Determinants of productivity in the brazilian industry

This research focused on the determinants of productivity in the Brazilian industry, applying a VECM methodology over 157 monthly observations from 2002 to 2025. The study analysed productive variables such as labour, capacity utilization, wages, and industrial revenues. In addition, macroeconomic variables were also investigated, including interest rate, exchange rate, M1, inflation rate, and economic growth. The most remarkable findings show that industrial productivity in Brazil is particularly sensitive to shocks in capacity utilization, employment, and monetary-financial conditions. While improvements in installed capacity utilization foster productivity, increases in interest rates are disruptive, negatively affecting productivity. Sustainable macroeconomic conditions are imperative to maintain healthy industrial productivity. The results indicate that capacity utilization accounts for over 17% of industrial productivity, while employment in the industrial sector explains 13.5%. Among the monetary-financial variables, M1 contributes to almost 10% of productivity. The supply side of the economy is strongly represented by the industrial sector, and its share in the Brazilian GDP should be increased to help keep inflation under control and avoid prolonged periods of high real interest rates by the Central Bank. Under adverse economic conditions, labour, investment, and industrial revenues severely undermine productivity.