Transformative Capacity and Economic Growth: An Analysis for Brazilian Municipalities

Abstract

Despite the literature on state capacity defending the importance of transformative capacity for economic development, no studies were found in the regional development literature that differentiated it from productive incentive policies and institutions. This article develops specific indicators of institutions and transformative capacity and uses factor analysis to develop two indicators of productive incentive for 4,359 Brazilian municipalities. Correlation tools and spatial regressions differentiates theses capacities and identify whether they result in higher GDP growth rates per capita. The results show that a significant part of the municipalities exhibits low development of these capacities, being observed more frequently in the municipalities of the South, Southeast and Midwest regions of the country. Its presence results in higher rates of economic growth, including for neighboring municipalities, which shows the importance of thearenas of dialogue defined by the State in synergy with the private initiative.