Lourenço S. Paz

Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case

The Brazilian Trade Balance deficit in the 1990s was blamed on the adopted crawling-peg exchange rate regime in which the real exchange rate was supposedly appreciated. The purpose in this letter is to assess this relationship by using VEC-M model to check if Marshall-Lerner condition and J-curve phenomenon hold. The results indicate that the Marshall-Lerner condition holds and the J-curve would be present in the aftermath of a real exchange rate devaluation.The Brazilian Trade Balance deficit in the 1990s was blamed on the adopted crawling-peg exchange rate regime in which the real exchange rate was supposedly appreciated. The purpose in this letter is to assess this relationship by using VEC-M model to check if Marshall–Lerner condition and J-curve phenomenon hold. The results indicate that the Marshall–Lerner condition holds and the J-curve would be present in the aftermath of a real exchange rate devaluation.

Consumption in South America: myopia or liquidity constraints?

In this paper, we consider Brazil, Colombia, Peru, and Venezuela for a study on aggregate consumption behavior, in which we test the life cycle-permanent income hypothesis prediction that consumption growth depends only on the interest rate. Nevertheless, our results suggest that in general predicted income is a relevant covariate. We checked for some possible reasons behind this result, namely liquidity constraints, myopia and perverse asymmetry. We found support for liquidity constrained consumers in Brazil and Colombia, and perverse asymmetry for Peru. Finally, the results were uninformative about consumption in Venezuela.

Consumption in Brazil: myopia or liquidity constraints? A simple test using quarterly data

Several papers have put serious doubt on the validity of the life cycle-permanent income hypothesis. However, a few of them have focused on the reasons behind the failure. In this study, quarterly data from Brazil is used to check whether the rejection of the life cycle hypothesis could be attributed to the presence of either liquidity constraints or Keynesian-type consumers. The findings indicate that neither liquidity constraints nor myopic consumers could generate the finding that consumption is sensitive only to expected income declines. A possible explanation would be that consumers have some kind of loss aversion preference.

The welfare impacts of a revenue-neutral switch from tariffs to VAT with intermediate inputs and a VAT threshold

The debate about replacing tariffs with value-added tax (VAT) in developing countries has paid little attention to the role of VAT as an input tax on the informal sector and has overlooked the usefulness of changing the VAT threshold in a revenue-neutral switch from tariffs to VAT. This paper contributes to the literature by addressing these two issues via a heterogeneous firm model of a small open economy with endogenous firm entry and VAT compliance. The results found indicate that the VAT collected on intermediate inputs consumed by the informal sector not only reduces the benefits of evading VAT, but also diminishes the production distortion between the formal and the informal sectors. The use of a change in the VAT threshold to offset lost tariff revenue leads to welfare gains; however, the source of such gains is different from that of a change in the VAT rate. While an increase in the VAT rate expands informality, a revenue-equivalent decrease in the VAT threshold reduces informality. These novel results suggest that the VAT threshold plays an important role in the design of revenue-neutral tax reforms.

Trade liberalization and the inter-industry wage premia: the missing role of productivity

The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission not only overlooks an important determinant of wage premium but also invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 41% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a 10 percentage point decrease in tariffs reduces the wage premium by 1.01%, whereas a 10% increase in TFP raise wage premium by 1.6%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.

Inter-industry Productivity Spillovers: An Analysis Using the 1989–1998 Brazilian Trade Liberalisation

Abstract A major obstacle in the estimation of inter-industry (vertical) productivity spillovers is the need of an exogenous productivity shock. In this article, I propose the use of trade policy changes as a large productivity shock, since the literature has found evidence that trade liberalisations increase industry-level productivity. To do so, I develop a new empirical methodology using spatial econometrics, and apply it to the large economy-wide shock represented by the 1989–1998 Brazilian trade liberalisation. My results indicate the existence of positive and substantial upstream productivity spillovers. Nevertheless, no evidence of downstream productivity spillovers is found.

Corporate foreign currency debt in Brazil: will dollar indebted firms invest more after real exchange rate depreciations?

In this article the effect of real exchange rate movements over the investment of Brazilian firms with foreign currency debt is assessed. Moreover, the hypothesis of currency matching between firm s revenues and expenditures will be tested. To do so, a new theoretical model is provided. Contrary to previous results of a positive effect of exchange rate devaluations over investment, our results show that the effect is decreasing on the share of the foreign currency liabilities. For small shares of foreign debt, the effect is positive, but by increasing the share it turns negative. We didn t find evidence of currency matching in our data.

The effect of import competition on Brazil’s manufacturing labor market in the 2000s: Are imports from China different?

ABSTRACT This study uses the increased openness of the Brazilian economy in the 2000s to assess the impacts of trade on its manufacturing sector. Using household data, this study’s results imply that a higher import penetration reduces the employment level in manufacturing and fosters labor reallocation across industries. The magnitude of these effects changes according to the Chinese share of these imports. I find no evidence that trade exposure affected the shares of self-employed and informal workers. Finally, the new macroeconomic policy implemented by the Brazilian government in 2008 altered the way in which trade exposure affected manufacturing labor market outcomes.