Latin America in the 1990s
Edited by Rob Vos, Lance Taylor and Ricardo Paes de Barros
Chapter 4: Brazil: economic opening and income distribution*
Ricardo Paes de Barros and Carlos Henrique Corseuil 4.1 INTRODUCTION From the post-war period up to the late 1980s, the Brazilian economy was extremely protected with little exposure to international competition and a limited degree of regional integration. Starting in the early 1990s it went through an intensive liberalization process that encompassed trade opening and incentives for foreign investors. Trade opening consisted of a reduction of tariff barriers and elimination of most non-tariff restrictions. The goal was to induce a substantial improvement in the efﬁciency of the Brazilian economy, which would generate a redistribution of factor incomes and, consequently, of individual incomes. With capital account liberalization most restrictions on foreign capital inﬂows were eliminated. The aim of this component of the liberalization process was to support and create more favourable conditions to attain the objectives of trade opening. On the one hand, Brazil would attract additional ﬁnancial resources, mainly portfolio investments. This would provide the funds to cover a potential trade deﬁcit resulting from the expected increase in import growth. On the other hand, the economy would attract new technologies through a larger volume of direct investments, thus increasing its competitiveness in external markets. The increase in domestic competition would stimulate exports and thus sustain the process of trade opening. The end result would be productivity gains – at least in the long run – and thus higher income growth, which together with the changes in the degree of inequality would have an impact on the country’s poverty level....
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