Brazil: Beyond the stop-and-go - CEPALarchivo.cepal.org/pdfs/SummerSchool/SS2014/Presentacion_Basilio_SS... · Friedrich Nietzsche, A Gaia Ciencia, 1882 ... Friedrich Nietzsche, A

Brazil: Beyond the stop-and-go

Joao Basilio [email protected]

Federal University of Parana-UFPR, Department of EconomicsSala SA-TEN1-03 - (41)3360-4397

August 11th, 2014

Escuela de verano sobre economıas latinoamericanas

Santiago - Chile

Introducao Stop-and-go Iterant Restrictions Other Restrictions Interpretations

O Eterno Retorno - The Eternal Return

E se um dia ou uma noite um demonio se esgueirasse em tua mais solitaria solidao e te dissesse:“Esta vida, assim como tu vives agora e como a viveste, teras de vive-la ainda uma vez e aindainumeras vezes: e nao havera nela nada de novo, cada dor e cada prazer e cada pensamento esuspiro e tudo o que ha de indivisivelmente pequeno e de grande em tua vida ha de te retornar, etudo na mesma ordem e sequencia - e do mesmo modo esta aranha e este luar entre as arvores, edo mesmo modo este instante e eu proprio. A eterna ampulheta da existencia sera semprevirada outra vez, e tu com ela, poeirinha da poeira!

Friedrich Nietzsche, A Gaia Ciencia, 1882

Brazil: Beyond the stop-and-go August 11th, 2014 2 / 36


O Eterno Retorno - The Eternal Return

E se um dia ou uma noite um demonio se esgueirasse em tua mais solitaria solidao e te dissesse:“Esta vida, assim como tu vives agora e como a viveste, teras de vive-la ainda uma vez e aindainumeras vezes: e nao havera nela nada de novo, cada dor e cada prazer e cada pensamento esuspiro e tudo o que ha de indivisivelmente pequeno e de grande em tua vida ha de te retornar, etudo na mesma ordem e sequencia - e do mesmo modo esta aranha e este luar entre as arvores, edo mesmo modo este instante e eu proprio. A eterna ampulheta da existencia sera semprevirada outra vez, e tu com ela, poeirinha da poeira!

Friedrich Nietzsche, A Gaia Ciencia, 1882



Introduction

The central argument

• The brazilian economic has undergone and squirmed for long runrestrictions in BoP. The country has been addicted to external savings:First during JK period with FDI, after during militar regime using Debt andnow to fight against inflation with valueted exchange rate resorting to flowof financial capital attraction.

• The growth rate, like a eternal return, can not be susteined in high levelsduring long time, and fall above 2% sistematically.

• The long run result is a lower per capita income, comparing with Asianand other mechanism for financing growth and is a falling behind processof development



Introduction

Some points to be discussed

• Low-growth and stop-and-go• Iterant macroeconomic restriction: BoP (Exchange), Inflation• Other restrictions to growth: Taxes(?) + Fiscal Policy, Low Saving

(Investment), Demographic Transition• Growth regime: transition from accumulation→ innovation• how to growing up without stop-and-go



Low Growth

Accumulated growth of GDP 1995 a 2012



Growth with stop-and-go

Cicles of High and Low growth - Brazil (GDP %YoY)



Main Cycles

Main cycles and industrialization phase• 1930-1954 - Getulio Vargas• 1956-1966 - Juscelino Kubitschek• 1964-1982 - I, II and III Military Regime• 1983-1994/2003 - Debt Crisis, Hiperinflation and inflation (Two lost

decades)• 2004-2010 - Luiz Inacio da Silva - Demand push growth



1930-1954 - Getulio Vargas

Two govern1st - 1930-19452nd - 1951-1954

• Organized the work class (there isn’t a capitalism system without it)• Created big national companies• BoP Flow Capital restriction, Exchange crisis• Multiples exchanges rates• Launch the Import Substitution Program (ISP), financed by exports (no

FDI and Financial Flow)• Ingrowth strategy (answer to the 1929 crisis)



1956-1966 - Juscelino Kubitschek

• 50 years in 5• Durables goods industry• 2nd phase of the Import Substitution Program (ISP)• Imports financed by FDI (Foreign Direct Investment)• Denationalized the economy• BoP restrictions continues



1964-1982 - I, II and III PND - Military Regime

• Institutional reforms• Capital good industry and infrastructure sectors• 3rd and last phase of ISP• Nationalist sentiment - Love it or left it• External saving financed with external debt



1983-1994/2003 - Debt Crisis and inflation (Two lostdecades)

Fernando Henrique Cardoso 1995-2002//

• No growth (very low, in fact)• Recurrent exchange crisis with devaluations and over shootings during

the 1980’s and 1990’2• Many Economic Plans, different currencies and heterodoxy plans against

inflation• During the Real Plane (1994-1999) and after (1999-2003) the wraith of

inflation continues to haunt• Low external saving financed with Capital Flow



2004-2010 - Luiz Inacio da Silva - Demand pushgrowth

• Rescued the State influence in economy• Distribution politics helped burst the growth• Demand push growth based in valued exchanged• Valued exchange helps curb inflation and burst consumption• External sector has deteriorated• High interest rate try to equilibrate BoP• In macroeconomics terms, Lula left more problems than solutions to his

successor• External saving financed by capital flow continues the dominant strategy



The lost growth again

Why the brazilian economy stop to growth again?

Is the interruption a structural or seasonal phenomena, a long or short runevent?

There are many answers. It can be separated in two large class: the iterantand the others



BoP Restriction to GrowthThe Iterant Restrictions is based on Arthur Thirlwall(1979) Model

Xt = A

(P dt

P ft Et

)ηZεt η < 0, ε > 0 (1)

Mt = B

(P ft EtP dt

)ψY πt ψ < 0, π > 0 (2)

Equilibrium Condition

BPt = P dt Xt − P ft Et + C(it − i∗t )φ = 0 (3)

Taking the Natural Log, differentiating and solving (1) and (2) into (3) we get a linearmodel in percent rates of variation (the Thirlwall complete equation):

yt =1

π(1 + η + ψ)(pdt − p

ft − et) +

ε

πzt +

φ

π(it − i∗t ) (4)



BoP Restriction to GrowthThe Thirlwall equation:

yt =1

π(1 + η + ψ)(pdt − p

ft − et) +

ε

πzt +

φ

π(it − i∗t ) (5)

has tree part:

• Terms of trade• Income elasticities• Capital Flow

If the terms of trade are constant, the reduced form of Thirwall is equation (6). In thiscase external saving has always positive impact on growth rate:

yt =ε

πzt +

φ

π(it − i∗t ) (6)

But there are reasons to suspect that the last term be non-linear and the impact, aftera threshold, became negative:

yt =ε

πzt +

φ

π

([it − i∗t ]− [it − i∗t ]2

)(7)



BoP Restrictions

BoP Brazil - Long Run



Fiscal Policy

Other Restrictions

Composition of spending



Fiscal Policy

Composition of spending



Fiscal Policy

composition of investment



Fiscal Policy

Budget Nominal Surplus and Debt



Fiscal Policy

Tax Burden



Income Distribution

Income distribution - Wage/hours distance between countries

Brazil (do not appear in figure) has a worst pattern of wage distribution than RomaniaGini: Brazil=54,7 Haiti=59,2 Ukraine=26,4 Denmark=24,0 Romania=33,2



Investiment

Investiment rate in some economies



Growth Regime

Shifting in growth rate of capital/work accumulation. Correlation between investimentand growth rate



Growth Regime

Demand push growth combined with low growth.Growth without capital accumulation



Growth Regime

Growth and job market



Growth Regime

The exhaustion of work force

Ano PEA/PIA PEA PO PIB Rend. Trab.2004 57,1 1,88 2,87 5,70 -1,282005 56,6 0,78 2,63 3,20 1,532006 56,8 2,06 1,90 4,00 3,962007 56,9 1,79 2,55 6,10 3,192008 57,0 1,77 3,36 5,20 3,402009 56,7 0,93 0,73 -0,30 3,172010 57,1 2,00 3,49 7,50 3,752011 57,1 1,22 2,06 2,70 2,712012 57,3 1,66 2,15 0,90 4,09Total acumulado 15,0 24,0 42,2 27,20



Demographics

Demographic Changing has impacts on:

• Consumption and saving of families• Pension Programs (public and private)• Other public policies like: education, health, ...• Labor supply, wages, productivity and sectorial realocations/migration• The human capital innovation capacity of the economy.• It’s a complex phenomena, not well understed yet!



Demographics

Demographic Changing has impacts on:

• Consumption and saving of families• Pension Programs (public and private)• Other public policies like: education, health, ...• Labor supply, wages, productivity and sectorial realocations/migration• The human capital innovation capacity of the economy.• It’s a complex phenomena, not well understed yet!



Demographics

Dependency ratio in the World (15-64/Pop)

Brazil: point. World: double black lineThe dependency ratio in Brasil is growing faster than the world mean.



Demographics

Populational growth in Brazil



Demographics

The end of Demographic Bonus in Brasil



Demographics

Investiment and Aged Dependency Ratio(ADR or RDI)



The Brazilian Macroeconomic Regime

Macroeconomic Mix 2002-2008• Monetary policy alternated + and -• Fiscal policy expansionary in spending, contracionary in the taxes (fiscal

crowding-out)• Exchange policy

• Devaluated 2002-2006• Return to a valuated 2006-2008

• Demand swelling out by credit + consumption• Result⇒ growth cicle pushed by demand:

• first pushed by exports• second pushed by public spendings• third pushed by family consumptions



The Brazilian Macroeconomic Regime

Macroeconomic Mix 2010-2012• Monetary policy expansionary• Fiscal policy expansionary in spending, contracionary in the taxes (fiscal

crowding-out)• Exchange policy: pro-imports and anti-exports• Result⇒ low growth. Prices stability, political stability and strutucral

interest rate lowering did not bring forth, by self, more growth asexpected.

Social option: since 1990 there hasn’t been growth but there has been socialdevelopment, with increasing social policies lauched since a bit earlier FHCgovernment and intensified during Lula e Dilma.



Perspectives

Past• 1930-1981: Industrializing growth with income concentration• 1980-2003: Two lost decades (from macroeconomic viewpoint)• 2004-2013: Low investiment, low growth, but increasing distribuition

(Constituition of 1988)Future

• 2014-.......: It isn’t clear. Brazil can be:• An economy based in Commodities• A case of semi-stagnation with slow socials advances. There won’t be new

cake to distribute• A case of Falling behind in a information and innovation society• There is the last cicle of huge capital accumulation (5 yo 10 years) with

externalities of infraestruture investiment on competitivity• An economy based in knowledge and innovation, intensive in technology...

an possible but faraway horizont!



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Documents

Brazil: Beyond the stop-and-go - CEPALarchivo.cepal.org/pdfs/SummerSchool/SS2014/Presentacion_Basilio_SS... · Friedrich Nietzsche, A Gaia Ciencia, 1882 ... Friedrich Nietzsche, A