1 / 55

Brazil Trade And Growth: Are They Related?

Brazil Trade And Growth: Are They Related?. Brad Behrens Kyle Borchardt Kai Du Robert Entwistle. Outline. Intro- (General info and early policies) Late 70’s to 90’s- (Policies and trade approach) Trade Liberalization (90’s and on) Future economic picture (21 st Century). Country Facts.

latona
Download Presentation

Brazil Trade And Growth: Are They Related?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Brazil Trade And Growth: Are They Related? Brad Behrens Kyle Borchardt Kai Du Robert Entwistle

  2. Outline • Intro- (General info and early policies) • Late 70’s to 90’s- (Policies and trade approach) • Trade Liberalization (90’s and on) • Future economic picture (21st Century)

  3. Country Facts • Capital: Brasilia • Population:198,739,269 (5th Largest) • Area: slightly smaller than the United States

  4. Economic Facts • Labor Force: • agriculture: 20% • industry: 14% • services: 66% • Exports: • $158.9 billion (24th) - 2009 • Imports: • 136 Billion (26th) - 2009

  5. Post-War Experience… • After WWII, Brazil was heavily dependent upon two countries (USA and United Kingdom) • Expanding ToT (commodities vs. manufactured) • Over reliance on few Agricultural Goods • Cotton, Coffee, Cocoa (60% of total export value)

  6. Risk… • Their dependency on these two countries and few commodities left them susceptible to economic shocks • Balance of payments (Import, Export) • Market problems (Recessions)

  7. Mid 20th Century Trade Policies • Import Substitution Industrialization (ISI) dominated Brazil from 1930’s to 1960’s • Main tools (ISI) • Import licensing • Tariff • Quotas • Overvalued exchange rates • Direct government investment in key industries.

  8. Why ISI… • Implemented because of problem with “comparative advantage” (expanding gap between ToT) • Tariffs created room for small domestic industries to prosper • Government shifted attention to growth of goods (automotive, cement, steel and heavy machinery)

  9. More About ISI… • Implemented because of problem with “comparative advantage” • Promotion of Domestic manufacturing through high trade barriers began to hurt the Brazilian Economy.

  10. Share in GDP of Value Added in the Agricultural Sector (in red) and of the ValueAdded in the Industrial Sector.Brazil 1947 – 2007(Percent) Source: Instituto Brasileiro de Geografia e Estatística, Sistema de Contas Nacionais (IBGE/SCN 2000 Annual)

  11. Growth from ISI… • Between 1950 and 1961 • The average annual rate of growth of the GDP exceeded 7 percent • Industry was key to growth • 9% increase in Industrial products vs. 4.5% increase in agricultural products during this period

  12. Growth from ISI… • Advantages • Increase in domestic employment • Resistant to global economic shocks (recessions) • Disadvantages • Inefficient (not exposed to internationally competitive markets)

  13. Growth During ISI -Although the Brazilian Economy experienced growth it was not as high as hoped by government officials

  14. Economic Stagnation • Because of this relatively “close minded” approach to their Economy. Brazil struggled and was not attaining they’re desired output. • Change was necessary, but was not “liberated” till the early 90’s

  15. Political Dismay… • During the mid 60’s average rate of growth dropped to 4% • Brazil’s political troubles negatively effected the ISI and eventually led to a coup • The new Military reforms of 1964 targeted high inflation and led to a period of extreme growth from 1968 to 1973

  16. Brazil’s Trade Policy – Late 1970’s • Steep oil prices in the 1970’s ended Brazil’s attempt at greater trade openness • In 1974, the trade deficit was $4.7 billion and policy makers responded by restricting imports • They doubled tariff rates on over 900 items (June 1974) • In 1975, the government required that imports be paid for in advance

  17. Brazil’s Trade Policy – End of the 1970’s • Further measures were taken to promote exports, especially for manufacturing • However, the trade balance remained in a deficit for most of the late 1970’s • The deficit worsened in the 1980’s and forced the government to try other policy changes • Trade restrictions were not relaxed, and the Mexican debt crisis had a large affect on Brazil’s trade

  18. Brazil in the 1980’s • The combination of tight import controls, real depreciation and the fall in domestic demand led to a shift in external accounts • Brazil was now running a trade surplus • In 1984, exports were about double imports • However, inflation accelerated to around 200% • In 1986, prices accelerated at an average of 500%

  19. Brazil in the 1980’s cont. • The Cruzado plan was put in place in 1986 to wipe out inflation • Prices rose sharply from this plan and affected the trade balance • The trade surplus soon turned into a trade deficit once again • Towards the end of the decade, the balance turned back into a surplus, following different plans

  20. Policy at the end of the 1980's • The improving external payments situation allowed for the start of a new liberalization program • Tariffs were reduced by about 10% in 1987 • Export values were at record levels in 1988 • In Jan. 1989, the Summer plan was announced • Temporary freeze of wages/exchange rate

  21. Other Ideas on Trade and Growth • Brazil’s Trade Liberalization and Growth: Has it Failed? • By: Mauricio MesquitaMoreira • 2 of the main drivers of growth are productivity and investment in physical capital • This paper shows that a trade liberalization policy has a positive effect • This paper also claims that Brazil could have experienced more gains from trade if it used more aggressive policy

  22. Other Ideas on Trade and Growth • Does Trade Cause Growth? • By Jeffery A. Frankel and David Romer • Geographic characteristics have important effects on trade • This paper measures the effects of trade on income • And finds that trade has a large, positive effect on income. • The effect is large quantitatively, but moderately small statistically

  23. Trade Policy: 1990-2000 • Half a century of trade protectionist policies had major effects on Brazil’s foreign trade: • Brazil had less than a 1% share in global trade, despite its population representing almost 3% of the world’s population in 1990. • Due to this, Brazil experienced significant changes in their foreign trade policy during the 1990’s.

  24. Trade Liberalization • Inflation rates were at the threshold of hyperinflation, with the monthly rates in the first two months of 1990 at over 70 percent. • On top of this, the trade balance had fallen to about a third of the level of the preceding year • Brazil’s policy makers were focused on stopping inflation and trade policy reform

  25. Trade Liberalization • In response, the new Industrial and Foreign Trade Policy was introduced in late 1990. • This policy included: • abolishing most non-tariff barriers left over from import substitution • gradually reducing import tariffs between 1990-94

  26. Import Tariff Rate: 1990-1995Source: Baumann (1998)

  27. Trade Liberalization • Trading Blocs • In 1991, Brazil joined Mercado Comun del Sur, or MERCOSUR, a regional trading bloc with Argentina, Paraguay and Uruguay. • This was to promote free trade and the fluid movement of goods, people, and currency

  28. Trade Liberalization • The new foreign trade policy was only maintained until October of 1992 due to political turmoil. • in 1992 President Fernando Collor de Mello was impeached on charges of corruption • Vice President Itamar Franco was sworn in as president after the impeachment of Collor de Mello • this interim administration prevented Brazil from tackling many problems in the economy, mainly inflation

  29. The Real Plan • President Franco soon put together a high-level team to develop a new stabilization program • The Plano Real, or The Real Plan, was instituted in spring of 1994 • The main goal of this plan was to eliminate inflation by pegging the real to the U.S. dollar

  30. The Real Plan • After some controversy during the transition phase of the plan, the plan worked and eventually killed inflation in Brazil. • This eliminating of inflation, along with the abolishing of protectionist measures and joining MERCOSUR, turned Brazil into a very open country by the mid-1990’s.

  31. Openness: Exports plus Imports divided by GDP is the total trade as a percentage of GDP

  32. Trade Increase • This increased openness lead to an increase in both imports and exports for Brazil: • Between 1988-97, Brazilian exports rose from US$ 33.8 billion to US$ 53 billion, an increase of 57%. • During the same period, imports quadrupled, growing by an average of 15.4% to reach US$ 61.3 billion

  33. Tariffs: 1996-2000 • Tariffs stayed relatively low until 1996 where there was a slight increase in the tariff rate • This was in attempt to contain the constant increase in the current account deficit. • These high deficits would soon be problematic after financial crisis in both Asia and Russia: • Investors more risk averse to emerging market exposure.

  34. Global Economy • With foreign investors hesitant to invest in Brazil, the economy saw a downturn, and growth slowed to a crawl. • This downward trend needed to be stopped because many Brazilians were having memories of the debt crisis resurface.

  35. Global Economy • With foreign investors hesitant to invest in Brazil, the economy saw a downturn, and growth slowed to a crawl. • This downward trend needed to be stopped because many Brazilians were having memories of the debt crisis resurface.

  36. Growth in Brazil • Overall trade liberalization helped and Brazil saw growth in its economy as a result: • Between 1988-97 Brazil had an average annual growth rate of 4.6% • This growth continued into the future as Brazil saw 5.7% growth in GDP in 2004 • The poverty rate had decreased to below 16% by 2000

  37. Brazil’s Future… • This period of trade liberalization has opened Brazil to foreign trade and integrated them into the world economy • With an opening to foreign trade, and investment, Brazil has given itself many options for the future • This also allowed Brazil to become one of the top economic countries in the world today (8th Overall in GDP)

  38. Brazil’s Future • Brazil’s economic openness has improved the nation drastically. What can we expect from Brazil in years to come?

  39. Brazil’s Future • Brazil’s Economy is the 9th Largest in the world. (Measured by Purchasing Power Parity) • Predicted to grow to become one of five largest in the world in decades to come.

  40. Economic Forecast • Brazil’s industrial output is expected to increase by 8% • Public net expected to decrease to 41% by 2011 • Foreign and direct investments predicted to reach 45 billion

  41. BolsaFamilia(Family Stipend) • Part of the government welfare program Fome Zero (Zero Hunger) • Provides financial aid to poor and indigent Brazilian families as long as their children are in school and vaccinated • Program has been a main factor in the decrease in poverty. (27.7% in 2003-2006)

  42. Tupi Oil Field discovery • Discovered October 2006 • Largest deep-water oil field, 5-8 Billion barrels of crude oil and natural gas • Total Value = 410 – 656 Billion dollars • Obama financed 2 billion dollars to Petrobas for exploration of Tupi Fields

  43. 2016 Summer Olympics • Summer Olympics will put the spotlight on Brazil, helping promote the nation’s tourism • Jobs will be created to construct sports venues • Crime in Rio de Janeiro will be cleaned up to help ensure a safe Olympics

More Related