Sustainable miracles: protection and competition in the Brazilian oil industry

Abstract

It is often suggested that competition improves productivity, however, the underlying support for this idea is surprisingly thin. This paper presents a case study examining the e ects of a change in the competitive environment on productivity at the Petrobras, Brazil's state-owned oil company. Petrobras had a legal monopoly on production, re ning, transportation and importation of oil in Brazil until it was removed in 1995. Even though Petrobras continues to have a de facto monopoly, the end of legal monopoly labor productivity growth rate more than doubled. A growth accounting of the industry shows that between 1977 and 1993 output growth rate (and productivity growth rate) is explained by the accumulation of capital, while Total Factor Productivity (TFP) decreased. Between 1994 and 2000 labor productivity growth rate is completely explained by the growth rate of TFP. The results suggest that the threat of competition alone is su cient to improve productivity. They also provide evidence that restricting competition help cause Brazil's depression of the 1980s.