Demographic Transformation and International Competitiveness of the Brazilian Economy

The 2010 Census confirmed that Brazil is experiencing a substantial demographic transformation. In 1990, the fertility rate was 2.8 per woman, but by 2010 it had fallen to 1.9, a rate well below the population replacement. Projections suggest that the Brazilian fertility rate will be among the lowest in the world before the end of this decade. Are there implications of this demographic transformation on the international competitiveness of the Brazilian economy? If yes, what is the transmission mechanism, which sectors are most affected and what can be done to mitigate its effects? This article examines these issues and shows that the demographic transformation is already affecting the international competitiveness of the economy and that these effects will be even stronger over the coming years. The transmission channel is the deceleration of the growth rate of the working-age population, and therefore the labor supply is becoming more inelastic. As a consequence, wages are becoming more sensitive to increases in the demand for labor, raising production costs. We show that, first, the tradable sector is more sensitive to the demographic transformation. Second, the labor-intensive sectors are particularly affected. Third, the commodity sector is indirectly benefited by the demographic transformation. We argue that increasing labor productivity is critical to mitigating the impacts of the demographic transformation on industrial competitiveness, and, for that reason, it should be one of the main objectives of the policies aimed at increasing competitiveness and protecting jobs