-Heinz-Peter Elstrodt, Jorge A. Fergie, and Martha A. Laboissière
The lackluster performance of Brazil's economy over the past decade, when GDP per capita grew just 1.5 percent a year, has allowed the gap between developed economies such as the United States and Brazil to widen and provided an opportunity for fast-growing competitors such as China and India to gain ground (Exhibit 1). A study finds that the root cause of Brazil's weak growth is a relatively slow increase in labor productivity—the primary determinant of a nation's GDP per capita. Brazil's labor productivity was 23 percent of the US level in 1995 and 
fell to 21 percent in 2004.
To encourage a public debate among Brazil's leaders on how to boost economic development, we mapped the barriers to productivity growth in eight sectors—agriculture, automotive, food retailing, government, residential construction, retail banking, steel, and telecommunications—that together make up 46 percent of the country's economy.1
We found that about a third of Brazil's productivity gap with the United States is caused by two structural barriers. The first is the country's modest per capita income, which makes consumers favor lower-priced products and services. One illustration of the population's lower purchasing power: Brazil's automotive industry primarily produces small, inexpensive cars and relies on imports for higher-value-added vehicles. The second hurdle (labor is relatively cheaper than capital) discourages the use of machinery that would improve productivity. These structural limitations will fade if Brazil can achieve strong, sustained economic growth. But first the government must tackle the nonstructural barriers responsible for the remaining two-thirds of the productivity gap. All of these problems can be resolved through social and economic policies (Exhibit 2).