Deconstructing the BRICs: Structural Transformation and Aggregate Productivity Growth
This paper studies structural transformation and its implications for productivity growth in the BRIC countries (Brazil, Russia, India, and China) from the 1980s onwards. Based on a critical assessment of the reliability and consistency of various primary data sources, we bring together a new database that provides trends in value added and employment at a detailed 35-sector level. Structural decomposition analysis suggests that for China, India and Russia reallocation of labor across sectors is contributing to aggregate productivity growth, whereas in Brazil it is not. This confirms and strengthens the findings of McMillan and Rodrik [NBER Working Paper 17143, 2011]. However, this result is overturned when a distinction is made between formal and informal activities within sectors. Increasing formalization of the Brazilian economy since 2000 appears to be growth-enhancing, while in India the increase in informality after the reforms is growth-reducing.