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Productive efficiency across regions in Brazil: a spatial stochastic frontier analysis

Daniela Schettini, Danilo C. Igliori, Carlos R. Azzoni

[setembro 2008]

Abstract: Concentration of economic activities and uneven income distribution are regarded as important regional problems in most countries. Recent data from Brazil reveal that the Northeast region continues to struggle to catch up with the richer Southeast and South regions. Even inside the Northeast, economic growth is mainly concentrated in its three largest economies (Bahia, Pernambuco and Ceará). In order to foster economic development, regions must be able to adapt to recent changes in technology and competitive scenarios. One could argue that economic performance is connected with unequal spatial concentration: low productivity and low levels of wealth normally characterize locations that cannot attract dynamic industries. This paper aims to empirically investigate the spatial variation of productivity across Brazilian regions applying stochastic frontier analysis to manufacturing data. The study covers 137 regions over the period 1996-2003, involving a total of 102 sectors and almost 226.000 establishments. Also, firms are disaggregated in four categories according to technology intensity. We examine the determinants of inefficiency, with emphasis on their spatial variation. We are particularly interested with firm’s economies of scale and with the existence of externalities that generates economies of agglomeration and locational advantages for different sectors. The empirical results on the efficiency variation and their determinants are informative and relevant to design and evaluate regional development policies.

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