TEXTO PARA DISCUSSÃO N 220 TRADE, SPECIALIZATION AND GROWTH: A PRELIMINARY ASSESSMENT OF THE BRAZILIAN EXPERIENCE IN THE NINETIES. Gilberto A.

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1 TEXTO PARA DISCUSSÃO N 220 TRADE, SPECIALIZATION AND GROWTH: A PRELIMINARY ASSESSMENT OF THE BRAZILIAN EXPERIENCE IN THE NINETIES Gilberto A. Libanio Setembro de 2003

2 Ficha catalográfica 339.5(81) L694t 2003 Libanio, Gilberto A. Trade, specialization and growth: a preliminary assessment of the Brazilian experience in the nineties / Gilberto A. Libanio. - Belo Horizonte: UFMG/Cedeplar, p. (Texto para discussão ; 220) 1. Comércio exterior. 2. Desenvolvimento econômico. 3. Brasil Relações econômicas exteriores..4. Brasil Política comercial.. III. Universidade Federal de Minas Gerais. Centro de Desenvolvimento e Planejamento Regional. IV. Título. IV. Série. CDU 2

3 UNIVERSIDADE FEDERAL DE MINAS GERAIS FACULDADE DE CIÊNCIAS ECONÔMICAS CENTRO DE DESENVOLVIMENTO E PLANEJAMENTO REGIONAL TRADE, SPECIALIZATION AND GROWTH: A PRELIMINARY ASSESSMENT OF THE BRAZILIAN EXPERIENCE IN THE NINETIES * Gilberto A. Libanio Assistant Professor Economics Department FACE/UFMG, and Doctoral Candidate in Economics at the University of Notre Dame. CEDEPLAR/FACE/UFMG BELO HORIZONTE 2003 * The author would like to thank Jaime Ros for fruitful discussions on the topic and Amitava Dutt for useful comments on an earlier draft. Errors and omissions are my entire responsibility. Financial support from CNPq/Brazil is gratefully acknowledged. 3

4 SUMÁRIO 1. INTRODUCTION OPENNESS, SPECIALIZATION AND GROWTH Theoretical Perspectives Some Empirical Evidence A PRELIMINARY ASSESSMENT OF THE BRAZILIAN EXPERIENCE CONCLUSIONS ANNEX - STATISTICAL TABLES AND GRAPHS REFERENCES

5 ABSTRACT Developing countries have experienced important changes regarding trade and capital account policies in the past two decades. External liberalization may have important long-term effects on macroeconomic variables such as growth rates, employment, and the like. This paper explores a particular aspect of the relation between trade liberalization and economic growth: it emphasizes the expected effects of openness on the patterns of trade specialization, and the consequent impacts in terms of growth in the long run. After presenting some of the main theoretical findings on the matter, a preliminary assessment of the Brazilian experience in the 1990s is also made, discussing the effects of trade liberalization on the composition of Brazilian exports. Keywords: trade liberalization; patterns of specialization; growth. JEL: F14, O11, O24, O40. RESUMO Países em desenvolvimento passaram por importantes mudanças em relação a suas políticas externas nas últimas duas décadas. A liberalização comercial e da conta de capitais tende a gerar importantes efeitos a longo prazo em variáveis macroeconômicas como taxas de crescimento do PIB, emprego, entre outras. Este artigo explora um aspecto particular da relação entre abertura comercial e crescimento econômico: enfatiza-se aqui os efeitos da abertura sobre os padrões de especialização da economia e seus conseqüentes impactos sobre a taxa de crescimento a longo prazo. Após a apresentação de alguns dos principais resultados teóricos descritos na literatura sobre o tema, é feita uma discussão preliminar da experiência brasileira na década de 1990, enfocando os efeitos da liberalização comercial sobre a pauta de exportações do Brasil. Palavras-chave: Abertura comercial; padrões de especialização; crescimento. JEL: F14, O11, O24, O40. 5

6 1. INTRODUCTION In the last two decades, developing countries have experienced important economic transformations. Since the 1980s, several reforms have been implemented in a large number of countries, including the reduction of trade barriers that characterized the import-substitution industrialization period, the privatization of most state-owned firms, and the deregulation of labor and financial markets. In general, this process led to a change towards stronger market orientation and greater degree of openness to international trade and financial flows. Such reforms were based on a widespread belief that the potential for economic growth in developing countries would be better explored by amplifying the operation of market mechanisms, and by reducing governmental interventions in the economy. Regarding trade openness, in particular, there was a remarkable change of perception within the economics profession in the last three decades and, since the late 1980s, it is generally believed that outward-oriented economies perform better than inward-oriented ones. The following passage is remarkable, as a description of the changing perception on the relation between trade and growth: Ideas with regard to trade and development are among those that have changed radically. ( ) In early days, there was a broad consensus that trade policy for development should be based on import substitution. ( ) The contrast with views today is striking. It is now widely accepted that growth prospects for developing countries are greatly enhanced through an outer-oriented trade regime. (Krueger, 1987, p.1) It is interesting to note that the view that openness promotes economic growth is pervasive in the economics profession, despite the weak theoretical support and the mixed empirical evidence on that relationship 1. On the other hand, support for trade liberalization comes from multilateral institutions as well, such as the World Bank, the IMF and the OECD, resulting in an important influence over developing countries in shifting policies away from the import-substitution strategy. An example of the arguments in defense of market orientation can be found in a report by OECD (1998, p.39-41), which asserts: Open markets bring greater freedom of choice, specialization and exchange. ( ) Liberalization promotes competition, productivity gains and encourages best practice production methods. This paper intends to explore a particular aspect of the relation between trade liberalization and economic growth. It will emphasize the expected effects of openness on the patterns of trade specialization, and the consequent impacts in terms of growth in the long run. The remainder of the paper is organized as follows. Next section will illustrate some basic relations between trade and growth, using different kinds of theoretical models. Various channels through which trade openness affects growth will be discussed, and the relation between patterns of specialization and growth will be underscored. This section will also present some empirical evidence 1 For a critical review of empirical studies on trade and growth, see Rodriguez and Rodrik (1999). 6

7 for developing countries on the matter. In section 3, a preliminary assessment of the Brazilian experience in the 1990s will be made, discussing the effects of trade liberalization on the composition of exports. The concluding section summarizes the findings and presents some reflections on the growth prospects for the Brazilian economy after the reforms. 2. OPENNESS, SPECIALIZATION AND GROWTH 2.1. Theoretical Perspectives In terms of economic theory, the support for trade liberalization is closely associated with gains from trade in the standard Heckscher-Ohlin-Samuelson (HOS) model. Under certain assumptions (such as CRS production functions, perfect competition among firms, and perfect price and wage flexibility) the HOS model predicts that free trade between two countries with identical and homothetic preferences and identical technologies will result in gains for both countries, due to specialization according to comparative advantages. In other words, the model asserts that free trade will bring about more efficient resource allocation, since each country will specialize in the production of the goods that use intensively the country s abundant factor. It means that, in absence of distortions of any kind, the removal of all barriers to trade is the best policy to be adopted. The basic intuition behind this result is that trade provides a country with an additional method of transforming one good to another, and by providing this opportunity, makes the country better off in the sense of pushing it to a higher transformation curve in commodity space or utility possibility frontier in utility space. In addition, it can be shown that under certain conditions a competitive equilibrium under free trade is Pareto optimal. However, in the presence of market failures (such as externalities in consumption or production), and when the government is unable to correct them optimally, a competitive equilibrium under free trade will not necessarily be efficient or, in other words, trade restrictions may lead to an equilibrium which Pareto-dominates the one under free trade. In particular, this may be the case when there are positive production externalities in import-competing sectors of the economy. It is worth noting here that there are two different kinds of effects from trade openness: static effects, which involve once and for all gains in the level of output, and dynamic effects, which affect the growth rate of the economy. The basic HOS approach argues that trade may lead to static gains due to exploitation of comparative advantages and the consequent improvement in the efficiency of the allocation of domestic resources. Dynamic gains, in turn, depend on a different set of considerations. In the HOS model, there is no clear-cut relation between trade and economic growth in the long run. On the other hand, this relation can be discussed in terms of neoclassical growth theory. In standard models with diminishing returns and exogenous technological change (Solow-Swan type), the steady-state rate of growth of income depends on the exogenous rate of growth of the labor force and on exogenous labor-augmenting technical progress. In this case, trade policy may have different implications depending on specific parametric assumptions: 7

8 (i) (ii) If it is assumed that the marginal productivity of capital converges monotonically to zero as the capital-labor ratio expands indefinitely (as in Inada conditions), then trade liberalization and other kinds of policies may not have any effects on the steady-state growth rate of the economy. However, even in this case, trade policy can have effects on the long-run level of welfare, as well as temporary growth effects during the transition to steady state; If the marginal product of capital is constant or, even if it decreases, it is bounded away from zero by a sufficiently high positive number, then we do not find that the long-run growth in output per worker is necessarily zero in the absence of labor-augmenting technical progress and, therefore, trade policy may affect positively the steady-state growth rate (Srinivasan, 1999). Another type of models to be considered are models of endogenous growth in which topics like knowledge spillovers, learning by doing, and human capital accumulation play an important role. Under certain assumptions, models with endogenous growth can be built to show that, if there are two countries (one developed and one developing), the growth rate of the later may depend positively on its initial stock of knowledge and negatively on the cost of imitating technologies generated in the advanced country. (Barro and Sala-i-Martin, 1995, ch.8) Once one postulates that a higher degree of openness leads to lower imitation costs, it follows that trade liberalization may increase the steady-state growth rate in the developing economy. In this case, openness refers not only to the flow of goods across countries, but also to the international flows in information and technology. Consider, in turn, a model with one good being produced with skilled labor and intermediate inputs. (Aghion and Howitt, 1998, chapter 11) In this economy, there is a research sector that produces new designs for intermediate goods. It is assumed that the rate of innovation in the research sector depends positively on the stock of accumulated knowledge, and also that an increase in the number of available intermediate inputs raises labor s productivity in the final goods sector. In such a model, trade liberalization has the effect of increasing the total number of intermediate inputs (assuming that the two trading economies are not identical in this aspect). It also means that the market for newly designed goods has expanded, which provides an additional return to the research sector. If we assume that openness implies also free international flows of ideas and knowledge, we may find two positive effects on growth. First, the increase in productivity in the finalgood sector has a positive effect on the generation of domestic knowledge. Second, the additional incentive to engage in research activities will cause a higher employment in the research sector and, therefore, it will speed up the rate of innovations in the intermediate inputs sector. Due to these effects, one can find a positive correlation between openness and economic growth. Endogenous growth models frequently allow for the existence of two or more sectors in the economy (or, two or more final goods being produced). This feature makes them more convenient than Solow-type models to discuss the effects of changes in the patterns of specialization on the growth rate. Young (1991) provides a model of learning by doing in which trade is driven by differences in technology. The model considers two types of countries: developed (DC) and less developed ones (LDC). In this case, under free trade, comparative advantages may cause the DC to reallocate 8

9 resources towards more sophisticated goods for which learning by doing is a relevant issue, whereas LDC will specialize in product lines in which the potential for learning and for the generation of new technologies has been exhausted. Therefore, the LDC may experience a reduction in its rate of growth as a consequence of trade liberalization. In particular, static welfare gains from trade may be offset by dynamic effects resulting from changes in the patterns of specialization. In general, the relation between international trade and economic growth is ambiguous. Concerning the issue of patterns of specialization, the influence of trade policies on the growth rate depends on the impact of such policies on different sectors of the economy. It means that trade policies will lead to higher growth rates whenever they promote technologically more dynamic sectors over others or, in other words, promote activities that are more likely to generate long run growth via externalities in R&D or other forms of spillover. But note that the same argument implies that a developing country may experience a reduction in its growth rate after liberalization if it is driven by trade to specialize in traditional sectors. The two additional examples that follow illustrate this idea. Rodriguez and Rodrik (1999) present a simple model of a small economy with learning-bydoing, to show that trade barriers can have contradictory effects on growth and, in particular, that free trade can affect negatively the economic performance of countries which have initial comparative advantages in non-dynamic sectors. Ros (2000) uses a two-goods model to show how different patterns of specialization may lead to differences in growth rates in the presence of multiple equilibria. He points out that, under certain assumptions, the economy specializing in the production of capital-intensive goods may experiment higher rates of growth than the economy producing labor-intensive goods, because the former would present a higher investment share in GDP and also a higher rate of capital accumulation for a given investment share. To conclude this brief discussion, it is worth noting that the relation between openness, patterns of specialization and growth can also be analyzed using models that deal with balance-ofpayments constrained growth and with terms of trade deterioration. Thirlwall (1983), for instance, argues that, under certain assumptions, one country s growth rate relative to the other countries can be approximated by the income elasticity of demand for its exports to its income elasticity of demand for imports. Considering a world with two countries, we have that the ratio of their growth rates is given by ^Y 1 /^Y 2 = ε 2 /ε 1 (1) where ^Yi is the rate of growth of output in region i, and εi is the income elasticity of demand for imports in region i (i = 1, 2). Let the two regions be called North (rich) and South (poor). Following the usual assumption that the demand for primary products and traditional manufactures is income-inelastic, and that demand for more sophisticated goods is income-elastic, we can explore the impacts of trade patterns of specialization on the growth prospects of North and South. 9

10 If, according to comparative advantage, the North specializes in the production of more sophisticated goods, and the South specializes in traditional sectors, we have εn < εs, which implies that the growth rates in the South must be lower than those in the North. In this sense, the model predicts negative effects from trade liberalization for less developed countries, and divergence between North and South in terms of growth rates. In sum, economic theory shows an ambiguous result on the relation between trade openness and growth, taking into account the international flows of ideas and knowledge, as well as the influence of the patterns of specialization Some Empirical Evidence In this section, I will look at some empirical evidence, in order to illustrate the effects of trade on the patterns of specialization and growth rates. It does not mean that the paper will try to survey exhaustively the empirical literature on trade and growth; this task is far beyond our goals. 2 Our main focus here will be the effects that operate through changes in the patterns of specialization. It is sufficient for the purposes of the paper to present in general terms some recent empirical results that help us to discuss the relation between trade and growth via patterns of specialization. In addition, some emphasis will be put in the case of Latin American countries, given the particular interest in the Brazilian experience (to be presented in the next section). Ros (2002) analyses a sample of 22 developing countries in order to assess the effects of patterns of specialization on growth, through impacts on the investment share and on the rate of capital accumulation. His main conclusions are: First, trade specialization affects the investment share given that, other things being equal, the rate of return on capital tends to be higher in economies specialized in increasing returns industries. Second, at the same level of income per worker specialization in increasing returns industries is associated with a higher output-capital ratio; the rate of capital accumulation and growth will then be higher, for the same investment share, when an economy specializes in industries subject to increasing returns. (Ros, 2002, p. 315) Ros (2002) also evaluates macroeconomic aspects of the relation between specialization and growth, using a sample of 29 developing countries. He found that primary exporting economies tend to present a higher degree of exchange rate and output volatility compared to countries with a promanufacturing bias. Higher volatility, in turn, tends to exert a negative effect on growth rates. Stallings and Peres (2000) present a broad study on the impact of economic reforms in Latin America during the nineties. In general terms, they find that the reforms especially privatization and trade liberalization had a positive impact on investment and growth. However, they admit that the econometric evidence shows that this impact was fairly small and, in fact, that growth rates in the nineties remained below those in the previous decades ( ) for the majority of countries in the sample. 2 Some review of this literature can be found in Edwards (1998), and Rodriguez and Rodrik (1999). 10

11 On the other hand, in most countries, exports grew very rapidly after the reforms, in both dynamic and lagging subsectors. Nevertheless, all countries showed growing trade deficits or decreasing surpluses in the manufacturing sector during the period. It is also recognized that the reforms have exacerbated external vulnerability in Latin American economies. In terms of specialization patterns, two of their main findings should be mentioned: (i) during the nineties, capital formation was concentrated in a relatively small number of subsectors; (ii) the performance of South American economies after the reforms has shown that their main comparative advantage lies in natural resource-based activities. Guerrieri (2002) analyses the long-term linkage between trade openness and trade specialization for three groups of developing countries in Latin America, East Asia and the Mediterranean area. Concerning Latin America, he finds that primary commodities, food products and, especially raw material processing industries have gained relative importance in the trade patterns of the economies in the region since the late eighties. According to Guerrieri (2002), Latin American countries have been able to maintain high market shares, trade surpluses and comparative advantages in the above mentioned sectors during the period of analysis. Finally, Cimoli and Correa (2002) present a model of trade openness and technological gaps in Latin America, and discuss some effects of trade reforms on growth prospects. They point out that trade liberalization caused a large increase in both imports and exports, but they also argue external deficits still represent a serious constraint for GDP growth in most of the countries of the region. In addition, Cimoli and Correa (2002) observe that the pattern of specialization remains oriented to products that reveals advantages in terms of natural resources and cheap labor. They also stress that the changes in the pattern of trade in Latin America may bring about a stronger external constraint in the future, given the rise in the income-elasticity of imports of most of the countries in the region during the nineties. 3. A PRELIMINARY ASSESSMENT OF THE BRAZILIAN EXPERIENCE The Brazilian economy experienced a number of changes in the nineties, towards a new development model based on market reforms and outward orientation. Broadly speaking, we can say that these market-led reforms follow prescriptions based on the Washington consensus and consist (in greater or lesser extent) on the following: - trade liberalization: lower tariff and non-tariff barriers to international trade; - financial liberalization: greater degree of openness in the capital account and deregulation of domestic financial systems; - privatization of public enterprises: An ambitious privatization program substantially increased the participation of foreign enterprises and banks in the economy. (OECD, 2001, p ); - greater flexibility of labor markets, which would (supposedly) help the economy to achieve its natural rate of unemployment. 11

12 Such policies have been adopted in Brazil since the early nineties and actually the reforms have not yet come to an ending point. However, the effects of some of these institutional and policy changes can already be evaluated. Concerning trade policies, there was a widespread reduction of tariff and non-tariff barriers in the early nineties. According to Agenor and Montiel (1999), the average import tariff in Brazil fell from 51% in 1987 to 21% in In addition, other steps in promoting trade liberalization were taken, such as removing market reservation on computers and other products, ending legal discrimination against foreign enterprises, and so on. The main question this paper intends to address is: what was the effect of trade liberalization on the patterns of specialization in Brazil? In order to assess this question it is necessary to look at the composition of Brazilian exports before and after the reforms. 3 The 1980s represented the completion of the ISI process in the Brazilian economy, and manufactured goods became the most important component in the total of exports. During that decade, the share of primary products in total exports declined sharply, from roughly 42% to 28%. According to Guerrieri (2002), most of Brazil s comparative advantages in the late eighties were concentrated in basic chemicals, steel manufacturing, non-metallic minerals sectors, electrical machinery, and auto parts. In the nineties, however, the share of industrial goods on overall exports did not increase for the first time in three decades. ( ) [It] suggests that ( ) Brazilian industrialization process paid high adjustment costs in recent years. (Guerrieri, 2002, p. 270). The general result found by studies on the pattern of specialization in Brazil in the nineties is very similar from the ones presented in the previous section. That is, just like other countries in Latin America (and South America in particular) Brazilian exports have experienced a change in its composition, with an increase in participation of primary goods, semi-processed goods based on natural resources, and so on. A recent study by OECD (2001, p. 142), for instance, states: By 1998 primary goods had once again become Brazil s top comparative advantage. In this way Brazil s previous pattern of trade specialization re-emerged despite persistent trade barriers in international markets for agricultural goods. A preliminary look at exports data in Brazil during the nineties seems to provide some support to this interpretation: (i) (ii) The share of primary exports interrupted its declining trend observed in the seventies and eighties, and remained constant through the last ten years between 25% and 28% (see table 1, annex); Average annual growth rates of primary exports were consistently lower than the growth rates of exports of manufactures and semi-manufactures in the 1970s and 1980s. In the 1990s, however, growth rates for the three groups are almost the same (table 1-a); 3 We have also examined the behavior of Brazilian imports between 1974 and During the nineties, we were not able to identify significant changes in the composition of imports, except for a slight increase in the shares of capital goods (from 14% in 1990 to 18% in 2002) and intermediate goods (from 53% to 58% in the same period). See also Canuto and Xavier,

13 (iii) Considering the volume of exports (instead of their value in US$), in order to exclude the influence of commodity prices variations, we find that the primary sector presents a slightly better performance, when compared to the other two sectors, in the nineties: average annual growth rates from 1991 to 2002 are 9.13 (primary), 7.15 (manufactures), 7.77 (semimanufactures). On the other hand, the primary sector presented the lowest growth rates among all three during the 1970s and the 1980s (table 3). This can be interpreted as evidence in favor of primary specialization. On the other hand, the analysis of the data can also point to different conclusions, which suggest that a clear-cut tendency in the pattern of specialization has not emerged from the post-reform period. First of all, we cannot observe any changes in the shares of the three groups in total exports in the 1990s. The shares for primary goods, manufactures, and semi-manufactures are, respectively, 28%, 54%, and 16% in 1990, whereas in 2002 the values are 28%, 55%, and 15% (table 2). This result is associated with the fact that the average annual growth rates of exports of the three groups are almost the same during this period (as mentioned before). It is worthy to note also that manufactures remain the most important component of total exports, with shares fluctuating between 55% and 60% over the entire decade. (see also chart 1) Second, interesting results can be found if we look at the exports of manufactures in a more disaggregated way. Let us consider the following division of total exports of manufactures into subgroups (table 4): a) The first subgroup, which I will call low tech, includes processed natural commodities and some traditional industries: processed coffee, orange juice, footwear, and steel products. b) The second subgroup, which I will call high tech, comprises industries producing some kinds of capital goods and parts, and equipments with a relatively higher degree of complexity: transportation materials, machinery and mechanical equipment, electrical equipment. c) Others: all the sectors not included in the first two subgroups. In this case, the low tech subgroup decreases in relative terms during the period (from 48% in 1990 to 23% in 2001), whereas the high tech subgroup gains relative importance (from 33% to 47%). This can be interpreted as evidence contrary to traditional sectors specialization. 4 This result is consistent with the ones found by Ocampo (2003, p. 15). Another kind of evidence can be found when a different division of total exports is considered. In this case, the groups are capital goods, durable consumption goods, non-durable consumption goods, intermediate goods, and fuel. The main information that emerges from the data is the prevalence of intermediate goods (around 60% of total current exports). However, capital goods present the highest average annual 4 These results should be seen as preliminary. A more detailed analysis of disaggregated data and a more careful choice of sectors to be included in the high tech and low tech groups are needed before we reach definite conclusions. 13

14 growth rate in the period (around 12%) 5. Intermediate goods, in turn, had the lowest rate among all the groups: 4.65%, which is, by the way, lower than the rates of growth in the previous two decades. The differences in growth rates, of course, reflected in the exports shares for the different groups: capital goods increased its participation in total exports, from around 7% in 1990 to around 12% in 2002, whereas the share of intermediate goods fell from 70% to 60% in the same period. (tables 5 and 6) 6 4. CONCLUSIONS This paper presented a brief analysis of Brazilian exports in the nineties in order to address the question of whether trade liberalization implied changes in the pattern of specialization. We found mixed results, which seem to indicate that a clear change in the patterns of export specialization did not take place in the Brazilian economy during the nineties. Thus, the analysis casts some doubt on the conclusions made by other studies concerning the tendency to specialization in primary products and natural resource-based manufactures. If the results discussed here are correct, what explanation can be found to the fact that the economy is not following that expected pattern, given the experience of other countries in the region? I would suggest two possible explanations for that: (i) reforms are still to be completed and a full change in the pattern of specialization is still to take place; and (ii) the Brazilian economy was able to acquire comparative advantages in manufactures during the IS industrialization period and, therefore, does not present the same structure of other South American countries, such as Argentina and Chile. In this case, Brazil might be included in the group of semi-industrialized sandwich economies, facing stiff competition from new low-wage producers of labor intensive goods while still being unable to compete with the more efficient producers of capital-intensive goods in the more industrialized economies (Ros, 2002, p. 304). The discussion of these two alternatives goes beyond the scope of this paper. Some suggestions for future research in this direction may be: to analyze more disaggregated data and longer periods; to consider the evolution of exports to the main trade partners, in order to assess the impact of regional integration (especially MERCOSUR); to use time series econometric techniques to forecast the behavior of exports in the future. A final comment can be made about growth prospects and economic policy implications. If the theoretical literature on trade, specialization, and growth presents an adequate perspective to analyze the growth prospects of the Brazilian economy, it seems that a pattern of specialization based on primary goods and basic manufactures may not provide the best opportunities for long-term growth, despite possible static gains from a more efficient resource allocation. Growth may be restricted in the long run, given the low rate of technological change in most of these sectors, the low income- and high 5 Except for fuel. 6 If we analyze the quantities exported, instead of value in US$, a similar pattern can be observed: capital goods exports grew on average 10% per year, while intermediate goods exports grew 6% per year between 1992 and

15 price-elasticity of such goods, and the external vulnerability derived from fluctuations of the prices of natural commodities in international markets. 7 On the other hand, if Brazil was able to acquire comparative advantages in some manufactured sectors and at the same time has comparative advantages in primary goods, it means that government intervention (through selective industrial and trade policies) may be able to guide the economy towards one pattern of specialization or the other. As the literature shows, this choice has important future implications in terms of growth, inequality, and other economic and social variables in Brazil. 7 However, there seems to be no straightforward relation between export specialization patterns and GDP growth in Latin American countries in the nineties. (Ocampo, 2003, p.21) 15

16 ANNEX - STATISTICAL TABLES AND GRAPHS TABLE 1 Exports (FOB) - Brazil 1974/2002 (US$ million) Period Primary good % Manufactures % Semimanufact. % Total , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,362 Source: Brazil. Secretary of Foreign Trade TABLE 2 Average annual growth rates Period Primary goods Manufactures Semi-manufact Source: Brazil. Secretary of Foreign Trade. 16

17 Chart 1 - Export shares - Brazil 1991/2002 % Primary goods Manufactures Semi-manufact Year TABLE 3 Exports (quantities) - Brazil Average annual growth rates (1975/2002) Period Primary goods Manufactures Semi-manuf Source: Brazil. Secretary of Foreign Trade TABLE 4 Exports - Manufactures - Brazil 1988/2001 Period Total (M) "Low tech" % "High tech" % Others % Source: Brazil. Secretary of Foreign Trade 17

18 Chart 2 - Exports (Manufactures) - Brazil 1988/2001 US$ million "Low tech" "High tech" Period Capital goods TABLE 5 Exports (FOB) - Brazil 1974/2002 (US$ million) % Durables % Nondurables % Intermediate % Fuel % , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Source: Brazil. Secretary of Foreign Trade 18

19 TABLE 6 Exports (US$) Brazil Average annual growth rates (1975/2002) Period Capital goods Durables Non-durables Intermediary Fuel Source: Brazil. Secretary of Foreign Trade Chart 3 - Export shares - Brazil 1991/ % 2002 Capital goods Durables Non-durables Intermediate Fuel Year 19

20 REFERENCES Agenor, P., Montiel, P. Development Macroeconomics. Princeton, NJ: Princeton University Press, Aghion, P., Howitt, P. Endogenous Growth Theory. Cambridge, Mass.: MIT Press, Barro, R., Sala-i-Martin, X. Economic Growth. Cambridge, Mass.: MIT Press, Baumann, R. (org) Brasil: Uma Decada em Transicao. Rio de Janeiro: Ed. Campus, Bhagwati, J. Srinivasan, T. Lectures in International Trade. Cambridge, Mass.: MIT Press, Cimoli, M. Correa, N. Trade openness and technological gaps in Latin America: a low growth trap. Paper presented at the conference Innovation and Growth: New Challenges for the Regions, Sophia Antipolis, January Canuto, O., Xavier, C. Specialization and competitiveness in Brazilian foreign trade. Paper presented at the RIO 2000 Triple Helix International Conference, Rio de Janeiro, April Dutt, A. Demand patterns, North-South trade, and Uneven Development, 2003 (unpublished manuscript). Edwards, S. Openness, Productivity and Growth: What Do We Really Know? Economic Journal, 108, March 1998, Guerrieri, P. Trade openness, industrial change, and economic development. In: Fanelli, J. and Medhora, R. (eds) Finance and Competitiveness in Developing Countries. New York: Routledge, Holland, M., Canuto, O., Xavier, C. Taxa de cambio, elasticidades-renda, e saldo comercial na economia brasileira. Revista Brasileira de Economia, 52(2), p , Krueger, A. Trade Policy and Economic Development: How We Learn. American Economic Review, 87(1), March 1997, Krugman, P. Rethinking International Trade. Cambridge, Mass.: MIT Press, Ocampo, J. Lights and shadows in Latin American structural reforms. Paper presented at the Conference on Social and Economic Impacts of Liberalization and Globalization, University of Toronto, April OECD. Open Markets Matter: The Benefits of Trade and Investment Liberalization. Paris: OECD, OECD. OECD Economic Surveys: Brazil. Paris: OECD, Rodriguez, F. and Rodrik, D. Trade Policy and Economic Growth: A Skeptic s Guide to the Cross- National Evidence. NBER Working Paper, n. 7081, April Ros, J. Development Theory and the Economics of Growth. Ann Arbor: Univ. of Michigan Press, Ros, J. Trade specialization and economic growth. In Fanelli, J., Medhora, R. op. cit., 2002.

21 Srinivasan, T. Trade Orientation, Trade Liberalization, and Economic Growth. In: Saxonhouse, G. and Srinivasan, T. (eds.) Development, Duality, and the International Economic Regime. Ann Harbor, The University of Michigan Press, Srinivasan, T. and Bhagwati, J. Outward-Orientation and Development: Are Revisionists Right? Economic Growth Center Discussion Paper, n. 806, Sept Stallings, B. Peres, W. Growth, Employment, and Equity: the impact of the economic reforms in Latin America and the Caribbean. Washington, DC: Brookings Institution Press, Taylor, L. Income Distribution, Inflation, and Growth: Lectures on structuralist macroeconomic theory. Cambridge, Mass.: MIT Press, Thirlwall, A. Foreign trade elasticities in centre-periphery models of growth and development. Banca Nazionale del Lavoro Quarterly Review, n. 146, p , September World Bank. World Development Report 1999/2000. New York, Oxford University Press, Young, A. Learning by doing and the dynamic effects of international trade. Quarterly Journal of Economics, 106, p , May