Somik V. Lall

Trade Liberalization and Integration of Domestic Output Markets in Brazil

This paper describes how different policy distortions have been impeding better integration of Brazils external and internal product markets and discusses how these distortions have prevented domestic firms from benefiting from multiple sources of efficiency gains. The paper first focuses on the costs of barriers to global integration, followed by an overview of policy induced stringencies hampering domestic integration. Drawing from general and partial equilibrium analyses, the paper also provides evidence of potential impacts of removing some of those distortions and discusses policy options to promote better allocation of resources across the economy. The main conclusion of the paper is that Brazil could gain significantly from opening to foreign trade. Yet, for Brazil to take full advantage of the opportunities that external integration offers, domestic markets also need to function better, so it is key to ensure that the removal of external barriers to integration is coordinated with the removal of internal distortions to domestic market integration.

Jobs and growth : Brazil’s productivity agenda

Brazil enters the election year 2018 with an economy that is gradually recovering from the deepest recession in its recent economic history. This book is motivated by the need to understand the possible drivers of future income and employment growth. Shifting Brazil’s production structure to be the same as that of the United States will raise productivity by just 68 percent; making all Brazilian industries work as efficiently as their counterparts in the United States will boost productivity more than four times. This book analyses some of the factors that may be behind such low productivity. Among the most important: (a) a lack of competition both internally, thanks to a business environment that favors incumbents and hampers innovation and entry, and externally, due to high-tariff and nontariff barriers to trade; (b) government policies that have concentrated on subsidizing existing firms, and distorting capital and labor markets, rather than fostering competition and innovation; and (c) fragmented government institutions for business support that have allowed policies to persist without much regard for whether or not they had shown to be effective. The book recommends a policy shift in all three areas, with the ultimate objective to change the relationship between business and the state from one governed by perks and privileges to one built on creating a level playing field that incentivizes initiative and supports workers and firms to adjust to the demands of the market. This book fits into the context of a growing policy debate about what should be Brazil’s future development model.