Empirical Economic Development Of Brazil

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Empirical Economic Development of Brazil

Anna Podwysocka

Introduction

Brazil is the largest national economy in South America, the world’s biggest economy in

regards to market exchange rates, and the seventh largest in purchasing power parity

(World Bank, 2016). The country is abundant with natural resources and has a very large

population of 200 millions citizens. The Brazilian economy is predicted to be one of the

five largest in the world in the decades to come, the GDP per capita following and

provided the large investments in productivity gains are substitute the GDP growth of the

last decade. This growth is attributable to the increases in employment rates from greater

job creation. The country has been expanding its manifestation in the international

financial and commodities markets, thus earning a pace of growth paralleling the other

countries in the BRIC group (Barrientos, 2014).

Brazil evolved into a modern industrial economy in the early 1900’s after slavery was

abolished and the country began to develop urban areas with millions of inhabitants. The

agriculture based economy, rooted in sugar and coffee, transformed in manufacturing of

capital goods and consumer goods and the economy diversified to match the trends of

other western nations. Moving forward several decades, the Brazilian economy

experienced the greatest change during the roll-out of the Plano Real in the late 1900’s

(Herman, Paula, 2014). This attached the Brazilian Real to the American dollar and

encouraged the input of foreign currencies into the nation to relieve deficits from the

previous decades.

Some important factors have worked for the economic development of Brazil in recent

years. These include competent macroeconomic management based on flexible exchange

rate, inflation targeting and fiscal responsibility. Moreover, a solid and well-capitalized

banking sector has also helped Brazil to tackle the global financial crisis (Croix, 2011).

Furthermore, the investments of the government in education, health, and direct poverty

reduction had a major role behind the recent economic success of Brazil. The social

assistance program called ‘Bolsa Familia’ also played a major role in this regard that

provided financial assistance to 50 million people in the period between 2002 and 2012

(Barrientos & Amann, 2014). Around 28% of the total poverty reduction in Brazil was due

to this program (Nobrega, 2013). Social policies also played a prominent role behind the

growth of Brazil’s economy. For instance, people have started to achieve a better position

in the labor market due to the increase in the average years of schooling. Moreover,

government increased the minimum wage quite significantly in recent years, and at the

same time managed to end hyperinflation. As estimated by OECD, the minimum wage

almost doubled over the last decade (Loman, 2014).

Brazil also moved to 70th from 78th in the global rankings of per capita consumer

expenditure in 2012 (Boumphrey, 2013). Moreover, Brazil was the 22nd largest exporter

and importer, and 7th largest consumer market in the world in 2012, which was worth US$

1.37 trillion (Boumphrey, 2013). According to Nassif, Feijo, and Araujo (2015), from early

90’s onwards, a set of liberalizing reforms have been implemented in the Brazilian

economy which has brought trade liberalization, openness to external financing,

privatizing state enterprises among others. This has occurred during a period of high

inflation in the external sectors of the economy. These reform initiatives have significantly

helped stabilizing the economy of Brazil in the last 20 years.

Political Climate: Worker’s Party Reform

After one of the closest, most divisive campaigns in Brazil in decades, Dima Rousseff,

Brazil’s first female leader won 51.6 % of voters in an election against opposition leader

Aecio Neves in 2010. She was the direct successor, in a democratic sense, to the previous

president Lula da Silva. This recommendation and close collaboration in their leadership

earned her the trust of the Brazilian people to win the election in such a close margin. The

Worker’s party has strategized to transform Brazil by lifting 40 million from poverty,

reducing unemployment to record lows, and made large strides against the extreme poverty

experienced by 16 million Brazilians in the modern day (MercoPress, 2011).

Rousseff helped clinch her victory through the overwhelming support from the roughly

40% of Brazilians who live in households earning less than 700 dollars a month. They

have benefited from the Workers Party’s rollout of a the Bolsa Familia program that pays a

small monthly stipend to one in four Brazilian families, as well as federal housing

programs, government-sponsored vocational schools, and the expansion of credit to the

working class.

The previous president Lula da Silva is distinguished by the populace as the colossal social

transformer of Brazil. In his eight years in office (2002 – 2010), he has been able to make

tremendous measures of progress for society and culture. There are mixed reviews about

the state of corruption and disparity in the country, yet statistically speaking, notable

progress has been made and can be referenced by reviewing the trend of GDP growth and

the Gini Index.

Three key programs initiated by the Brazilian government in the 21st century namely the

Growth Acceleration Plan (GAP), the Productive Development Program (PDP) and the

Investment Support Program (ISP) have boosted growth in the economic sector of the

country (Hermann & Paula, 2014).. The average growth rate of the real GDP from 2004 to

2008 increased at a rate of 4.7%, which is much higher than all other developing countries.

From early 90’s onwards, a set of liberalizing reforms has been implemented in the

Brazilian economy which has brought trade liberalization, openness to external financing,