Abstact Sectoal capabilities and poductive stuctue: An input-output analysis of the key sectos of the Bazilian economy Nelson Maconi 1 Igo L. Rocha 2 Guilheme R. Magacho 3 The complex elationship between poduction stuctue and economic gowth has been the subect of consideable debate among Bazilian economists. This debate esounded afte the 2000s, when Bazil expeienced a peiod of gowth fom the ise of commodity expots, which contasted with the stagnation obseved in the pevious two decades. To analyse the capacity of commodity expots to geneate longtem economic gowth, this pape assesses this secto s pefomance and its effects on elated sectos in the upsteam supply chain though input-output tables. These analyses lead to two main conclusions. Fist, expots of agicultual and mineal commodities exhibited little capacity to boost the economy because they have the lowest linkage indices. Second, a development stategy should conside compaative advantages in the economy while consideing the advantages of a poduction stuctue oiented towad expanding manufactuing. The analysis of the Bazilian poduction stuctue demonstated that sectos elated to manufactuing can stimulate othe sectos, such as sophisticated sevices, because of thei high linkage effects on othe sectos. Keywods: Commodities, manufactued poducts, poduction stuctue, economic gowth, development, input-output model, gowth models. JEL CODES: C67, L16, O11 Áea 6 - Cescimento, Desenvolvimento Econômico e Instituições 1 Pofesso at the São Paulo School of Economics, Getulio Vagas Foundation (EESP/FGV) and Vice Pesident of Bazilian Keynesian Association, Bazil. E-mail: nelson.maconi@fgv.b. 2 Ph.D. student at the Univesity of Cambidge, UK. E-mail: il23@cam.ac.uk. 3 Ph.D. student at the Univesity of Cambidge, UK. E-mail: gm35@cam.ac.uk.
1. Intoduction Afte at least two decades of slow economic gowth, the Bazilian economy gained momentum in the ealy 2000s. The gowth cycle that followed, especially afte 2003, was chaacteised by income edistibution, a steady decease in unemployment, and inceases in investments. This scenaio led to intense economic gowth in the following yeas. Given the impotance of this economic gowth to policy making, eseaches put foth a vast ange of intepetations that sought to detemine the factos and instuments that tiggeed this pocess. 4 Ove the last decade, changes in the intensity of tade flows began to be obseved moe clealy. Stong economic pefomance and intense intenational tade wee accompanied by an incease in commodity pices that inceased Bazilian expots by appoximately 262%, almost twice the global aveage of 135%. This new economic eality esulted in an incease in Bazilian expots that ose fom 10% of the goss domestic poduct (GDP) in 2000, peaking to 16.4% in 2004 and dopping to 11.2% in 2010 due to the global financial cisis. Despite this decease in expots, Bazilian commodities played a key ole in the economy s dynamism that was highly associated with Asian demand, most notably in China (Pates, 2006 and Rocha, 2011). 5 Once the intenational maket began to demand Bazil s main expot poducts, economic gowth led by expots of pimay poducts, especially commodities, assumed a pominent position in intepetations of the gowth expeienced duing that peiod. Some economists suggested that expansion based on the poduction and expot of commoditised sectos do not have a negative effect on the economy. In addition to being capable of geneating income in expot sectos, pimay sectos have indiect effects on othe poductive chains. Pimay sectos also have the capacity to geneate income beyond consumption that could esupply the domestic poduction and elated sevices (Schultz, 1964; Lipton, 1968; Chayanov, 1966). This line of thought has egulaly efuted the necessity of industial and foeign tade policies. These economists note that state intevention of industial sectos would pomote an atificial industialisation incompatible with intenational pattens based on a competitive fee maket. In contast, seveal studies have attempted to demonstate the limitations of pomoting a county s poductive and intenational tade stuctue based on a fee-maket stategy. Both classic Kaldoian intepetations (Kaldo, 1966, 1981; Conwall, 1977, Thilwall & Hussein, 1982; McCombie & Thilwall, 1994a, 1994b; Vedoon, 1949; Thilwall, 1979; Dasgupta & Singh,2006; Dixon & Thilwall, 1975, Moeno-Bid, 2003) and those based on the stuctualist appoach of Latin Ameican thinking (Pebisch 1986, Singe, 1950; Futado, 1961 and Tavaes, 1998) have emphasised the limitations of pomoting economic development based on a poductive tade stuctue of low-value-added poducts. This school of thought is commonly efeed to as developmental theoy. Developmental theoists obseve the negative effects of cuency appeciation in the manufactuing secto caused by expots of commodities, a pocess known as the Dutch disease. These theoists ague that the existence of compaative advantages in natual esouces would significantly incease the expots of low-value-added poducts, such as commodities, in tun esulting in a mao inflow of foeign cuency into the domestic economy and the appeciation of the domestic cuency in eal tems. Taditional sevice sectos ae less affected by these events because manufactuing and moe sophisticated sevices ae tadable and thei coesponding demand is patially supplied by impoted goods (causing a demand leakage). If commodity pices ise, the implications would be moe seious fo the domestic industy than fo non-tadable sectos. The exchange ate would continue to appeciate, and the competitiveness of highe-value-added poducts would be educed, possibly tiggeing a pocess of deindustialisation of the economy. 6 4 The gowth ate has deceased since 2011 in Bazil (Ipeadata). 5 Regading the ecent ise in commodity pices, see Pates (2007). 6 See Coden and Neay (1982), Palma (2005) and Besse-Peeia (2008). The exchange ate appeciation can also occu because of capital inflow.
The main agument of those who citicise economic gowth based on pimay poduct expots is that manufactuing is the main engine of economic development 7. Rosenstein-Rodan (1943), Pebisch (1949), Lewis (1954), Rostow (1956), Futado (1961) and Kaldo (1966) wee some of the fist intellectuals to emphasise the impotance of manufactuing fo economic development. Accoding to these scholas, development is essentially a pocess of stuctual change. Sustained economic gowth is associated with the divesification of domestic poduction, i.e., the geneation of new activities to expand the possibilities of poduction, linkages and highe-value-added goods by poviding incentives to manufactuing. Similaly, Cheney et al. (1986) ague that economic development is tiggeed by poductive tansfomations induced by an inceasing demand fo poduct divesity and technological pogess. These tansfomations would also lead to a moe poductive use of inputs and inceased poductivity. The industialisation pocess feeds itself and divesifies the poduction stuctue. These changes in demand esulting fom gowth entail a dynamic element that tansfoms the poduction stuctue. These changes ceate a shift in the composition of poduction and supply that equies new investments, which poduce technological impovements that futhe stimulate demand. Hischman (1958) has studied the impacts of stimulating cetain sectos in detail and agues that a development stategy should focus on ensuing investment in sectos that can geneate backwad linkages (BLs) and fowad linkages (FLs). Examples include stimulating the poduction of inputs used in poduction and geneating economies of scale inside a secto o the poduction of intemediate goods that can be used as inputs in othe sectos. These stategies also lead to poductivity gains and cost savings in sectos in the late stages of the poduction chain. Thus, this pape evaluates the dynamic effects of a development stategy based on commodity expots, such as the stategy adopted by Bazil in ecent yeas. This evaluation compaes possible poduction linkages that can be ceated by stimulating the sectos in which Bazil enoys compaative advantages in poduction with linkages that could be geneated by poviding incentives to manufactuing. This pape also assesses whethe this stategy can be successful consideing poduction divesification and thus whethe it can pomote economic gowth. Both stategies incease the demand fo sevices. In the pimay expot-led stategy, the incease in demand fo sevices is explained by income gains because of inceased expot evenue and the appeciation of the exchange ate, as noted by Coden (1982) and Besse-Peeia (2008). The inceased demand can taget taditional sevices, such as pesonal sevices, o moden sevices, such as logistics o consulting (Rowthon and Coutts, 2004; Palma, 2005; Dasgupta and Singh, 2006). In the manufactuingled stategy, the incease in demand fo sevices esults fom income sevices and sevitisation, which is defined as the expansion of moe sophisticated and high-value-added sevice activities elated to manufactuing, such as maketing, design and softwae (Lodefalk, 2010; Nodås and Kim, 2013). Theefoe, we will also analyse the linkages of the sevice sectos. Fo this pupose, this pape will adopt a methodology based on input-output tables. The emainde of this pape is oganised as follows. Section 2 povides a bief analysis of the main featues of the post- 1990s Bazilian development model. Then, the input-output methodology adopted in this analysis is pesented is pesented in Section 3. Poduction multiplies, Hischman-Rasmussen backwad and FL indices, and pue nomalised backwad and FL indices compising all poductive sectos ae calculated in Section 4. Finally, concluding emaks ae povided in Section 5 2. The Bazilian development model fom the lost decade to post-1990s The cisis of the 1980s disupted the economic gowth-pomoting mechanisms adopted by Bazil in pevious decades. This cisis occued because of a maked contaction in intenational cedit makets and a epatiation of capital flows to cental economies. The state appaatus was weakened by the deteioation of the global macoeconomic envionment, high govenment indebtedness in the 1970s, and the debt nationalisation pocess, which foced the govenment to bea the buden of pivate decisions. The 7 Rodik (2007), Szimai (2009, 2012) and Fagebeg & Vespagen (1999) also suppot this agument.
govenment also expeienced a fiscal and financial cisis because these difficulties undemined its ability to pomote investment and development to the same degee as in pevious decades. Unde these cicumstances, the Bazilian development model began to be stongly citicised. Heavy citicism developed egading both the conduct of Bazil s economic policy in the pevious decade and the limits of the model applied to the Bazilian economy since the 1930s. Accoding to Bacha and Bonelli (2005), economic stagnation in the 1980s was a consequence of not only macoeconomic imbalances but also a geate stuctual cisis. This cisis aose fom the exhaustion of a development model built on a closed economy maked by stong state intevention and based on the impot substitution industialisation (ISI) model. It was agued that a adical shift in Bazil s economic policy was equied and that the foundations of the development model based on ISI should be eplaced. ISI povided to be an incentive to a Cheney-style industial development model (stengthening the industy of intemediate inputs with mao linkages in the poduction stuctue). Howeve, fee-maket economists agued that ISI was based on potectionist policies that would give ise to distotions in elative pices and in the allocation of esouces in the economy, thus causing inefficiency (Bonelli, 2005). Howeve, the ISI pocess in the Bazilian economy began to show signs of exhaustion in the 1980s as the impot coefficient deceased dastically. The aveage impot coefficient (calculated at constant pices) was 25.3% in the 1920s, deceasing to 11.7% in the 1950s, 5.6% in the 1960s and 4% in the 1980s 8. The tansfomation of the Bazilian economy s poduction stuctue eached a level of divesification that made domestic demand less dependent on global poduction, thus binging the ISI implementation cycle to an end. Meanwhile, in the mid-1960s, the development stategy applied to the Bazilian economy led to a maked incease in the expots of manufactued goods. This incease was suppoted by an industial policy based on high foeign tade taiffs and high subsidies to neutalise the Dutch disease (Besse- Peeia, 2008) 9. Manufactued goods compised only 6.2% of expots in 1964 (initial available data) and eached an aveage of 54.1% in the 1980s. This numbe only began to decease in the second half of the 2010s, afte poduction stated to meet the extenal demand fo commodities (aveaging 37.8% fom 2010 to 2011). 10 The combination of this pevious impot substitution pocess and a subsequent incease in the expots of manufactued poducts (always suppoted by industial policies that favoued both a managed exchange ate and a public spending scheme pomoting the development of stategic sectos) contibuted significantly to Bazil s industialisation pocess. The shae of manufactuing in value-added poducts ose fom 15.1% in 1947 (initial available data) to 21.2% in the 1970s 11, duing the impot substitution phase, and emained elatively high at the time that the elative shae of expots of manufactued goods wee inceasing. The shae of manufactuing in value-added poducts stated to decease in the 1980s because of the afoementioned cisis and continued to dop in the following decades when the govenment ceased the neutalisation of the Dutch disease and most industial policies. The exchange ate chonically appeciated, and commecial and financial openness wee implemented. The shae of manufactuing in value-added poducts deceased to 16.8% in the 2000s and 15.8% in the 2010s. Theefoe, since the 1970s, economic development in the Bazilian economy had been geaed towad foeign tade, paticulaly the expot of manufactued goods associated with the end of the impot substitution pocess. Thus, it did not appea that poduction conditions wee deteioating o that the poduction stuctue was inefficient because, among othe factos, a substantial pecentage of manufactuing poduction was facing intenational competition. Howeve, the county s fiscal situation 8 Souce: IPEADATA. 9 Accoding to Besse-Peeia (2009: 144), to neutalise the Dutch disease, the govenment did not levy a tax on the expots of commodities because it felt it lacked the political capital to do so, but the tax was adopted in pactice though a confisco cambial implied in impot taiffs and subsidies to manufactued goods expots. This was an industial policy that involved a macoeconomic policy: the detemination of the effective exchange ate afte taiffs and subsidies. 10 Souce: Depatment of Planning and Development of Foeign Tade DEPLA (Bazil). 11 Souce; IPEADATA. The shaes wee calculated based on the seies at constant pices.
and extenal accounts deteioated, patially due to the financing of these stategies. This deteioation and the weakening ability of the state to continue this pocess contibuted to the evival of aguments in favou of fee maket ideology, in line with the Washington Consensus. A lowe paticipation of the state in the economy and the pomotion of competitiveness as the main engine of poductivity gowth wee the basis of the new development model established in the 1990s. These pinciples wee based on the Washington Consensus (Williamson, 1989) 12 to install a maket economy that would pomote geate poductivity though specialisation in poduction and by tageting investments to sectos in which Bazil enoyed compaative advantages. Policies designed to pomote the manufactuing secto lost stength duing this peiod and wee vitually abandoned as a esult of the then-pevailing maxim that the best industial policy is no industial policy (Stallings & Pees, 2000). Theefoe, as a esult of maket foces, the 1990s wee maked by mao economic changes that esulted in a poductive estuctuing of the Bazilian economy. Accoding to Fanco (1998), this model would speahead a pocess of industial estuctuing that would incease the competitiveness of the Bazilian economy. This model would eliminate less efficient companies and sectos and induce new technologies so that the county would be able to compete in the intenational aena. In Bazil, this stategy took fom though eductions in quantitative contols and impot taiffs and though the absence of public policies focused on pomoting gowth in stategic sectos fo the county s development. The tade libealisation pocess focused on inceasing impots without poviding incentives fo expots. This model vitually eliminated non-taiff baies to tade, 13 and custom taiffs wee educed consideably based on the county s stuctue of compaative advantages 14. This envionment, combined with cuency appeciation, esulted in a second lage wave of eductions in the shae of manufactuing in value-added goods in the second half of the 1990s 15. The tade libealisation pocess focused moe on impots because bette conditions wee not ceated to impove expots, such as changes in financing and logistics, and pevious policies to stimulate expots wee abandoned. Moeove, the domestic cuency appeciated in eal tems a long-tem appeciation caused by the fact that the industial policy that neutalised the Dutch disease ceased with tade libealisation (Besse-Peeia 2009). These factos constained access to foeign demand and investments. Thus, investments inceased to a lesse extent than expected in both the public and pivate sectos duing this peiod, deceasing fom an aveage ate of 19.4% between 1990 and 1994 to 17.1% between 1995 and 1999 16. This decease was eflected in an aveage annual gowth ate of 2.9% in the 1990s, significantly contasting with the aveage annual gowth ate of 8.7% in the 1970s 17. To face the challenges of the new economic envionment, companies began to take stict adustment measues duing the 1990s to ationalise thei poduction by eplacing impoted inputs with local inputs 18. Impot penetation coefficients inceased significantly between 1990 and 1998. Thus, as agued by Belluzzo and Almeida (2002), thee was a shinking of supply chains, which wee also affected by pedatoy impots. Industial companies began to look fo ways to impove thei competitiveness by cutting costs, eplacing local poducts with impoted inputs and educing inte- 12 The ten pepositions wee the following: (1) fiscal discipline, (2) eduction of public spending, (3) tax efom (4) inteest ates detemined by the maket, (5) exchange ates detemined by the maket, (6) libealisation of impots, (7) libealisation of foeign diect investment flows, (8) pivatisation of state entepises, (9) economic and labo deegulation, and (10) espect fo intellectual popety. 13 Accoding to Caneio (2002), nontaiff baies to tade, which many saw as the main potectionist instument, wee completely emoved afte Annex C (a list of 1,300 poducts whose impots wee fobidden because simila domestic poducts wee available) was abolished. 14 Nominal impot taiffs wee educed by 55.3% between 1990 and 1994, with the maximum taiff not exceeding 40%. 15 The fist phase of the Bazilian deindustialisation pocess was in the 1980s, and it might be associated with significant macoeconomic imbalances fiscal cisis, high foeign debt and inflation obseved duing that peiod. 16 Thee was a 7.4% annual eduction in investment in the poductive state secto between 1981 and 1989; the investment ates in the pivate secto emained unchanged in eal tems (data extacted fom Caneio, 2002). 17 The data pesented hee wee calculated by IBGE. 18 See Rocha (2011), Maconi and Rocha (2012) fo moe infomation on the impoted input coefficients.
sectoal linkages still unde development (Rocha, 2011). Accoding to the Bazilian Institute fo Geogaphy and Statistics (IBGE) 19, the penetation coefficient fo intemediate goods ose fom 2.7% in 1990 to 10.5% in 1998. The substitution pocess was even moe ponounced fo manufactued intemediate goods: wheeas the penetation coefficient was 6.1% in 1990, it inceased to 21.9% by 1998. Thus, as local inputs wee lagely eplaced by impots, the pocess of developing domestic poduction equied an inceasing amount of foeign cuency, which made it inceasingly difficult to employ the same gowth stategy 20. As agued by Laplane and Sati (2006, p. 276), fom a tade balance pespective, this pocess tuned the suplus in the tade in manufactued goods egisteed in the fist half of the decade into a deficit fom 1995 on, clealy indicating that it would be difficult to keep the economy on a gowth path. The tade balance was moe significantly negative pecisely in 1997, when industial poduction was gowing at the highest ates, einfocing the intepetation that the inceasing impoted contents of local poducts wee geneating an even moe ponounced deficit. Expots of manufactued poducts ecoveed fo seveal yeas in the 2000s, possibly because of the depeciation of the national cuency and the gowth of wold demand. Howeve, this movement was inteupted by changes in the global commodity maket, when the 2008/2009 financial cisis took place. As a esult of an extemely weakened poduction stuctue esulting fom ove a decade of stongly maket-oiented policies, poduction and expots of pimay poducts became the engine of Bazil s gowth. A new cycle of economic expansion began in 2002 with the so-called boom of commodity pices. In mid-2004, global demand began to ise moe intensely because of the gowth of the Asian economies, paticulaly that of China. This shift (along with a monetay policy that caused a significant incease in the diffeential between domestic and extenal inteest ates) esulted in a stong appeciation of the domestic cuency. Additionally, this shift caused a consequent incease in impots of manufactued goods, which inceased by 155% at constant pices between 2002 and 2008 21, and a eduction in the manufactuing of value-added poducts 22. This scenaio contibuted to the thid phase of eductions in the shae of manufactuing in valueadded goods in the Bazilian economy afte 2002. At this time, the appeciation of the local cuency undemined the competitiveness of Bazilian manufactued poducts aboad. At the same time, thee was an incease in expots of Bazilian pimay poducts to Asia, which also caused commodity pices to incease. The tend of ising commodity pices was only evesed in 2009 because of the 2008/2009 financial cisis; howeve, these pices still emained compaatively high. As a esult of this new dynamic, many questions emeged egading the composition of the domestic poduction stuctue, specifically concening the sectos that boosted the economy. The shae of the sevices secto in value-added poducts inceased by 4.1% between 1995 and 2009 23. The shaes of mineal and agicultual commodities also inceased in that peiod (12.1%), wheeas the shae of the industial secto deceased by 12.6%. The shae of the manufactuing secto inceased to 17%. Gowth in the commodities secto stimulated sevices activities, including both taditional and moden sevices. Shaes of sales and tanspots deceased by 2.4% and 2.3%, espectively. Real estate and financial intemediation shaes inceased by 9.4% and 18.4%, espectively. Business sevices (includes taditional and moden sevices) inceased by 20.9%. Community, social and pesonal sevices deceased by 7.7%. In the past, the Bazilian economy adopted a development stategy based on the manufactuing secto. In moe ecent yeas, Bazil has tuned to a pimay expot-led stategy. In the next sections, we 19 Extacted fom Caneio (2002). 20 As discussed in Rocha (2011, p. 55), substituting local inputs with impoted ones was seen as the easiest way to meet demand and evealed the contadiction between stiving fo efficiency gains at the micoeconomic level and the sustainability of the pocess at the macoeconomic level, i.e. the contast between competitive pessue and the weakening of industial chains. 21 Calculated by the authos based on infomation fom FUNCEX (Foeign Tade Study Cente Foundation). 22 Expots of manufactued poducts inceased by 80.5% on the same compaison basis, with nealy half of the vaiation obseved fo impots. 23 We consideed the peiod fo which data fo National Accounts wee available unde the same methodology and disaggegation.
will evaluate the capacity of both stategies to incease economic gowth using indicatos that measue the impact of the poduction of one secto ove anothe secto. 3. Theoetical foundations of the input-output model This study used input-output analyses to analyse the capacity of commodity poduction to impove the Bazilian economy vis-à-vis manufactued goods because these models can incopoate inteelationships between vaious industies in the Bazilian economy. Using this methodology, it is possible to empiically investigate the economic ole of a poductive secto without esticting the analysis to its diect effects on the economy egading geneating poduction, employment, value-added poducts, tax evenue, and expots. With this method, it is possible to also investigate the indiect effects, i.e., the effects that a secto can have on othe sectos though channels established by input/output tansactions between diffeent economic sectos. To calculate these indices, input-output matices fom 2000 to 2008 wee used (55 sectos) based on the National Accounts published annually by the Bazilian Institute fo Geogaphy and Statistics (IBGE). Because of the non-linea peiodicity of the infomation contained in this publication, Bazilian matices wee estimated fo each yea of the study peiod accoding to the methodology pesented by Guilhoto and Sesso Filho (2005) based on peliminay data of Bazil s National Accounts. This methodology consists of a pocedue fo combining infomation fom the Table of Resouces (V) and the Table of Use of goods and sevices at consume pices (U) published by the IBGE fo the Bazilian economy. Next, to educe the numbe of sectos equied to assess the diffeences among manufactued poducts, commodities and non-tadables, the matix was aggegated into 18 sectos distibuted in these two goups based on the poximity of thei poduction stuctues. The coespondence between the sectos of the initial matix (55 sectos) and the esulting matix (18 sectos) is shown in Annex 1. 3.1.Theoetical foundations The theoetical appoach adopted in this study is based on the input-output model, which was oiginally developed by Leontief (1951). The economy s total poduction (X) is the esult of the sum of the poduction intended fo intemediate consumption by diffeent sectos (Z) and the final demand. The economy s total poduction (X) also epesents the extent to which secto used goods poduced by secto i in its total poduction and indicates the pecentage of inputs sold to industy by secto i in elation to the total poduction of secto. zi whee we obtain a = is the inte-sectoal sales of secto i to secto and i Z X i x (1) is the total poduction of secto. Thus, X = AX + Y (2) By solving this equation, the total output equied to meet the final demand can be expessed as 1 ( I A) Y X = (3) 1 whee ( I A) = L is the invese of Leontief s matix. Using Leontief s model, vaious analyses can assess the impact of demand vaiation on poduction, employment and value-added goods, among othe vaiables. Based on the atio between the
value of the vaiable K employed and the poduction of the coesponding secto, the diect coefficient (k) is calculated fo each vaiable (e.g., employment, value-added goods, wages) as follows: k = K X (4) Once k is calculated, along with Leontief s invese matix (L), it is possible to calculate the amount of K diectly and indiectly geneated fo each monetay unit poduced fo the final demand fo each secto. This value is efeed to as the geneato, which elates poduction fo final demand to a given vaiable of the economy. Thus, the geneato of a vaiable K fo each secto can be calculated by summing each column of matix GK as follows: GK n = i= kˆ i Li 1 (5) With the quotient between the geneato and espective diect coefficient, it is possible to obtain the multiplie of vaiable K that associates the diect effect of a vaiable egading its total (diect and indiect) effect on the economy as follows: MK = GK k i (6) In this manne, multiplies fo employment and poduction can be obtained 24. In addition, the input-output methodology allows othe indicatos of economic impotance to be calculated. The seminal woks of Hischman (1958) and Rasmussen (1956) allow one define the inteelationships between the sectos and the powe of each secto in the economy to establish linkages. The Hischman-Rasmussen BL indices detemine the demand of a secto fo othe sectos, and the FL indices detemine the degee to l which this secto is demanded by othe sectos. To calculate the Hischman-Rasmussen BL index, i is * defined as the elements of matix L, L L is the aveage of all elements of L and * is the sum of a column of L. The BL is expessed as follows: BL = * ( L n) * L (7) The Hischman-Rasmussen FL index is calculated fom the matix of coefficients in ow (F) obtained fom the intemediate consumption matix (Z) and is expessed as F = xˆ 1 Z (8) As in Leontief s invese matix, the matix of Ghost is deduced with as follows: 1 G = ( I F) (9) * Consideing G G as the aveage of all elements of G and i* as the sum of the elements in each ow, the Hischman-Rasmussen FL index is obtained as follows: 25 24 This pape used type I multiplies, which only conside multiplicative effects esticted to demand fo intemediate inputs, without making household demand endogenous to the model. If household demand wee endogenised in the system, the induced effect would be consideed, and type II multiplies would be used (Guilhoto, 2009). 25 Fo moe details, see Mille and Blai (2009).
FL i = * ( G n) i* G (10) Sectos can be classified into the following fou goups depending on thei index values: (i) independent fom (o not highly elated to) othe sectos if both linkage indices ae less than 1; (ii) dependent on (o stongly elated to) othe sectos if both linkage indices ae geate than 1, denoting sectos that play a key ole in the economy; (ii) dependent on intesectoal supply (o stimulates poduction in othe sectos) if only the BL index is geate than 1; and (iv) dependent on intesectoal demand (o dependent on the poduction of othe sectos) if only the FL index is geate than 1. Howeve, as obseved by Cella (1984) and Clements (1990), these indices do not conside the poduction levels of each analysed secto. To coect and efine the solutions pesented by Cella (1984) and Clements (1990), Guilhoto et al. (1994) intoduced the fist vesion of what would be consideed a pue linkage index, which late became known as the GHS methodology. Guilhoto, Sonis and Hewings (1996) pesent decompositions of Leontief s invese matix that integate the main techniques used in input-output stuctues to decompose and distinguish the impact of an economic secto on its vaious components. The consolidated GHS methodology is based on a block matix of technical coefficients (A): A A = A A A (11) whee A is composed of squae and ectangula matices. A and A epesent squae matices of the diect technical coefficients of secto and the emainde of the economy (entie economy minus secto ), espectively. A and A epesent ectangula matices of diect inputs puchased by secto fom the emainde of the economy and diect inputs puchased by the emainde of the economy fom secto, espectively. Based on matix A in (11), a tiple multiplicative decomposition of Leontief s invese matix can be expessed as follows: whee L = ( I A) 1 L = L L L = 0 0 0 0 I A A I (12) 1 = ( I A ) (13) 1 = ( I A ) (14) 1 = ( I A A ) (15) = ( I A A 1 ) (16) Fom Leontief s model in (3) and Equation (12), we obtain the following: X X = 0 0 Y + A Y A Y + Y (17)
Though this pocess, pue BL (PBL) and pue FL (PFL) indices can be deduced in thei new definition as follows: PBL = PFL = A A Y Y (18) (19) In Equation (18), the index indicates the impact of the value of the total output of secto on the emainde of the economy, the net of demand fo inputs that secto poduces fo itself and the etuns of the emainde of the economy fo secto and vice vesa. The PFL in Equation (19) indicates the impact of the value of the total poduction of the emainde of the economy on secto. The PBL and PFL ae summed to calculate the pue total linkage (PTL) index fo each secto of the economy, expessed in cuent values: PTL = PBL + PFL (20) Howeve, because these indices do not conside the size of the sectos, which is an impotant aspect fo identifying key sectos of the economy, a nomalisation pocedue should be applied to these indices based on the appoach of nomalised pue linkage indices. Fo this pupose, the pue indices of each secto ae divided by the aveage of pue indices fo the economy as a whole. Thus, the nomalised PBL (PBLN) index, the nomalised PFL (PFLN) index and the nomalised PTL (PTLN) index can be epesented as follows: PBLN PFLN PTLN i i i n = PBLi PBLi n i= 1 (21) n = PFLi PFLi n i= 1 (22) n = PTLi PTLi n i= 1 (23) 4. Results In this section, the esults obtained using the poposed methodology based on the input-output analysis ae pesented in the following ode: output multiplies, Rasmussen-Hischman indices, PBLN indices, and PFLN indices. The output multiplie indicates how much is poduced fo each monetay unit spent on final consumption. These multiplies incopoate diect and indiect effects to measue the impacts of a demand shock on the economy. Type I multiplies ae used in this analysis. As seen fom the fist two columns of Table 1, the geatest multiplies of the Bazilian economy (geate than 2.0 fo most yeas) wee identified in six sectos: food/beveages, tanspotation equipment, chemical poducts, appael/leathe/footwea, petoleum, and metal poducts, with food/beveages and tanspotation equipment being the two most pominent sectos. Tanspotation equipment includes the auto industy. The appael/leathe/footwea secto also has a high multiplie effect and is labou intensive, making it impotant fo the development of poductive chains that employ lage numbes of people. The thee lowest multiplies in the tadable sectos ae miscellaneous, mineal commodities and agicultual commodities. The miscellaneous and mineal commodities sectos ae associated with a stong bias towad Bazil s compaative advantages. Finally, the analysis of the non-tadable secto shows that sevices have little capacity to stimulate the
economy, exhibiting the lowest anks. Although constuction and utilities appea with the highest multiplies among sevices, they ae still lowe than commodities output multiplies. The esults of the analysis of multiplies can be complemented by Hischman-Rasmussen FL and BL indices (columns 3-6 of Table 1). The BL index indicates the extent to which the output of a paticula secto stimulates the poduction of its inputs. The FL index allows one to analyse the impotance of a given secto as an input supplie. These indices allow one to investigate behaviou of the economy s intenal stuctue and identify key sectos that depend on inte-industial supply and inte-industial demand o ae elatively independent fom the othe sectos. Located in the uppe-ight quadant, the key sectos of the Bazilian economy in the 2000s wee petoleum and chemical poducts. These sectos exhibited a high potential to boost othe sectos of the economy in addition to being mao input supplies. The petoleum secto had the geatest capacity to supply inputs to the emaining sectos. Although it falls unde the commodity categoy, petoleum is chaacteised by a high poduction ate fo each monetay unit spent on final consumption. The petoleum secto is a supplie of inputs fo manufactuing, the main industialised poducts of the chemical poducts and synthetic mateials sectos and the appael secto 26. The petoleum secto is not expoted as a aw mateial, as ae mineal commodities 27. Table 1 - Output Multiplies and Linkage Indices Aveage 2000-2009 Output Linkage indexes Nomalized pue linkage Sectos Multiplies Backwad Fowad Backwad Fowad Avg Rank Avg Rank Avg Rank Avg Rank Avg Rank Agicultual commodities 1.77 10 0.97 10 1.14 7 0.81 8 1.98 2 Petoleum 2.18 3 1.19 3 1.45 1 0.37 16 1.36 7 Mineal commodities 1.97 8 1.07 8 1.21 5 0.48 14 1.31 8 Food and Beveages 2.35 1 1.29 1 0.86 13 2.51 1 0.65 10 Textiles and footwea 2.01 5 1.10 5 0.87 12 0.53 13 0.17 16 Miscellaneous 1.83 9 1.00 9 1.04 8 0.39 15 0.39 12 Chemical poducts 2.06 4 1.13 4 1.33 2 0.54 12 1.74 4 Metal poducts (incl. machiney) 1.97 7 1.08 7 1.00 9 0.70 9 0.59 11 Electic mat. and communic. 1.99 6 1.09 6 0.90 11 0.66 10 0.32 14 Tanspotation equipament 2.24 2 1.23 2 0.82 15 1.28 6 0.25 15 Utilities 1.70 12 0.93 12 1.29 4 0.23 17 1.06 9 Constuction 1.75 11 0.96 11 0.67 16 1.55 5 0.33 13 Sales 1.42 18 0.78 18 0.95 10 0.91 7 1.68 5 Taditional sevices 1.51 17 0.82 17 0.84 14 2.41 2 1.90 3 Moden sevices 1.59 13 0.87 13 1.15 6 0.64 11 2.44 1 Business sevices 1.57 14 0.86 14 1.33 3 0.18 18 1.63 6 Health and education 1.51 16 0.83 16 0.57 18 1.79 4 0.06 18 Public admin. 1.52 15 0.83 15 0.58 17 2.03 3 0.11 17 Souce: Elaboated by the authos based on the estimated Bazilian input-output tables. Thee ae no tadable sectos of the Bazilian economy in the goup that ae elatively independent fom the othe sectos (lowe-left quadant), indicating that thee is a significant degee of dependence between seveal industial sectos of the economy. This esult may have been caused by the development pocess of Bazilian industy duing the ISI peiod, when input poduction and inte-industial demand wee stongly stimulated. Located in the lowe-ight quadant, the food/beveages and tanspotation 26 The highest incease in linkage indices in this secto was egisteed fom 2004-2006, duing which Bazil became selfsufficient in oil poduction. 27 Accoding to the National Accounts, Bazilian expots of petoleum and natual gas wee 21.3% of the total poduction in 2009, wheeas 90.2% of the total poduction of ion oe was expoted.
equipment sectos ae stongly dependent on inte-industial supply and stimulate poduction in othe sectos. These data demonstate the impotance of these sectos and thei ability to incease poduction in othe sectos. In the uppe-left quadant, agicultual commodities, moden sevices, business sevices and utilities ae the sectos with the lagest inte-industial demand dependence. These sectos pesent the lowest capacity to incease poduction in othe sectos of the economy; they actually depend on the poduction of othe sectos. This esult is expected fo the sevices secto. Moeove, taditional sevices ae in the lowe-left quadant, which indicates the secto s lack of dynamism. Theefoe, the gowth ates of the economy would likely be lowe if inceases in income stimulated the poduction of these types of sevices. Gaph 1 - Hischman-Rasmussen BL and FL indices Aveage 2000-2009 1.60 Fowad Linkages (FL) 1.40 1.20 1.00 0.80 0.60 Business sevices Moden sevices Sales Public admin Utilities Agicultual commodities Taditional sevices Miscellaneous Constuction Health and education Mineal commodities Metal poducts (incl. machiney) Electic mateials and communication Textiles and footwea Petoleum Chemical poducts Tanspotation equipament Food and Beveages 0.40 0.70 0.80 0.90 1.00 1.10 1.20 1.30 Backwad Linkages (BL) Souce: Elaboated by the authos based on the estimated Bazilian input-output tables. Howeve, the Hischman-Rasmussen index does not conside the size of sectos in the economy, which helps to identify key sectos. Thus, Table 1 (columns 7-10) includes these indices nomalised by the secto size. The fist index assesses the pue impact of a secto on its chain, and the second index measues the secto s capacity to supply inputs to the domestic industy. Food/beveages, taditional sevices, public admin, health/education, constuction and tanspotation equipment occupy the fist six positions of the BL indices. The food/beveages secto has the highest index because of the impotance of its demand fom othe industial complexes and its size compaed with the othe sectos. In addition, the tanspotation equipment secto s output has a ising pue impact and has demanded inputs fom the othe sectos of the economy ove time. Moeove, taditional sevices and constuction appea as sectos with a high demand fom othe sectos in the economy because of thei elative impotance to the economic stuctue. Sevices epesent nealy two thids of the Bazilian economy, and these two goups ae the most elevant. As expected, poducts with a lowe degee of pocessing that ae employed in the poduction of othe goods exhibited elatively high FL indices. The tanspotation equipment and electical mateials/communications equipment sectos, whose degee of pocessing is highe and whose chain is close to final goods, anked 14th and 15th, espectively. Agicultual commodities, some sevices and
chemical poducts pesent high FL indices because they ae impotant supplies fo the economy as a whole. Moeove, although mineal commodities have a low degee of pocessing, they ae anked only 8th. This position is due to the low significance of this secto as a domestic supplie because of the high volume of aw mineal expots. 5. Concluding emaks Although the Bazilian development model adopted since the Plano Real in 1994 was able to guaantee pice stabilisation, it failed to pomote economic gowth duing the 1990s. The national economy esumed a gowth path with impovements in extenal demand fo Bazilian poducts only in the ealy 2000s. Given this oint pocess, most intepetations of the ecent expansion of the Bazilian economy identified commodity poduction and its expots as the main dives of this gowth patten. To assess this phenomenon, this study analysed the abilities of vaious sectos to boost the Bazilian economy. Input-output matices wee used to quantify the potential of commodities, manufactuing and sevices to leveage demand fom othe sectos and to identify key input-supplying sectos. Agicultual and mineal commodities and non-tadable sectos exhibited little capacity to boost the economy. In addition to thei low multiplies, BL indices fo these sectos wee low because thei supply chains ae not lage. In contast, the FL indices of the most moden and dynamic sevice sectos ae high, and these sectos can stimulate geneal output when associated with manufactuing poduction, especially poduction that is moe sophisticated and that demands high-value-added sevices. Although it also falls unde the commodity categoy, the petoleum secto has notably diffeent chaacteistics than the othe sectos. In addition to the elative impotance of petoleum as a demand secto and thus as a booste of othe supply chains, this secto is the leading supplie of inputs fo the economy. The petoleum secto is a povide of inputs used fo manufactuing, the main industialised poducts poduced by the chemical poducts secto and the synthetic mateials poduced by the appael secto. The petoleum secto is also an indiect supplie of the tanspotation equipment and electical mateials/communications equipment sectos and seveal othe industies. Thus, the contasting behaviou of the petoleum secto compaed to the othe sectos clealy demonstates the impotance of adding value to commodities athe than simply expoting aw o semi-manufactued goods. The analysis of multiplies and linkage indices also emphasised the impotance of tanspotation equipment and food\beveages as sectos that ae highly dependent on inte-industial supply. These sectos have a high potential to tun final demand into poduction both within themselves and in thei upsteam supply chain. These esults emphasise the impotance of focusing development stategy on consolidating a poduction stuctue in which supply chains ae oganised so that final demand can boost the emainde of the economy. Theefoe, the analysis of the Bazilian poduction stuctue clealy showed that sectos elated to manufactued poducts can boost the economy to a geate extent than othe sectos due to thei linkage effects on othe sectos of the economy. Effots to pomote a dynamic poduction stuctue must be associated with a development stategy that consides compaative advantages in the economy while consideing the advantages of a poduction stuctue oiented towad expanding manufactuing. Intepetations of the ecent gowth of Bazil s economy that explain it based on the expansion of commoditised and non-tadable sectos o on the county s compaative advantages limit the undestanding of the complex factos that boost an economy. Theefoe, a development stategy that guaantees high gowth ates ove the long tem should ecognise the impotance of a poductive stuctue oiented towad manufactuing, even if this secto is boosted by pimay commodities, such as the petoleum industy. Refeences
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Appendix 1 - Tanslato of types of commodities, manufactuing and sevices Agicultual Commodities Agicultue, foesty, extactive poducts Livestock and fishing activities Tobacco poducts Wood poducts - excluding funitue Pulp and pape poducts Alcohol Petoleum Petoleum efining and coking Agicultual Oil and natual gas Mineal Commodities Manufactue of steel and steel poducts Ion oe Metallugy of non-feous metals Othe extactive poducts Cement Othe non-metallic mineals Textiles and footwea Textiles Aticles of appael and accessoies Leathe poducts and footwea Miscellaneous Funitue items and poducts of diffeent industies Newspapes, magazines, CDs Chemical Poducts Manufactue of esins and elastomes Phamaceutical poducts Agochemicals Pefumes, hygiene and cleaning poducts Paints, vanishes, enamels and lacques Vaious chemical poducts and pepaations Chemical poducts Rubbe and plastic items Metallugy (incl. Machiney) Metal poducts - except machiney and equipment Machines and equipment, including maintenance and epais Food and beveages Food and beveages Electic Mateials and Communication Equipment Household appliances Office machines and IT equipment Electical machines, appliances and equipment Electonic mateials and communications equipment Medical-hospital equipment/instuments fo measuement and optical puposes Tanspotation equipment Cas, vans and off-oad vehicles Tucks and buses Pats and accessoies fo moto vehicles Othe tanspotation equipment Constuction Constuction Sales Sales Moden Sevices Infomation Technology Sevices Financial Intemediation Business Sevices Business Sevices Education and Health Commecial Education Commecial Health Public Education Public Health Taditional Sevices Tanspot and Post Activities Real Estate Activities Repai of Household Goods Hotels and Restauants Household Sevices Othe Community, Social and Pesonal Sevices Public Admin Public Admin and Compulsoy Social Secuity