Brazil- International Trade
Countries could improve their national welfare if they exploited their comparative advantage by exporting those goods at which they were relatively more efficient at producing and importing the rest. Later arguments for trade pointed to the benefits arising from intra-industry trade (and investment) in which specialized production along with scale economies could lead to even more efficient exchange and innovation-driven productivity increases. These foundational ideas, which recognize the value of both imports and exports, remain valid today for explaining why countries generally wish to pursue freer trade and why trade liberalization has been at the center of the economic reform debate in much of Latin America.
“Trade Preference” framework helps explain Brazil’s trade strategy. It secures Brazil as a “regional leader” based on its leadership in pressing for South American economic integration, its conditional support of multilateral negotiations, and its reticence to consummate separate trade deals with developed countries.
The “regional leader” category captures well the influence Brazil’s economic development strategy has had on its trade preferences and policy. Brazil adopted its own version of the import substitution industrialization model employed throughout much of Latin America in the 20th century. To promote industrial development, Brazil created, and protected from foreign competition, important government sponsored enterprises that still operate today, although some are now privatized.
The inward orientation of the ISI model shielded domestic industry from global competition, diminishing market incentives to innovate and become more efficient.
Macroeconomic challenges have and continue to constrain Brazil’s trade policy options. Brazil, for example, is known for...