Connecting Brazil to the world
Patricia Ellen, Jaana Remes 12 July 2014
Brazil has grown rapidly and reduced poverty over the past decade, but it has grown more slowly than other emerging economies and its income per capita remains relatively low by global standards. This column points out that sectors of the Brazilian economy that have been opened up to international competition have outperformed those that remain heavily protected. Deeper integration into global markets and value chains could provide competitive pressures that would improve Brazil’s productivity and living standards.
Despite a decade of rapid growth and falling poverty rates, Brazil has failed to match the global average for income growth – let alone to achieve the kind of impressive gains posted by other rapidly transforming emerging economies. As of 2012, Brazil had become the world’s seventh-largest economy, but it ranked only 95th in the world for gross national income per capita (IHS Economics and Country Risk data). To raise household living standards, Brazil needs to find a new formula for accelerating productivity growth.
Development International trade Productivity and Innovation
development, growth, productivity, globalisation, MERCOSUR, trade, openness, Brazil, global value chains
Institutions, trade shocks, and regional differences in long-run educational and development trajectories
André Carlos Martínez, Aldo Musacchio, Martina Viarengo 09 July 2014
Institutions are known to play a powerful and enduring role in countries’ divergent levels of economic development. This column presents evidence that institutions matter for within-country inequality, too. In Brazil, changes in export prices and export tax revenues led to an increase in education spending in states that experienced commodity booms, which increased the number of schools and improved educational outcomes such as literacy rates. However, the effect was limited in states where slavery was predominant in colonial times.
Understanding the determinants of long-run socio-economic development is a major concern for academics and policymakers in many countries around the world. In particular, beyond understanding differences in development or educational and other outcomes across countries, the origins of within-country inequality are now a fundamental issue, given the impact inequality has on the long-run prosperity of nations.
Development Economic history Education
development, education, growth, institutions, Inequality, Brazil, colonialism, trade shocks, extractive institutions
Do capital controls deflect capital flows?
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).
China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows
Football in the time of protest
Nauro F Campos 13 June 2014
The 2014 FIFA World Cup is upon us. This column argues that there will be plenty of partying, but also plenty of protests fuelled by the gross mismanagement and limited economic benefits from hosting the Cup. Stadia may be ready, but much planned infrastructure has already been abandoned. Indeed, rent-seeking may be one reason nations bid for the Cup. Since the returns to transportation infrastructure are higher in poor countries, the international community should work to stamp out corruption so that poor countries can continue to host mega-events like the World Cup.
Football is actually coming home. Brazil is the spiritual home of the ‘beautiful game’. It is the only country to have competed in all 20 World Cup tournaments, it has won the tournament a record five times, and it is the only country to have won the tournament ‘away’ (Ponzo and Scoppa 2014).1 Brazilians worship football. As in all previous World Cups, the country will stop when the Seleção plays. Unlike all other Cups, however, this time there may be protests.
Institutions and economics Politics and economics
Corruption, Political Economy, soccer, rent-seeking, Football, Brazil, infrastructure, sport, protests, FIFA
Policymaking in crises: Pick your poison
Kristin Forbes, Michael W Klein 24 December 2013
Government interventions to control capital flows and reduce exchange-rate volatility have long been controversial. The Global Financial Crisis has made the debate more urgent. This column discusses recent research that evaluates such policies against the counterfactual of no intervention. Depreciations and reserve sales can boost GDP growth during crises, but may also substantially increase inflation. Large increases in interest rates and new capital controls are associated with reductions in GDP growth, with no significant effect on inflation. When faced with sudden shifts in capital flows, policymakers must ‘pick their poison’.
In 2010, the Brazilian finance minister Guido Mantenga declared a ‘currency war’ because of the harmful effects of the strengthening of the real. He blamed the currency’s appreciation on easy money in advanced countries, and to a lesser extent on reserve accumulation in some emerging markets. More recently, concerns were raised by slides in the values of the Indian rupee – which lost 18% of its value against the dollar between February and August – and by the fall in the value of the Indonesian rupiah – which has lost almost a quarter of its value against the US dollar in 2013.
Exchange rates Macroeconomic policy
exchange rates, foreign exchange reserves, India, Indonesia, global financial crisis, capital controls, Brazil, currency war
Should Brazil’s central bank be selling foreign reserves?
Márcio Garcia 25 September 2013
The recent reversal of capital flows to emerging markets raises the question of whether and how to intervene in currency markets. Brazil’s central bank has intervened heavily, spending more than $50 billion and promising to double that by the end of the year. However, almost all of that intervention has taken place in onshore derivative markets that settle in real. This column argues that such interventions can be effective, but that central banks must stand ready to use their foreign-exchange reserves if necessary.
The US dollar’s rise in August and the Brazilian Central Bank’s (BCB) interventions in forex markets have started a debate about whether the BCB should keep on intervening as it has been doing, mostly via currency derivatives markets, or if it should also be selling its international reserves.
Exchange rates International finance
exchange rates, Central Banks, capital flows, derivatives, Brazil
The BRICs party is over
Anders Åslund 04 September 2013
Emerging markets are under pressure. This column argues that this is not a mere headwind but that the BRICs’ party is over. Their ability to get going again rests on their ability to carry through reforms in grim times for which they lacked the courage in a boom.
After a decade of infatuation, investors have suddenly turned their backs on emerging markets. In the BRIC countries – Brazil, Russia, India and China – growth rates have quickly fallen and current-account balances have deteriorated.1 The surprise is not that the romance is over but that it could have lasted for so long.
From 2000 to 2008 the world went through one of the greatest commodity and credit booms of all times. Goldman Sachs preached that the BRICs were unstoppable (e.g. Wilson and Purushothaman 2003).
Development International trade
Russia, China, India, commodities, protectionism, BRICs, Brazil, BRIC
What drives protests in Brazil? Corruption, ineptitude and elections
Nauro F Campos 23 July 2013
After decades of macroeconomic stability, structural reforms and declining inequality, mass political protests unexpectedly erupted in Brazil. This column reports new empirical evidence on protests in Brazil over the long-run to shed some light on recent events. It argues that they were driven by three main factors: corruption in public services delivery, political ineptitude in the run-off to major international events, and the political-economy effects of the electoral cycle.
The conventional wisdom is that Brazilians are a laid-back people who can always find a way (‘jeitinho’) even if that involves dribbling the rules. If that was actually true, political protest would be extremely rare in Brazil.
Development Politics and economics
Brazil: Did inward capital controls work?
Márcio Garcia 01 March 2013
Did inward capital controls work for Brazil? This column assesses the evidence, concluding that capital controls are desirable if they help avoid excessive debt and asset price bubbles, a risk given the appetite of foreign investors towards Brazilian assets. That said, policymakers needs to complement capital controls with foreign savings in order to enable an investment rate compatible with sustaining GDP growth.
As the developed economies struggle to revive growth and create jobs, the debate about currency wars has come to forefront, with generalised quantitative easing, an EU Tobin tax, and confusing comments from G7 official regarding the effects of Abenomics on the yen.
Emerging markets have been experimenting with capital controls with the aim of combating real exchange-rate appreciation. Among financially open emerging markets, no country has gone to a greater length than Brazil. It thus serves us well to to analyse the recent Brazilian experience with capital controls.
Global governance International trade
capital controls, Brazil
Capital controls: Gates versus walls
Michael W Klein 17 January 2013
Capital controls are back in vogue. This column argues that we should distinguish between episodic controls (gates) and long-standing controls (walls). Research shows that the apparent success of 'walls' in China and India tells us little about the consequences of capital controls imposed or removed in countries like Brazil and South Korea, as circumstances change. Walls and gates are fundamentally distinct, and policy debate needs to take into account these differences.
Capital controls are no longer considered rogue policies.
China, South Korea, capital controls, Brazil