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Economic Development in Brazil

ECONOMIC DEVELOPMENT 17

EconomicDevelopment in Brazil

InstitutionAffiliation

Outline

Abstract……………………………………………………………………………………..5

Brazilhas a high prospect for growth but systemic inequality has stymieddevelopment.

Gruskyand Sen (2006) argue that with deliberate efforts to address economicinequality, reduce bureaucratic bottlenecks, and engage in activeeconomic diplomacy, Brazil is poised to be a regional economicpowerhouse.

Introduction…………………………………………………………………………………5

Brazilhas heavy imbalance and has lagged behind countries that were at parseveral years back. Data from UNDP (2004) shows that the country hasdone little to reduce inequality, attract foreign investors, andpromote international trade. However, the country has great potentialin technology industry.

Inter-countryInequality……………………………………………………………………….6

Datafrom World Databank (2014) reveals that Brazil, China, and USA wereat par in inequality several years back. However, Brazil has alloweda large section of its population to languish in poverty while asmall section joins the ranks and files of worlds richest.

Intra-CountryInequality…………………………………………………………………….6

Thegap between the rich and the poor is increasing. The Gini coefficienthas been higher than 50 % since 2004 and beyond, indicating massivelevels of inequality (TradingEconomist, 2013).

PovertyHeadcount………………………………………………………………………….7

Basicneeds are still out of reach for many Brazilians. About 30 % of thepopulation controls 65 % of the total income (PovcalNet,2014).This reveals that 35 % of national income falls under control of 70 %of the population.

StructuralChanges……………………………………………………………………………8

Traditionally,agriculture has made the greatest contribution in the economy.However, service industry has grown tremendously over the years tocontribute 54.1 percent in 1947, which increased to 67 % in 2010(UNCTAD,2013). However, the government needs to invest more in manufacturingsector to create sustainable development.

ForeignDirect Investment………………………………………………………………. 8

Brazilis the third most prefered destination of world direct investmentfrom China and India respectively (UNCTAD,2013).However, the government can do better by giving incentives toexporters in order to spur more investment.

InternationalTrade ………………………………………………………………………….9

Brazilcontinues to experience trade imbalance with traditional tradingpartners (UNCTAD,2013).There needs to be paradigm shift to new markets. The government needsto empower local manufacturers to produce goods that can competeinternationally.

Conclusionand Summary …………………………………………………………………..10

Brazil’spotential is immense and economic development is imminent. With moresupport to manufacturing sector, investment in technology andstructural reforms in education and resources distribution, thecountry is poised for take of (Brazil,2013).

References………………………………………………………………………….12

Appendix……………………………………………………………………………14

EconomicDevelopment in Brazil

Abstract

Brazilis a popular country across the world because it is the largesteconomy in terms of development in Latin America (Franko &ampFranko, 2006). It is a developing economy though at the middle classlevel. The gap between the rich and poor is high because some of itspeople are among the richest in the world while at the same time,there are many people who are extremely poor (Milanovic,2011).The economy is growing at a steady rate over the years despite theworld economic crisis experienced in recent years. This paper willanalyze Brazil’s economy using a multipronged approach and makerecommendations on how to make economic growth work for allBrazilians.

Economicdevelopment in Brazil does not reflect in inter-country inequality,high intra-country inequality, gender inequality, and poverty(Pritchett,1997).Likely gross is indispensable in addressing these issues, implyingthat Brazil is among the most imbalanced economies. In addition,compared to some of leading economies, some countries are wideningthe gap, further widening the divergence.

Inter-countryInequality

GrossNational Income (GNI), Gross Domestic Product (GDP), and GDP percapita ratio are key indicators useful in measuring the performanceof an economy. In 1980, the GDPs of China and Brazil were closely thesame (Todaro &amp Smith, 2009). Because the two countries were atsimilar developmental stage, one would expect that they should beclosely together as far as development is concerned. The twocountries grew at the same rate between 1980 to around 1994, which isan indicator that the two economies have the same potential forgrowth. The same divergence exists between Brazil and United States.A developing economy should be closing the gap between its GDPtowards the developed economies’ level. This has not been the casewith Brazil over the years. In 1980, the United States’ GDP washigher than the Brazilian was, but the gap widened as United States’GDP grew at relatively high rate (World Databank, 2014). TheDivergence in GDPs between the three countries is shown in figure onein the app.

Accordingto World Bank, the situation has not improved in recent years. WorldDatabank (2014) illustrate that the GPD growth of the economy in 2012was 0.9 % while that of China was 7.8 %. The gap is immenselysignificant bearing in mind that the two countries were at the sameeconomic development level in 1980.

Intra-CountryInequality

Ginicoefficient measures how a country shares its GDP among members whomake up the population of the economy. An economy is equal when Ginicoefficient is zero, and unequal when the Gini coefficient is high. In economies where the Gini coefficient is higher than 50%, thecountries are acutely unequal. Brazil has been an unequal societyover the years. The Gini coefficient has been higher than 50 % since2004 and beyond. The bar graph, figure 2 in the appendix, shows thatcoefficient in the year 2004 was 57.68 but has reduced to 54.69 inthe year 2010 (TradingEconomist, 2013).This is a clear indication of an unequal economy, over the years.However, there is hope that the inequality issue is been addressed. This is manifest in the trend that Brazil has taken since 2001, withthe coefficient reducing, as evident in figure 3 in the appendix (TheEconomist, 2013).

Thedecrease in the Gini coefficient reflects in human development. Humandevelopment encompasses expectancy, education attainment and incomelevels (UNDP, 2013). Human development index determines humandevelopment. The HDI for Brazil was 0.522 in 1990 and improved allalong into 0.73 in 2012 (Brazil,2013).This is a commendable trend because it indicates that the humandevelopment level is improving over the years. The improvementemanates from efforts by the government to reduce inequality amongthe people in education, health and income. Inequality between menand women is still high in the economy because gender discriminationis rampant particularly at work places (Hausmann,Tyson &amp Zahidi, 2013).This implies that women earn less than men do, have a hard timefinding employment, and securing promotions to higher positions. Thishas undermined competition in both private and public sectors.

PovertyHeadcount

Inan unequal society, the poverty level remains high. A large number ofpeople cannot afford basic needs and have a decent life. The highinequality in Brazil directly influences the poverty level in thecountry. This is because large fractions of economic resources areunder control of a small section of the society. The largerpopulation remains poor and does not make progress in developingtheir livelihoods. In Brazil, about 30 % of the population control 65% of the total income (PovcalNet,2014).This implies that only 35 % of national income falls under control of70 % of the population. According to World Databank (2014), thesituation has not changed significantly between 1981 and 2009. In1981, 10 % of the population controlled 45.88 % while in 2009, the 10% of the population controlled 42.93%.

Theimprovement in situation in unequal society is determined by thechanging gap between the economy and the world poverty line. Thepoverty gap and poverty head count for Brazil decreased between 2002to 2010 significantly as in figure 5, which is positive indicationthat the inequality gap issue is been addressed (PovcalNet,2014).Thepositive trend in the reduced inequality is commedable but notcommendably high. This indicates that a lot need to be done to have areal change in the society (Ogden,2002).Brazil had less than 20 % a poverty headcourt ratio at $ 1.25 a dayin 1990., which reduced to about 5 %, 2010.

StructuralChanges

Economicstructural changes are concerned with the way various economic sectorcontribute to the overall outout in the economy. Structural changehas significant implication on the output level, economic developmentand stability as well as employment. Brazil has had a significantstructural change since 1947 as far as the three key sectorsincluding agriculture, ,manufactering and services inductries areconcerned. Since 1947 the contribution of the agriculture sector tothe economic output has been decreasing. In 1947, the sectorcontributed 20.7 % which reduced to 5.5 % in 2010. The manufacteringsectors contributed 25.2 % which changed to 27.5 %. The serviceindustry has been influenctial over the years the sector contributed54.1 percent in 1947 which increased to 67 % in 2010 (UNCTAD,2013).This figure are presented in table 1 in the appendix.

ForeignDirect Investment

Acountry which has the ability to attract foreign direct invesment islikely to grow at a high rate. Brazil is the third most prefereddestination of world direct investment from China and Indiarespectively (UNCTAD,2013).The growing number of the people in the middle class in the last fewdecades, peaceful environment and improving infrastracturaldevelopment are key factors which attract foreing investors to committheir resources in the country. Over years, Brazil has made attemptsto create conducive environment to attract foreign investment.Cognizance of the role technology will play in stimulating economicgrowth has led to Special Tax Regimen (Franko&amp Franko, 2006).These incentives have lowered tariffs for exporters, providing animpetus to growth. Nevertheles, the environment for foreign investorshas remained stiffled by bureaucratic bottlenecks.

Thereare indications that the government has not created a betterenvironment to attract foreign investors, in recent years. Aspectssuch as high interest rates, high cost of labor and energy as wellinterest rates are posible reasons why Brazil has not attracted alarge pool of FDI (UNCTAD,2013).However, Brazil is at a higher preffered level than United States, asdemonstrated in figure 4. The governmant should invest more oninternational relation and economic diplomacy to assist the economyto attract increased number of investors from various parts of theworld (Franko&amp Franko, 2006).Additionally, there must be deliberate efforts to link tertiarytraining with labor market to reduce influx of expatriates.

InternationalTrade

Brazilcontinues to experience trade imbalance. For a country to realizeeconomic growth surplus in international trade is prefered. Brazilhas recorded a trade deficit from 2013 (UNCTAD,2013).This an indication that the country spends more on foreign goods andservices than the income earned from foreign trade. Compared to Chinaand United States, Brazil has a slow growth on the balance of tradewhich is a negative impilication to economic growth and properity.

Toimprove international trade, the governmant in power through itsresources and economic tools, should assist local manufacturers andservice provider to produce in large quantities at reduced costs(Page &amp Simmons, 2000).This will assist them in producing goods with high quality to beconsumer in the local and in the international market. This way, theimports will be reduced while exports increase which will lead intoreduced trade deficit.

Conclusion

Brazilpossesses immense development potentials because of its vast mineralresource, labor force and market. The large population offers laborand ready market for industrial goods. With better management andfiscal prudence, Brazil will be an economic power. The biggestchallenge is to make the economy work for all Brazilians.

Summary

Brazilis a leading economy in Latin America. The economy has made manystrides as far as development is concerned in comparison to manydeveloping economies. The Brazilian society is however one of mostunequal societies. This is because the gap between the poor and therich is relatively high. A large portion of the economy is controlledby a few while the large group controls a relatively a small fractionof the economy. The growth rate is relatively low compared to thoseof China and United States. Brazil had the same GDP level in 1980 butthe low rate of growth has increased the gap between the GDP of thetwo economies. The gap between Brazilian GDP and United States haswidened significantly due to high growth in United States GDP and lowgrowth in Brazilian GDP (Brazil,2013).

Ginicoefficient for Brazil in the year 2004 was 57.68, but reduced to54.69 in the year 2010. This implies that the Brazil has an unequalsociety. Using the povertyheadcourt ratio at $ 1.25 a day, Brazil is bridging the gap at a lowlate (UNCTAD,2013).The HDI in Brazil indicated that a lot of strides have been made inimproving the quality of life in terms of education, healthcare andincome among other. Despite the fact that Brazil has a low HDI, ithas improved significantly from 0.522in 1990 into 0.73 in 2012. The government should try to addressissues that undermine development including education system andcreating a favorable environment for development of small and mediumscale business organizations.

DirectForeign Investment and international are not at recommendable levelfor Brazil. The government should review its policies on interestrates, exchange rates and taxation. Bearing in mind that Brazil is amiddle class economy, foreign investors will be high attracted whilelocal investors both small and large scale investors will beencouraged to produce in large quality which will reduce the cost thetrade deficit.

References

“Brazil.”&nbsp(2013).TheRise of the South: Human Progress in a Diverse World.HumanDevelopment Report 2013.Retrieved from

http://hdr.undp.org/sites/default/files/Country-Profiles/BRA.pdf

Hausmann,R., Tyson, L.D, &amp Zahidi, S. (2013). TheGlobal Gender Gap Report 2012.WorldEconomic Forum.Retrieved fromhttp://www3.weforum.org/docs/WEF_GenderGap_Report_2013.pdf

Pritchett,L., (1997). &quotDivergence.Big time,&quot&nbspJournalof Economic Perspectives.11 (3):3-17.

Milanovic,B. (2011).&nbspThehaves and the have-nots: a brief and idiosyncratic history of globalinequality.New York: Basic Books.

PovcalNet(2014).&nbspPovcalNet- an online poverty analysis tool.Retrieved from

http://iresearch.worldbank.org/PovcalNet/index.htm?3

WorldDataBank. (2014).&nbspTheWorld Bank DataBank.Retrieved from http://databank.worldbank.org/data/views

UNDP(2013). InternationalHuman Development Indicators.

Retrievedfrom: http://hdr.undp.org/fr/countries

TheEconomist (2013). Inequality:Giniout of the bottle

Retrievedfrom: http://www.economist.com/news/china/21570749-gini-out-bottle

TradingEconomist (2013). GiniIndex in Brazil.

Retrievedfrom: http://www.tradingeconomics.com/brazil/gini-index-wb-data.html

Franko,P. M., &amp Franko, P. M. (2006). Thepuzzle of Latin American economic development.

Lanham:Rowman &amp Littlefield.

Boserup,E. (2007). Woman`srole in economic development.London: Earthscan.

Todaro,M. P., &amp Smith, S. C. (2009). Economicdevelopment.Harlow: Addison-Wesley.

Ogden,S. (2002). Inklingsof democracy in China.Cambridge, MA: Harvard University Asia

Center.

UNDP.(2004). Humandevelopment report: 2004.New York: UNDP.

Grusky,D. B., &amp Sen, A. K. (2006). Povertyand inequality.Stanford, Calif: Stanford Univ.

Press.

Page,B. I., &amp Simmons, J. R. (2000). Whatgovernment can do: Dealing with poverty and inequality.Chicago: University of Chicago Press.

Bangura,Y. (2010). Combatingpoverty and inequality: structural change, social policy andpolitics.Geneva: UNRISD.

UNCTAD(2013). Structuraland Economic Development: Is Brazil Catching Up Or Falling

Behind.1-36. Available at:http://unctad.org/en/PublicationsLibrary/osgdp20131_en.pd

Appendix:

Figure1

Figure2:Gini Index in Brazil

&lthttp://www.tradingeconomics.com/brazil/gini-index-wb-data.html &gt

Figure3

Figure4

Country

FDI preference

South Africa

0.63

Brazil

0.55

Nigeria

0.49

China

0.47

United States

0.38

Britain

0.35

India

0.33

Japan

0.32

Egypt

0.31

Sweden

0.25

&lthttp://www.economist.com/news/china/21570749-gini-out-bottle&gt

Figure5: balance of trade

&lthttp://www.tradingeconomics.com/brazil/balance-of-trade&gt

Table1:

1947

1960

1970

1980

1990

2000

2010

Agriculture

20.7

17.8

11.6

10.1

6.3

5.6

5.5

Manufacturing, mining and others

25.2

32.2

35.8

40.8

30.1

27.7

27.5

Services

54.1

50

52.6

49

63.6

66.7

67