Brazil : Embracing Globalization
Brazil : embracing globalization
This case is about Brazil's development strategy since World War II and about the change of the economic model following the debt crisis of the 1980s. In 2000, Brazilian officials were pondering whether to go for regional integration (Mercosur) or globalization to ensure the country's economic prosperity and development.
Import-substitution strategy
After the Great Depression of the 1930s, Brazil followed an import substitution strategy which consisted of massive government investment, targeting of key industries, and protection against competition with high tariffs walls.
1. Positive effects of this policy : the Brazilian economy experienced rapid growth and considerable diversification. From 1950 to 1961, the average annual rate of growth of the gross domestic product exceeded 7 percent. Industry was the engine of growth. It had an average annual growth rate of over 9 percent between 1950 and 1961, compared with 4.5 percent for agriculture. Traditional industries, such as textiles, food products, and clothing, declined, while the transport equipment, machinery, electric equipment and appliances, and chemical industries expanded.
2. Negative effects of this policy :
substantial increase in imports, especially of inputs and machinery, and the foreign-exchange policies of the period resulted in inadequate export growth. A large influx of foreign capital in the 1950s resulted in a large foreign debt.
Between 1981 and 2000 : Current account balance and trade deficits as a result of higher increase in the imports than exports. Exchange rate stability and external perception of the country depended on the current account balance.
Problems were classified into two sets: internal and external factors.
Brazil : Embracing GlobalizationBrazil : embracing globalizationThis case is about Brazil's development strategy since World War II and about the change of the economic model following the debt crisis of the 1980s. In 2000, Brazilian officials were pondering whether to go for regional integration (Mercosur) or globalization to ensure the country's economic prosperity and development. Import-substitution strategy After the Great Depression of the 1930s, Brazil followed an import substitution strategy which consisted of massive government investment, targeting of key industries, and protection against competition with high tariffs walls. 1. Positive effects of this policy : the Brazilian economy experienced rapid growth and considerable diversification. From 1950 to 1961, the average annual rate of growth of the gross domestic product exceeded 7 percent. Industry was the engine of growth. It had an average annual growth rate of over 9 percent between 1950 and 1961, compared with 4.5 percent for agriculture. Traditional industries, such as textiles, food products, and clothing, declined, while the transport equipment, machinery, electric equipment and appliances, and chemical industries expanded. 2. Negative effects of this policy : substantial increase in imports, especially of inputs and machinery, and the foreign-exchange policies of the period resulted in inadequate export growth. A large influx of foreign capital in the 1950s resulted in a large foreign debt.Between 1981 and 2000 : Current account balance and trade deficits as a result of higher increase in the imports than exports. Exchange rate stability and external perception of the country depended on the current account balance. Problems were classified into two sets: internal and external factors.
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