In the last three decades economic growth and development turned into some of the most active areas of research in economics. This has mainly happened in the advanced centers, although there is some relevant academic production in Brazil.

In the past, growth theories had focused almost entirely in investment in physical capital - machinery, equipment and structures – placing it as the engine of long-term development of nations. The type of policy advised that this theory engenders is centered on incentives for capital accumulation via forced savings programs, subsidized lending, tax incentives and barriers to international trade.  However, these policies end up creating a series of distortions that eventually reduce the potential for economic growth of a country.

Modern growth theory takes into account not only factors of production such as physical capital and labor, but brought to the center of discussion important endogenous variables such as human capital, ideas and institutions – that were not taken into account in the past - that are instrumental in determining the levels of efficiency with which these factors interact in production.

In particular, econometric exercises based on modern development theory allow the decomposition of the differences in per capita income between countries, identifying, on the one hand, how much is due to production inefficiency (total factor productivity), and how much is due, on the other hand, to differences of physical  and human capital. These exercises suggest that most of the income difference between Brazil and advance economies is due to differences in total factor productivity and education.  The relative scarcity of physical capital plays a secondary role.

This finding alone suggests a broad research agenda and policy recommendations in areas such as regulation, public policy, international trade, infrastructure, capital markets and education. The implementation of these policies would boost investment, expand total factor productivity, favor the flourishing of innovative ideas and create a business environment favorable to the exploitation of comparative advantages of Brazil in natural resources. Such themes already indicate the direction of the research of the FGV Growth and Development Center. .