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
Trade facilitation matters!
Gary Clyde Hufbauer, Martin Vieiro, John S.Wilson 14 September 2012
Economists celebrate trade not only because they love watching ships cross the Pacific and cargo planes land at Paris Charles-de-Gaulle but also because increased trade demonstrably raises income and improves living standards. This column argues that a powerful way to boost trade is by focusing on trade facilitation, i.e. improving both hard infrastructure like ports and railways, and soft infrastructure such as shipping logistics.
Once upon a time, most economists thought that tariffs, quotas and exchange controls were the alphas and omegas of trade policy. Hence their consensus recommendations: slash tariffs, eliminate quotas, float the exchange rate and commerce would blossom. Not quite so! It turns out that trade costs decisively separate countries that participate fully in the world economy and countries that are marginalised. Perhaps the biggest new idea is that trade transaction costs are not simply a matter of geography and fate.
growth, openness, trade facilitation
Openness to international trade causes growth in sub-Saharan Africa
Markus Brückner, Daniel Lederman 02 May 2012
The recent growth performance in sub-Saharan Africa has been remarkable given that, for over four decades since 1960, real GDP per capita growth had been dismal, averaging less than 0.5% per annum. This column, using within-country variation and instrumental variables, argues that increases in openness to trade are behind this performance.
In recent years, sub-Saharan African countries have grown remarkably. According to data from the Penn World Table 7.0 (Heston et al. 2011), average annual real GDP per capita growth from 2005-9 has been over 2.5% (3.5% when excluding 2008 and 2009). This recent growth performance is remarkable given that, for over four decades since 1960, real GDP per capita growth in sub-Saharan Africa was dismal, averaging less than 0.5% per annum. Sub-Saharan African countries in recent years have also made significant progress in terms of poverty reduction (Chen and Ravallion 2010).
Development International trade
growth, Africa, openness
Does openness generate growth? Reconciling the experiences of Mexico and China
Timothy Kehoe, Kim Ruhl 19 November 2011
In 1985, Mexico opened itself to trade and investment. In recent years, China has followed the same path with much more impressive results. But this column argues that the slow growth and crises that Mexico experienced after the initial boom should act as a warning to those optimistic about China.
Does opening to international trade and foreign investment generate economic growth? A large empirical literature employs regressions with a country’s growth rate as the dependent variable and some measure of openness among the independent variables. Although some researchers find that growth is positively correlated with the share of trade in GDP, Rodríguez and Rodrik (2001) point out that the trade share is not a direct measure of policy. When the dependent variable is a measure of policy, the results are ambiguous and highly sensitive to the exact specification of the regression.
International finance International trade
China, free trade, financial globalisation, openness, Mexico
The policy roots of finance
Giuseppe Bertola, Anna Lo Prete 20 May 2010
Financial interconnectedness across countries has reached unprecedented levels – but what has driven this change? This column finds that financial deregulation is responsible for 16 percentage points of the increase in financial development, but openness to trade and the size of government off-set one another. This is because the structural association between trade openness and financial development is mildly negative.
Finance boomed for quite some time. And then it crashed. To understand what might happen as the world begins to emerge from the crisis, we need to try and understand where finance came from. At the global level, finance grew along with international economic integration at the turn of this century, as well as at the beginning of the 20th century.
Global economy International finance
financial development, openness, financial deregulation
Does openness increase volatility? Not if countries are sufficiently diversified
Mona Haddad, Jamus Lim, Christian Saborowski 21 March 2010
Does openness increase volatility? This column argues that it doesn’t when countries are sufficiently diversified. These results amount to a powerful argument in favour of export differentiation policies as a means of deriving larger benefits from trade openness and shielding against global shocks.
The epicentre of the global economic crisis was the financial markets of the industrialised world, yet developing countries have felt the tremors. Many, including those without close financial ties to the developed world, were driven into recession as global demand plummeted and the largest drop in global trade volumes since the Second World War ensued. Naturally, open economies heavily reliant on export revenues were among those hardest hit by the crisis.
Development International trade
volatility, diversification, openness
How do governments react to globalisation?
Gino Gancia, Paolo Epifani 28 March 2009
This column argues that more open countries have larger public sectors because greater involvement in foreign trade allows a government to shift more of the cost of providing a public good onto foreign consumers. Globalisation may actually protect or even promote public inefficiency.
It is widely believed that governments of more open countries are forced to reduce taxes and public expenditure to attract foreign investment and human capital, or at least to prevent domestic firms from relocating abroad. Although this is certainly possible, the data tell a different story. As first shown by David Cameron (1978), and then by Dani Rodrik (1997, 1998), more open countries have bigger governments. In Epifani and Gancia (2009), we provide more evidence on this puzzling stylised fact.
globalisation, government size, openness, PE