sources: UN Comtrade and authors’ estimates.
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Karpowicz
areas, Brazil ranked in the bottom third of countries surveyed. Brazil’s rankings have been low over
the past decade and have generally worsened over the past 5 years (Figure A1 in the Appendix).5
Brazil has inferior overall infrastructure quality relative to almost all its export competitors.
(Figure A2 in the Appendix) Brazil’s scores for adequacy of physical capital across all areas
of transport infrastructure - roads, ports, railroads, and air transport infrastructure - are
substantially lower than those of its main export competitors. Only in the area of electricity
and telecommunication does Brazil have a better ranking than some competitors, areas in
which it has invested comparably more in recent years and more efficiently - through greater
participation of the private sector. Still, according to the, 2010, World Bank Enterprise Survey,
46% of firms in Brazil indicated that electricity was a major constraint to activity (against 38%
in LAC) while 28% of firms considered transportation to be a major constraint (against 23%
in LAC).
Quantitative indicators of infrastructure also paint a grim picture. <15% of Brazil’s roads
are paved (including municipal roads), and congestion is a concern; the estimated number of
vehicles per km of road was 25, in 2008, and this number has likely increased in the wake of the
recent boom in auto loans as vehicle sales have more than doubled over the past 10 years.6 As a
share of paved roads, congestion levels are among the highest against comparators. Moreover,
multi-lane roads are still relatively rare in Brazil, although they have doubled over the past half-
decade (Figures 6 and 7).
Infrastructure gaps in transport appear more dramatic when quality and quantity indicators are
coupled with Brazil’s transportation mix. Brazil’s competitors rely more on rail for moving goods,
which is better suited to high-volume, low-value-added commodities (Figure 8). In Brazil, 60% of
agricultural commodities are transported by highways, while most of the iron ore exported travels
by rail (Credit Suisse, 2013). Coupled with the poor state of roads, this transportation mix appears
to be a very important constraint on exports and competitiveness.
Ports and airports are also constrained. Only one of Brazil’s ports - the port of Santos (São
Paulo) - was in the top 100 list of best ports in the world, in 2013, occupying the 41st position, thanks
to a 6.2% rise in throughput in 2012 (Containerization International, 2014). Anecdotal evidence of
bottlenecks in Brazilian ports is easy to nd; for example, Credit Suisse (2013) notes “10-mile line
of trucks waiting at gates to unload the crop and 200 ships waiting to load the cargo.” While part of
the growing infrastructure gap may be due to inadequate maintenance and intensication of use, the
largest share of the gap is most likely due to a prolonged period of underinvestment relative to other
countries.
Energy indicators are more favorable (Figure 9).7 Per capita, electricity generation and
consumption have more than doubled since the 1980s and coverage is near universal. However,
electric power transmission and distribution losses have increased and now exceed 15% of
electricity output. Moreover, the recent draught episode has underscored vulnerabilities from the
high dependence on hydropower for electricity generation.
5. The WEF Survey captures the opinions of 14,000 business leaders around the World on a broad range of topics,
including the quality of infrastructure. As such, qualitative infrastructure indicators are based on the aggregation of
subjective perceptions. (For the methodology see: World Economic Forum - Methodology)
6. It is estimated that some 20 million of new vehicles were sold in Brazil since 2008.
7. Doing Business ranks Brazil in the top 20 based on affordability and the number of procedures and days it takes
to obtain electricity.
Filling the gap: Infrastructure investment in Brazil
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Brazil’s infrastructure quality is also below the expected value for its income level, measured
as per the capita GDP adjusted for purchasing power (Figure A3 in the Appendix). Among Brazil’s
export competitors, the distance from the average was larger only for Argentina. However, the
overall result masks differences across sectors. Brazil’s electricity supply and telecommunication
infrastructure score close to the expected value for its income. In contrast, the quality of roads,
railroads, ports, and airports was signicantly below the predicted value, with the largest gaps in
the road and port infrastructure.
Figure 7. Federal paved roads (In thousands of kilometers).
Source: Departamento Nacional de Infrastructura de Transportes (DNIT) and Fund staff calculations
Figure 6. Paved roads and Vehicle Density (In percent of total roads and vehicles per km of paved road, respectively).
Source: World Development Indicators, The World Bank.
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Karpowicz
Figure 9. Electric power transmission and distribution losses (In percent of output) 1/1/Electric power transmission
and distribution losses include losses in transmission between sources of supply and points of distribution and in the
distribution to consumers, including pilferage.
Source: World Development Indicators, The World Bank.
Figure 8. Share of Goods Transport (in percent).
Source: Credit Suisse with World Bank Data, 2013.
Filling the gap: Infrastructure investment in Brazil
10
3.2. Infrastructure investment trends
The infrastructure gap described above reects a prolonged period of low infrastructure investment.
Infrastructure investment in Brazil has dropped signicantly from an average of 5.2% of GDP in
the early 1980s to an average of 2¼% of GDP over the past two decades and slightly increased to
around 2½% of GDP, in 2013 (Figure 10). While good and standardized infrastructure investment
data, in particular for cross-country comparison is not available, different data sources conrm that
for a couple of decades Brazil’s infrastructure investment has fallen short of the levels observed in
other Latin America and emerging market countries such as Chile, China, and India (Calderón and
Servén, 2010; Frischtak, 2013). There are also important differences in the investment levels by
sector. In particular, the electricity and telecommunications sectors continue to represent the bulk
of infrastructure investment in Brazil, reecting the participation of the private sector under the
concessions scheme. By contrast, Chile has invested more in roads and distribution/supply of water
and sanitation (Figure 11).
The decline in infrastructure investment in Brazil is mostly explained by a reduction in public
infrastructure investment (Figure 12). The 1988 constitution reduced the pool of federal funds
available for capital expenditures as it replaced sector-specic federal taxes earmarked to energy,
transport, and telecommunications with non-specic state-level ones; raised transfers to sub-national
governments; and earmarked revenues to certain current public expenditures. The scal adjustment
effort carried out from 1999 limited the available scal space for public investment, due to the
budgetary rigidities and mandatory current primary spending. Consequently, public expenditures
allocated for infrastructure investment have remained subdued since then, despite initiatives aimed
at prioritizing infrastructure investment such as the Programa de Aceleração do Crescimento (PAC),
which was launched in 2007 by the Federal government with the goal of accelerating economic
Figure 10. Brazil: Infrastructure Investment (In percent of GDP).
Sources: The chart shows data until 2006 from Calderón and Servén, 2010; and for the period 2007-2011 from
Frischtak, 2013. Differences across databases are negligible. 1/ Includes also infrastructure investment in ports and
airports.
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Karpowicz
growth.8 In 2013, about 75% of total investment for the general government was executed at the
subnational level (Figure 13).
8. The PAC—excluding allocations to defense, education and the Minha Casa Minha Vida programs—amounted
0.5% of GDP in 2013, up from 0.3% of GDP in 2007.
Figure 11. LA5: Infrastructure Investment, average 2001-2006 (In percent of GDP).
Sources: Calderón and Servén, 2010.
Figure 12. Brazil: Public and Private Infrastructure Investment (In percent of GDP)
Source: The chart shows data until 2006 from Calderón and Servén, 2010; and for the period
2007-2011 from Frischtak, 2013.
Filling the gap: Infrastructure investment in Brazil
12
Meanwhile, private sector investment has not lled the space vacated by the public sector (Figure 14).
During the 1990s, privatization and concessions opened up key infrastructure sectors such as
telecommunications, energy, and transport to private investment, but private investments have not
been sufcient to compensate for the decline in public investment (Figure 15).9 Private participation in
9. In contrast, in Chile, the private sector more than compensated for the fall in public expenditures since 1989,
with a net positive impact on total investments (World Bank, 2007).
Figure 13. Brazil: Public Investment by Level of Government (In percent of total) 1/2.
Source: Ministry of Finance. 1/Excludes public enterprises. 2/Investment refers to the gross capital formation, and
therefore, covers not only infrastructure investment.
Figure 14. Brazil: Infrastructure Investment by Public Sector (In percent of GDP).
Source: Calderón and Servén, 2010.
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Karpowicz
infrastructure in Brazil has been low in comparison with other Latin American countries, corroborating
that the investment environment, including investment opportunities, and regulatory and institutional
frameworks play a major role in determining overall infrastructure investment levels and therefore
tackling the infrastructure gaps (Figure 16).
Figure 15. Brazil: Infrastructure Investment by Private Sector (In percent of GDP)
Source: Calderón and Servén, 2010.
Figure 16. LA5: Infrastructure Investment by Private Sector, 2001-06 (Average, in percent of GDP)
Source: Calderón and Servén, 2010.
Filling the gap: Infrastructure investment in Brazil
14
4. The role of the concession program
Brazil has been pursuing opportunities for concessions with the aim of lling infrastructure gaps.
The concessions can bring in private sector expertise and efciency and also help bypass some of
the challenges faced by public investment - such as contracting obstacles - and therefore speed
up the process of investment. The rst phase of concessions in Brazil took place during the late
1990s. Through privatization, the private sector became the main operator in telecommunications,
electricity, and railways. During this period, concessions were also granted for about 5,000 km
of federal roads. It is worth noting that private sector investment through concessions in the
telecommunications and electricity sectors helped eliminate the infrastructure gaps and improved
Brazil’s ranking in these areas, as mentioned earlier in the text.
During the period 2011−14, concession projects were auctioned mainly in the areas of transport
and energy, with an associated total investment estimated at R$181 billion, split between airports,
ports, roads, urban transportation, as well as power generation and transmission (Figure 17). The
infrastructure concession program faced a decline in interest in the following 2 years, due to the
uncertainty surrounding the probe into corruption concerning Petrobras, as several of the largest
construction companies have been involved in the investigation and saw their access to funding
diminished. The government has since then made stride in attracting investors by developing a new
debenture model featuring income tax incentives, payment of interest throughout the existence of
the project, and premium quality guarantee on the debt principal. Brazil has lifted the estimated
returns on infrastructure concessions to between 9 and 13% to make projects more appealing to
investors. Domestic-content rules were also relaxed in the oil and gas sector spurring renewed
interest in the energy sector.
5. Conclusion
From the analysis of quantitative and qualitative indicators and our own econometric exercise,
we nd evidence of infrastructural inadequacies in Brazil. The infrastructure gap has grown over
time due to the low public and stagnating private investment across all sectors over the past decade
or so. Such an infrastructure gap has become a major obstacle to growth as it limits domestic
Figure 17. Brazil: Annual investments through concessions (awarded) (in percent of GDP).
Source: Secretaria de Acompanhamento Economico do Ministerio da Fazenda.
15
Karpowicz
integration and hinders external competitiveness. Yet, infrastructure gaps may underestimate true
needs. Past infrastructure demand in Brazil may not be a good predictor of the population (and
businesses) needs because the pervasive bottlenecks in provision may have caused some self-
imposed rationing or discouraged utilization. Moreover, infrastructure investment must have a
forward-looking orientation, because it must support achievement of successive higher levels of
development and not resort to meeting exclusively current needs. Making gains in spatial and
social integration by expanding the transport network and improving access to basic infrastructure
services in an equitable way will remain paramount for Brazil’s development for many years to
come.
The government’s concession program has the potential to step up and speed up infrastructure
investment; but by itself, it may not be enough to boost potential growth signicantly. Other
reforms to eliminate “soft” bottlenecks, including reforms to enhance governance standards, will
have to accompany efforts to ll the infrastructure gap to make the business environment more
attractive to foreign and domestic investments in an environment where regional competition to
attract investments is set to intensify.
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Filling the gap: Infrastructure investment in Brazil
16
APPENDIX
Appendix. Infrastructure Indicators
Figure A1. Brazil: Infrastructure Quality (Rank out of 144).
Sources: World Economic Forum.
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Karpowicz
Figure A2. Infrastructure Quality in Brazil and Export Competitors, 2015.
Sources: World Economic Forum.
Filling the gap: Infrastructure investment in Brazil
18
Figure A3. Infrastructure Quality and Income (Y-axis: quality of infrastructure, 2014, 10 = best; X-axis: GDP per capita,
PPP dollars, 2012.
Sources: World Bank WDI; and WEF; and Fund staff estimates
... Source: [27] The accelerated growth rates for four decades-built over confidences in the public. It led to extreme speculation in stock and real estate markets, pushing the prices to unimaginable levels. ...
... This completely misled the investors. [27]. ...
... However, a World Bank report says that Russia's strong macroeconomic fundamentals, prudent fiscal policy helped limit the crisis. [27] Thanks to large twin surpluses of government budget and current account of international trade, low external debt, and largest natural resource reserves, Russia survived. Russia's reserve funds totaled $225.1 billion in 2008. ...
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Have you ever wondered how some nations are so developed? What did they do to reach there? This book is an easy, story like narration of development paths followed by 11 successful nations of the world. It throws light on the crucial factors that enabled them to reach these heights. The book shows how Japan, South Korea and Singapore picked up the pieces after devastating wars and grew to be formidable economic powers. It talks about the journeys of China and Russia (erstwhile USSR) after selecting a completely different econo-political philosophy of communism. It shows how the Baltic Nations smoothly steered their way into prosperity after the disintegration of USSR. There is a story on Oman, an underdeveloped and politically disturbed nation transforming into a fully developed, peaceful nation in the middle of the war torn Gulf region. Israel, the nation made mainly by refugees, managed to reach levels of living that are envy of most developing nations. Kenya is included as a role model for African nations. Brazil tells the story of South American nations where volatility is the rule. Australia developed fast in spite of being far away and cut-off from the rest of the world. Rarely a book gives insights into development histories of so many nations in one place. This book is relevant for development economists, international managers, avid world trotters and any curious reader wanting to peep into the field of development.
... However, estimates suggest that it was necessary to continuously invest 4% for 25 years to try to get closer of emerging countries (Frischtak & Mourão, 2018 a,b). In 2020, investment was very low, with only 0.5% of GDP (Costa & Carrasco, 2020), and in 2021, federal government investments reached close to 0.1% of GDP (Karpowicz, Góes, & Garcia-Escribano, 2018). Due to COVID-19, a gap in accounts will reach a high level with emergency measures spending around $115 billion between 2020 and 2021 (Russi, 2021); despite reporting more than 21,427,073 cases and 596,749 deaths so far (SEADE, 2021d). ...
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This paper is divided into two parts to explore some aspects of municipal development related to national and subnational investments in disaster risk reduction and urban sustainability related to Covid-19 and climate change response. In Part I, a survey on disasters and national transfers to 45 Brazilian municipalities is presented. In Part II, the local-scale approach enabled to compare the areas most affected by Covid-19 with those impacted by climate change. There are large uncertainties around financial support from the federal government and their impact at local scale. São Paulo city was chosen because it reveals some important aspects of spatial structure carried out through local investments. In this sense, information on floods and warmer surfaces were updated to provoke a discussion about a potential confluence with the effects of pandemic. The results highlighted the effects of scarce federal transfers and the maps help us to identify the spatial distribution of people at risk, which can be beneficial for municipal decisions as they highlight a significative relationship between pandemic effects and an uneven social structure. In conclusion, the trade-off between this unequal structure and a necessary and effectively sustainable change leads us to reflect on local investment trends.
... Brazil has more than 100,000 kilometres of transmission lines (Rego and de Oliveira Ribeiro, 2018). The transmission and distribution losses in Brazil are at about 15% (Karpowicz et al., 2018), with non-technical losses being a significant problem (Oliveira et al., 2016). The main sources of electricity generation in Russia include natural gas, nuclear, coal and hydropower. ...
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This research investigates the effect of sources of production, related trade of goods and investments in forms of mergers and acquisitions on transmission and distribution losses in BRICS countries. The study uses fixed effect regression with Driscoll and Kraay’s standard errors to account for cross-sectional dependence and heterogeneity on panel data from 1995–2014. The result highlights the impact of electric utility and renewable energy mergers, both domestic and cross-border, in decreasing distribution and transmission losses. The results reveal the strategic importance of mergers and acquisitions in knowledge transfer related to energy efficiency. The encouraging results of a decrease in transmission and distribution losses with increasing mergers and acquisitions in electric utility and renewable energy sectors boost the policy of encouraging investments in the energy sector, leading to improvement in energy efficiency and a decrease in CO2 emissions.
... Brazil has more than 100,000 kilometres of transmission lines (Rego and de Oliveira Ribeiro, 2018). The transmission and distribution losses in Brazil are at about 15% (Karpowicz et al., 2018), with non-technical losses being a significant problem (Oliveira et al., 2016). The main sources of electricity generation in Russia include natural gas, nuclear, coal and hydropower. ...
... Nuñez and Önal, 2016) and related investment (e.g. Garcia-Escribano et al., 2015) are not always consistent with the objectives of the government and several bottlenecks have been registered in the transport network, with many critical issues related to port activities and freight distribution (e.g. Barros et al., 2015;Galvão et al., 2017). ...
Article
In this study, we analyse the impact of port infrastructure on trade by estimating a gravity equation for exports (imports) of Brazilian states towards (from) all main Brazil's trading partners. In particular, we consider exports (imports) of the 27 Brazilian states towards (from) 30 of Brazil's most important trading partners over the period 2009-2012. By estimating a set of gravity equations with the Poisson pseudo-maximum likelihood estimator, we find that an increase in port infrastructure (as proxied by the piers extension in each Brazilian state normalized by that state's area) is associated to large increases in Brazilian exports, while the impact on imports is more mixed and generally lower. Our results are robust to controlling for a series of state and country fixed effects.
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The quality of transport infrastructure and the efficiency of logistics services enhance economic development. This study measures the effects of transport-freight common modals and logistics performance on the exports of goods in 29 developing economies based on micro fixed-effects panel data for the period 2012-2018. The endogenous model proved a positive relationship with countries' outward orientation, highlighting the importance of transport infrastructure and logistics resources. The results revealed that the quality of roads and ports contribute significantly to higher exports in developing economies. However, the quality of airport infrastructure and logistics show a harmful effect. Notably, the logistics services level is a detrimental factor impacting the export of goods in developing economies. These results may adversely impact the potential contributions of other transport assets based on intermodal transport functionality and global market participation. Therefore, governments should prioritize formulating innovative policies and integration strategies with the private sector to improve the performance of logistics providers and fully utilize current transportation assets, particularly airports. These plans will facilitate higher exports, yield better development, and improve economic competitiveness while expanding export product diversification opportunities.
Article
Following a benchmarking exercise, we estimate the spending required to reach satisfactory progress in the Sustainable Development Goals in the health, education, and infrastructure sectors in Brazil. We find that there is room for savings in education (up to 1.5 percentage point of GDP) and health (up to 2.5 percentage points of GDP) without compromising the quality of services but additional investments for over 3 percent of GDP per year are needed to close large infrastructure gaps in roads, water, and electricity by 2030. Brazil can do more with less, but increasing efficiency of public spending will require substantial reforms.
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This paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in China-the largest transitional economy in the world. We find that prices did converge to the law of one price in China for an overwhelming majority of goods and services, based on a large panel data set. The finding sheds light on the extent of the market economy in China, and casts doubt on Young's proposition that the economic reform has led to the fragmentation of Chinese domestic markets. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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There is widespread concern across Latin America that the provision of infrastructure services has suffered as a consequence of the retrenchment of the public sector and the insufficient response of the private sector to the opening up of infrastructure industries to private participation in most countries. The authors document the recent trends in infrastructure stocks and infrastructure investment in major Latin American economies. Using an updated dataset constructed for this task, the authors describe the evolution of the quantity and quality of infrastructure assets-power, transport, and telecommunications-as well as the investment expenditures of the public and private sectors. They find that Latin America lags behind the international norm in terms of infrastructure quantity and quality, and there is little evidence that the gap may be closing-except in the telecommunications sector. Furthermore, overall infrastructure investment has fallen, as a combined result of the retrenchment of public investment and the limited response of the private sector, which has been mostly confined to the telecommunications industry. However, there is considerable disparity across countries. On the whole the data show that the countriesmost successful in attracting large volumes of private investment (Bolivia, Chile, and Colombia) are precisely those where public investment has remained high.
Article
Based on panel econometric method, this study qua ntitatively assesses the dynamics of 42 province-level price indices, as wel l as real wage and unemployment rate within Canada. It finds a overwhelming majorit y reject the unit root null hypothesis in favor of mean-reverting process witho ut stochastic trend. The average speed at which CPI subgroups move toward parity is well under half a year varying across spectrum of items. The pace accelerates in r egression using CPI major components and in estimating individual province co efficient, bounding around two months. These imply Canada's economy is highly integrated. There is a noteworthy observation that tradable goods are not easier to r eject nonstationarity than services that challenges findings of some existing literatur es. Our investigation also manifests unemployment rate discrepancies between provinces will persist a longer time than real wage.
Article
This paper proposes unit root tests for dynamic heterogeneous panels based on the mean of individual unit root statistics. In particular it proposes a standardized t-bar test statistic based on the (augmented) Dickey–Fuller statistics averaged across the groups. Under a general setting this statistic is shown to converge in probability to a standard normal variate sequentially with T (the time series dimension) →∞, followed by N (the cross sectional dimension) →∞. A diagonal convergence result with T and N→∞ while N/T→k,k being a finite non-negative constant, is also conjectured. In the special case where errors in individual Dickey–Fuller (DF) regressions are serially uncorrelated a modified version of the standardized t-bar statistic is shown to be distributed as standard normal as N→∞ for a fixed T, so long as T>5 in the case of DF regressions with intercepts and T>6 in the case of DF regressions with intercepts and linear time trends. An exact fixed N and T test is also developed using the simple average of the DF statistics. Monte Carlo results show that if a large enough lag order is selected for the underlying ADF regressions, then the small sample performances of the t-bar test is reasonably satisfactory and generally better than the test proposed by Levin and Lin (Unpublished manuscript, University of California, San Diego, 1993).
Is infrastructure capital productive? A dynamic heterogeneous approach
  • C Calderón
  • Benito E Servén
Calderón C, Moral-Benito E and Servén L (2015). Is infrastructure capital productive? A dynamic heterogeneous approach. Journal of Applied Econometrics,30: 177-198. doi: 10.1002/jae.2373.
The Brazilian Infrastructure: It's Now or Never
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Credit Suisse (2013). The Brazilian Infrastructure: It's Now or Never. Sao Paulo, Brazil: Credit Suisse.
Infraestrutura e desenvolvimento no Brasil. In: Desenvolvimento Econômico: Uma Perspectiva Brasileira, Veloso F editor
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Financing Investment-Led Growth in Brazil
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Roche S and Ter-Martirosyan A (2013). Financing Investment-Led Growth in Brazil. Selected Issues Paper, IMF Country Report No. 13/313. Washington, DC.
Informativo Mensal de Infraestrutura
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Secretaria de Acompanhamento Econômico, Ministry of Finance of Brazil (2015). Informativo Mensal de Infraestrutura.