A model of economic growth for an open emerging country: empirical evidence for Brazil

Abstract

Brazil liberalised its trade and finance in the 1990s as a strategy for higher economic growth. However, the country’s GDP growth has been unstable and low compared to its own performance during the industrialization period. This paper builds a model of economic growth that accounts for the main components of effective demand as well as important specificities of emerging economies to explain the economic dynamics after the liberalising reforms. The model is estimated for the case of Brazil from 1990 to 2014 and the results suggest that this economy became highly dependent on the world economic growth and the evolution of the real exchange rate. The main finding is that Brazil experiences higher economic growth only in favourable world scenarios but the evolution of the real exchange rate in this scenario may stimulate investments that only reinforce the existing productive structure, affecting negatively the long-run economic growth.