Economic Liberalization, Distribution and Poverty

Economic Liberalization, Distribution and Poverty

Latin America in the 1990s

Edited by Rob Vos, Lance Taylor and Ricardo Paes de Barros

Since the late 1980s, almost all Latin American countries have undergone a series of far-reaching economic reforms, particularly in the areas of financial and capital account liberalization and trade. This book provides a comparative and analytical framework for assessing the impact of these reforms upon 16 countries in Latin America and the Caribbean, including: Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, and Peru.

Chapter 4: Brazil: economic opening and income distribution*

Ricardo Paes de Barros and Carlos Henrique Corseuil

Subjects: development studies, development economics, economics and finance, development economics


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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