The Tertiary Sector and Regional Inequality in Brazil* Carlos R. Azzoni1, Alexandre S. Andrade2 Department of Economics, University of Sao Paulo, Brazil 1. Introduction The economic evolution of the world determined an increased importance for tertiary activities. This is particularly important in the last decades, in which globalization, economic restructuring and many other processes have accelerated the rhythm of tertiarization of economic activities. For less developed countries, this process is even more intense, given their late entrance into the globalization process, and the lower level of tertiarization they started with. In the case of Brazil, this can be seen in Figure 1, displaying sectoral shares in GDP from 1980 through 20023. Tertiary activities accounted for around 50% of GDP in the 80s; in the first years of this decade this share jumped to 57%. Considering employment, the growing importance of tertiary activities is even more impressive, as Figure 2 indicates. Starting with 51% of total employment in Brazil in 1980, the share for 2001 was an impressive 65%! Similar situations were observed in Spain (Yserte, 2002), Italy (Evangelista and Sirilli, 1998), * Paper presented at the 50th North American Meetings of the Regional Science Association International, Philadelphia, USA, Nov 19-22, 2003. Support from CNPq (Bolsa Produtividade em Pesquisa), Finep/PRONEX (Grant 41.96.0405.00, Nemesis – Núcleo de Estudos Espaciais Sistêmicos) and Fipe is acknowledged. 1 Professor of Economics, [email protected] 2 Graduate student [email protected] 3 Source: IBGE www.ibge.gov.br, Contas Nacionais Germany (Ellger, 1997; Kaiser, 2002), USA (Hammond and Thompson, 2001), and UK (Marshall et al., 1987). It seems, thus, that an important structural modification is taking place at a rapid pace, especially in less developed countries, and certainly in the Brazilian case. Within the tertiary sector, important technological and organizational changes have taken place. Even in traditional activities within the sector, such as restaurants, drugstores, supermarkets, etc., a better-qualified labor force is required. This brings an interesting spatial bias, for poor regions within countries lack this kind of newly demanded factor. This process leads to increasing interregional inequality. On the other hand, these are high income-elasticity sectors, and their growth is expected to happen in rich regions first and in poorer regions latter. This is exemplified in Rubalcaba and Cago (2003), who tested for different explanatory hypothesis for service sectors performance. The authors show that the influence of locational factors varies in great deal across type of sector, region and country, but that factors such as income, density and labor qualification are always important. Interestingly enough, the tertiary sector receives very little attention from regional scientists, as compared to agriculture and manufacturing4. This might be due to its heterogeneity and to the lack of data sources. The spatial bias mentioned above, however, makes this sector an interesting one for study, and probably a necessary one. Silveira-Neto and Azzoni (2002), for the Brazilian case, and Iserte (2002), for the Spanish case, indicate that tertiary activities have important influence towards regional divergence. In this paper we deal with tertiary activities in Brazil in a preliminary fashion. In the first part we present some competitiveness indicators in commerce and services for different Brazilian macro regions, and analyze their evolution over time. We then move to a more detailed sectoral disaggregation and consider the evolution of these activities across Brazilian states over the last two decades. We finish by calculating some convergence regressions, and analyzing the association of convergence to growth, spatial concentration levels and variations in spatial concentration. 4 In the case of Brazil, Kon (1999), and Menezes and Carrera-Fernandes (1998) are the only excepctions. Fi g ur e 1 - S e c t o r a l sh a r e s i n GD P 70 T er t i ar y 60 50 40 M a nuf a c t ur i ng 30 20 A gr i c ul t ur e 10 0 Figure 2 - Proportion of employment in tertiary activities 0.70 0.65 0.60 0.51 2001 1999 1998 1997 1996 1995 1993 1992 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 0.50 2. Regional indicators of competitiveness In this section we present some indicators of regional competitiveness in tertiary activities for the five official macro regions in Brazil, and for the state of São Paulo. As can be seen in Table 1, regional concentration is very high in tertiary activities in Brazil. The state of São Paulo alone hosted 29% of commercial establishments in the year 2000, and accounted for 30% of national employment, 38% of total wage payments and 33% of total net revenue. The remaining of the Southeast region, to which São Paulo state belongs, accounted for 22% of establishments, 23% of employment, and 22% of the wage bill and net revenue. In Services the concentration is even higher for all variables. Table 1 – Regional shares in tertiary activities, 2000 Commerce Establish. Employment Services Wage Bill Revenue Establish. Employment Wage Bill Revenue North 0.01 0.02 0.02 0.03 0.01 0.02 0.02 0.02 Northeast 0.18 0.16 0.12 0.14 0.10 0.13 0.09 0.09 South 0.22 0.21 0.20 0.21 0.24 0.17 0.14 0.14 Center-West 0.07 0.08 0.06 0.08 0.06 0.06 0.05 0.06 Southeast 0.51 0.54 0.60 0.55 0.59 0.61 0.69 0.69 Sao Paulo state 0.29 0.30 0.38 0.33 0.36 0.37 0.45 0.45 Remaining Southeast 0.22 0.23 0.22 0.22 0.23 0.25 0.24 0.24 Brazil 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 The competitiveness indicators will be calculated for two moments in time: late 70’s and late 90’s. In the first case, we will consider census data for 1975 and 1980 (Commerce and Services censuses, Ibge); for the latter case, we will use information from surveys covering the years 1998-2000 (Pesquisa Annual do Comércio and Pesquisa Annual de Serviços, Ibge). These two moments were chosen mainly by data availability, but they are very interesting for the analysis, for they cover a period starting before globalization and all structural modifications that took place in the world’s economy recently. For the sake of simplicity, we just call them “Late 70s” and “Late 90s”. Three very simple indicators of competitiveness are calculated: a) revenue/wage bill; b) revenue/employment, and c) revenue/establishment. Each one of these indicators is limited, and all three should be used jointly in the analysis. The ratio revenue/wage bill indicates profitability; the other two are straightforward. The idea is to compare these indicators across space. In each and every case, the national average will be set equal to one and deviations from this average will be considered. Global results are presented in Table 2, involving wholesale, retail and services. Table 3 presents the same indicators for sub-sectors within services. The focus of analysis will be the Southeast region and, within it, São Paulo state. For wholesale commerce, it can be seen that these areas present lower-than-average, and declining, revenue/wage ratios. Although they present above-average indicators of revenue/worker and revenue/establishment, the more recent indicators clearly declined over time. The same holds for retail commerce, only that the revenue/wage ratio for the Southeast region increases marginally, although still below average in late 90s. Thus, it is clear that the most important centers of Brazilian economy are either below average in terms of competitiveness or loosing competitiveness over time as the commerce sector is concerned. Table 2 - Competitiveness indicators Commerce Wholesale Late 70s Late 90s Commerce Retail Late 70s Late 90s Services Late 70s Late 90s Revenue/Wage Bill North Northeast Southeast South Center-West São Pauo State 1.03 1.13 0.99 1.01 0.85 0.95 1.36 1.27 0.89 1.09 1.37 0.83 1.20 1.39 0.92 0.99 1.15 0.94 1.27 1.16 0.93 1.05 1.19 0.88 1.04 1.19 0.97 0.92 1.24 0.86 1.09 0.94 1.01 0.98 0.98 1.02 Revenue/Worker North Northeast Southeast South Center-West São Pauo State 0.70 0.65 1.16 0.89 0.74 1.16 1.30 0.89 1.03 0.94 1.09 1.06 0.67 0.57 1.21 1.13 0.99 1.36 1.31 0.88 1.03 0.99 1.01 1.14 0.75 0.57 1.18 0.73 1.10 1.15 0.96 0.68 1.13 0.83 0.83 1.27 Revenue/Establishment North Northeast Southeast South Center-West São Pauo State 0.55 0.36 1.44 0.96 0.75 1.44 1.56 0.96 1.07 0.80 1.31 1.12 0.53 0.38 1.56 1.35 1.00 1.84 2.24 0.78 1.06 0.93 1.18 1.10 0.75 0.39 1.37 0.71 1.12 1.38 1.80 0.92 1.17 0.59 0.93 1.27 1.00 1.00 1.00 1.00 1.00 1.00 Brazil The same does not hold for services in general. As for the ratio revenue/wage, these regions were below average in late 70s and moved above average in late 90s, as the other regions moved contrariwise, with the exception of the North. A free import zone was established in this region in the early 70s, leading to a boom in commerce sector activities. As for the other indicators, São Paulo state and the Southeast region present above average figures, with declining values for revenue/establishment and for revenue/worker in the case of the Northeast region. São Paulo state presented growth in this latter indicator. As a preliminary conclusion, it is clear that a different situation holds for services, as compared with commerce. Table 3 explores sub-sectors within this general sector. In general, hotels and restaurants and real state present a similar behavior as commerce, except for revenue/establishment, for which the rich areas are increasing competitiveness. For transportation, São Paulo state presented improvements in revenue/worker and for revenue/establishment, as did the Southeast region in this latter case. The really interesting modifications occurred in services to firms and miscellaneous, in which the rich areas move from below to above average in revenue/wages, and increased their advantage in the other two indicators, with one exception for the Southeast region. These could be considered more sophisticated sectors, for services to firms are related to outsourcing, consulting, etc., and miscellaneous tends to include new activities not included in the previous classifications. Finally, computing activities were only present in the surveys after the 1980 census, and only data for the late 90s are available. The results indicate high competitiveness in all indicators for the rich areas, especially so for the state of São Paulo. In the case of the center-west region, results are biased by the presence of the federal government in Brasília, concentrating all data processing for federal activities in Brazil. It seems clear, thus, that in the most sophisticated sub-sectors within services the rich regions are not only above average, but are increasing competitiveness over time. Table 3 - Competitiveness indicators for services sub-sectors Hotels and restaurants Late 70s Late 90s Real state Late 70s Late 90s Transportation Late 70s Late 90s Services to firms Late 70s Late 90s Miscellaneous Computing Late 70s Late 90s Late 90s Revenue/Wage Bill North Northeast Southeast South Center-West São Pauo State 1.16 1.49 0.93 0.97 1.16 0.92 0.91 0.99 1.02 0.92 1.04 0.94 0.85 1.01 1.01 1.11 0.83 0.99 1.06 0.96 1.02 0.98 1.07 0.84 0.80 0.93 0.99 0.82 1.34 0.83 1.34 0.98 0.98 1.02 1.19 0.96 1.11 1.64 0.84 1.54 1.34 0.93 0.94 0.95 1.03 0.96 0.83 1.08 2.26 1.48 0.94 0.89 1.27 0.84 0.78 0.84 1.09 0.84 0.85 1.21 0.65 0.70 1.04 0.97 1.06 1.18 Revenue/Worker North Northeast Southeast South Center-West São Pauo State 0.93 0.61 1.21 0.86 0.84 1.31 0.88 0.83 1.11 0.82 0.96 1.15 0.31 0.86 1.08 0.89 0.87 1.10 0.82 0.70 1.09 0.94 0.89 0.95 0.75 0.69 1.11 0.59 1.26 0.97 1.18 0.75 1.08 0.90 0.90 1.18 1.07 0.67 1.07 1.11 1.02 1.18 0.72 0.63 1.14 0.86 0.73 1.31 0.97 0.63 1.18 0.96 0.87 1.21 0.73 0.63 1.25 0.66 0.68 1.65 0.71 0.44 1.20 0.69 1.04 1.51 Revenue/Establishment North Northeast Southeast South Center-West São Pauo State 1.16 1.49 0.93 0.97 1.16 0.92 1.76 1.20 1.06 0.68 1.21 1.02 1.06 1.32 1.00 0.85 1.17 0.94 1.07 0.76 1.15 0.75 0.91 1.05 1.05 0.57 1.26 0.42 1.40 1.12 2.24 1.09 1.29 0.50 0.80 1.27 1.11 0.55 1.20 0.97 0.97 1.24 1.38 0.88 1.16 0.60 0.73 1.29 1.01 0.51 1.27 1.02 0.85 1.33 0.87 0.80 1.32 0.50 0.76 1.78 3.86 0.75 1.05 0.56 11.39 1.14 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Brazil 3. Spatial concentration: a finer analysis Given the above results, it seems important to explore the available information in greater detail. This will be based on the figures from a yearly survey of households PNAD developed by IBGE, the Brazilian official statistics agency. Data for each state are available for the period 1981-2001, allowing for a disaggregation of tertiary activities into 24 sub-sectors. Figure 3 presents employment growth, the average of the last 3 years in relation to the average of the first 3 years of the series. On average, employment grew 1.85 times in the period, almost doubling. Hotels and restaurants, social clubs, associations and churches, and commerce modern are the sub-sectors with the largest growth. Based on Devereux et. al. (1999), the spatial concentration index (SCI) was calculated for each year SCI = K 1 s j − K j =1 ∑ 2 in which sj is the share of a state in the employment of sector j, and K is the number of states (26). In case employment is evenly spread across states, sj = 1/K and SCI = 0. The larger the value of ICI, the greater spatial concentration. Figure 4 displays the results for two periods, the average of 1981/85 and the average of 1996/2001. In general, sectors highly concentrated presented lower growth rates, but there are some exceptions, such as publicity, marketing and decoration. Over time, only six sectors increased spatial concentration as measured by employment: miscellaneous; security; communication; commercial representation, storage and agriculture; household services; and travel agencies. The sectors for which increased concentration was the highest were household services and commercial representation, storage and agriculture. Figure 3 - Employment growth by sub-sector (Avg 99-2001/Avg 81-83) Miscellaneous Comm Repres. Storage, Agriculture Security Communication Travel agencies Public services Legal Public education Finance old Sports, Leisure, Artistic Commerce old Fitness centers, Apparel repair Finance modern Household services Real state Transportation Health Private education Repair shops Publ. Marketing, Decoration Accounting, Architecture, Engineering Commerce modern Clubs, Associations, Churches Hotels and restaurants 1 2 3 4 Figure 4 - Evolution of sectoral spatial concentration 0.25 0.20 1981/1985 1996/2001 0.15 0.10 0.05 - Pu ic bl g s n s s d n n s n y d n re te th es es es tic es irs ps in io nt ol ol ol io ol er er rit ta tu al ou tio ic ic ci ch at tis er pa e ra at ho ho ho ul od od cu rv rv ls ce ne He en rt a ur ic re or Ar ne nc au ic rs m m sc sc la er se se ea Se ag gi el po cc st un ai e e e, Ch gr e na el R m r d l r i t s e n e c c , p ic l c A a m r l e a F E m n D o , p er b is su an m ns d iv Re av c. g, na m M eh ei ge Co Tr io Ap Pu Pr an Tr Co Fi m ra ite at tin ,L us s s, ci to ts ch el Co ke Ho es or so ot ,S ar Ar tn s p p i , H M t S e A F , R un b. s, m co ub Pu m Cl Ac Co l ga Le 4. Convergence The previous indicators reported information on concentration and absolute values. It is interesting now to explore income obtained in those sectors and how it is evolving over time. For that we use convergence regressions, in which income per worker growth over a period is correlated to the initial level of income per worker. In case the coefficient on initial income is significant, we find signs of absolute convergence, that is, all states are converging to the same income level. For income we use hourly wage from PNAD. Table 4 presents the results. Convergence is observed for 11 sectors only; four sectors presented divergence, as can be seen in the summary below. Therefore, the results indicate that spatial processes shaping tertiary sector spatial concentration are diverse and heterogeneous. Some sub-sectors present convergence but the majority does not. It is interesting thus to explore what happens with spatial concentration and employment growth in relation to convergence. Convergence results for sectors: Convergence Finance old; Finance modern; Fitness centers, apparel repairs; Household services; Sports, leisure, artistic Legal; Accounting, architecture, engineering; Travel agencies; Public schools; Private schools; Communication* Non significant Hotels and restaurants; Security; Real state selling and administration; Transportation; Publicity, marketing, decoration; Commercial representation, storage, services to agriculture; Social clubs, associations, churches; Health; Miscellaneous Divergence Repair shops; Commerce modern; Public services**; Commerce old * 10% significance ** 5% significance Figure 5 displays the coefficient on initial income in the horizontal axis, and employment growth in the vertical axis. A positive relationship is apparent: sectors for which convergence is observed experienced lower employment growth rates; sectors with high employment growth rates did not present convergence. It seems, thus, that labor income convergence is taking place in less dynamic sectors. The next step is to investigate whether employment growth is associated to spatial concentration. Figure 6 portrays employment growth in the horizontal axis, and spatial concentration at the end of the period in the vertical axis. It does not seem to be any relationship between the two variables. That is, employment growth and end-of-period concentration do not seem to be associated. Figure 5 - Convergence versus absolute growth across sectors 5 Employment growth 4 Convergence 3 2 1 0 -0.05 0 Coefficient on initial income 0.05 Figure 6 - Spatial concentration and absolute growth 0.20 Spatial concentration 1996/2001 0.15 0.10 0.05 0 1 2 3 4 5 Employment growth The last steps involve the association of convergence and spatial concentration. Figure 7 portrays the coefficient on initial income in the horizontal axis, and end-of-period spatial concentration in the vertical axis. The results indicate a negative relationship between the two variables, with sectors spatially concentrated presenting income convergence, which is not observed for sectors less concentrated spatially. This leads to the question of whether or not there is an association between convergence and changes in spatial concentration. Figure 7 - Convergence and spatial concentration Spatial concentratiion 0.20 0.10 -0.05 0 0.05 Initial income coefficient Figure 8 displays convergence in the horizontal axis and the change spatial in concentration in the vertical axis. It can be observed that, in general, convergence is observed in sectors for which spatial concentration increased in the period. Figure 8 - Convergence and concentration change 2 Concentration change 1.5 1 0.5 0 -0.05 0 Initial income coefficient 0.05 That is, some spatially concentrated sectors are experiencing increases in spatial concentration and, at the same time, convergence in labor income levels. On the other hand, sectors less spatially concentrated, and which are becoming more evenly distributed over space, tended to present higher spatial inequalities in labor income. This is a very interesting result indeed, showing dissociation between concentration and income inequality. That is, convergence is taking place for sectors with low growth, spatial concentration levels, and increasing spatial concentration. The high-growth sectors do not present convergence. This indicates that spatial inequality tends to increase in the future, as the high-growth sectors increase their shares in total employment. 5. Final remarks In this paper we developed a preliminary analysis of tertiary sector activities in Brazil. This is a very important sector to study, given its increasing importance in GDP and, especially, in employment. Previous studies had indicated that these activities could be contributing to the increase in spatial inequality in the country. The results observed in this study confirm that idea. We started with an analysis of competitiveness indicators for different areas in the country. The results indicate that the rich areas are losing competitiveness in commerce and in traditional services, but are becoming more competitive in the modern sub-sectors within the tertiary, such as in services to firms, computing, etc. The analysis of growth and concentration revealed a great variety across sub-sectors, indicating that it is important to develop detailed analysis to come to relevant conclusions. As for spatial concentration, the majority of sub-sectors presented decreasing concentration in the period, although six sub-sectors presented increasing concentration. We then moved to labor income convergence, and we have observed that only a sub-set of sectors presented convergence. By correlating convergence with concentration and concentration changes, we found that convergence is present for low-growth, spatially concentrated sectors. That is, sectors more evenly spread across the territory and sectors that tend to increase their shares in total employment are not converging. Combining these results with the observed increasing share of tertiary activities in GDP and total employment, the conclusions indicate increasing spatial income inequality in the country. This was a preliminary exploratory analysis. Better data sources and more sophisticated techniques should be applied in the future. The results achieved are interesting enough to suggest that additional efforts should be devoted to a better understanding of the spatial processes behind tertiary activities dynamics. References Ellger, C. (1997) “Planning Cristallerian landscapes: the current renaissance of central place studies in East Germany” Service Industries Journal, Vol. 17, N. 1, January Evangelista, R. and Sirilli, G. (1998) “Innovation in the service sector – results from the Italian statistical survey”, Technological Forecasting and Social Change, 58 (3), July Hammond, G. and Thompson, E. (2001) “The long-term development of local retail and services sectors in rural southern counties, Review of Regional Studies 31 (1) 51-70 Kaiser, U. (2002) Innovation, Employment, and Firm Performance in the German Service Sector, Zew Economic Studies 16, Centre for European Economic Research, Physica-Verlag, Alemanha Kon, A. (1999) “Sobre as atividades de serviços: revendo conceitos e tipologias” Revista de Economia Política, Vol. 19 N. 2 - (2003) “Atividades terciárias: indutivas ou indutoras do desenvolvimento econômico?”, em Ferraz J. C., Crocco, M. and Elias, L. A. (org.) Liberalização econômica e desenvolvimento: modelos, políticas e restrições, UFRJ, Rio de Janeiro, 2003 (forthcoming). Marshall, J. N., Damesick, P. and Wood, P. (1987) “Understanding the location and role of producer services in the United Kingdom” Environment and Planning, 19 (5) May Menezes, W. F. and Carrera-Fernandes, J. (1998) “Determinantes da renda do setor terciário informal: uma análise da Região Metropolitana de Salvador”, Revista Econômica do Nordeste, Vol. 29, N, 3, July/September. Rubalcaba, L. and Cago, D. (2003) “Regional concentration of innovative business services: testing some explanatory factors at European regional level” Services Industries Journal, Vol 23, N. 1, January Silveira-Neto, R. and Azzoni, C. R. (2001) ”Dissecting convergence: occupation rates, structural changes, and sectoral factor reallocation behind economic growth” 41st Congress of the European Regional Science Association, Zagreb, Croatia, August - (2000) “Radiografando a convergência regional: fontes setoriais e mudanças estruturais” Encontro Nacional de Economia, ANPEC, Campinas Yserte, R. G. (2002) Cambio Estrutural y Desarrollo Regional en Espana, Ed. Pirámide, Madrid Table 4 – Convergence results: Income growth = f(Constant + initial income level) Sector Commerce Old Constant Initial Income Adj. R2 F -.0052668 .0036163 -.0141054** .0067878 .0736989*** .023026 .0174654 *** .0053704 .0268424** .0108762 -.0334581*** .0120287 0.28 10.58 0.17 6.09 0.21 7.74 .0401537** .0184376 .0113583 .0095874 -.0283242*** .0109968 .0000465 .0101935 0.19 6.63 0.04 0.00 .0050964 .0069203 .0171435 .0141131 .0110428*** .0028413 -.0027303 .0034582 .0241004*** .0030978 -.0053976 .006818 -.0166594* .0089479 .0068388 .0075067 .0192185*** .0067926 -.0159897** .0061657 -.01 0.63 0.09 3.47 -0.01 0.83 0.22 8.01 0.19 6.73 Household Services .054072*** .0024252 -.0416637*** .0041528 0.80 100.65 Security .0203096*** -.0025416 .0051816 .008025 -0.04 0.10 Sports, Leisure, Artistic .0128995** .0062678 .0445651*** .0073024 -.0067396 .0100662 0.22 8.20 0.23 8.08 -0.04 0.01 0.12 4.55 -0.02 0.59 0.48 21.95 -0.02 0.44 -0.02 0.93 0.76 81.09 18.71 6.75 0.14 5.04 0.04 1.94 Commerce Modern Finance Old Finance Modern Real State Selling and Administration Transportation Communication Hotels and Restaurants Repair Shops Fitness Centers, Apparel Repairs Legal Publicity, Marketing, Decoration Accounting, Architecture, Engineering -.014107*** .0049251 -.027246*** .0095844 -.0007981 .0072167 .022983*** .0068712 Commercial Representation, Storage, Services to Agriculture .0114978 .023788 Travel Agencies .0561727*** .0122074 Social Clubs, Associations, Churches .0022846 .0097614 Health .0084895 .0058491 Public Schools .0384604*** .0040287 -.0155142** .0072744 -.0143592 .0186861 -.0420481*** .0089753 .0085606 .0128728 .0058494 .006068 -.0280124*** .0031108 Private Schools -.0109483*** .004213 .0162431** .0072351 -.0089209 .0064021 Public Services Miscellaneous .0230452*** .0054947 -.0162277* .0094495 -.0025177 .0075534