2. Literature Review and explanatory models of development
3. Methodology and Data
4. Brazil - Economy of tomorrow?
4.1. Historical overview
4.2.The problem of uneven states
Brazil. The images most people connect with the Latin American country will always be Samba, Copacabana and Favela. The country of hot dances, party and poverty. But is this image still accurate? In recent years, the green giant has been on the move. Market liberalizations, a stabile democratic transition, high economic growth rates and increases in Human Development seem to be indicators that Brazil is climbing consistently the latter up to the small league of the developed and rich nations. Although Brazilʻs inclusion alongside China, India and Russia as one of the four very large, rapidly emerging economies, known as the BRIC-states, had been greeted with much skepticism, the Samba- country seemed to prove the skeptics wrong. Finally, after decades of striving, Brazil may not be a country of the future that will always remain on the doorstep of the future. The future finally seems to have arrived.1
But although the progress has to be recognized, one cannot help to take at least a glance at the flip side of the coin. Poverty, corruption, social conflicts, violence and a vast and confusing system of taxes and tariffs still rattle the country. Brazil still has to cope with large regional disparities. While the southeast with its powerful economic engines Sao Paulo and Rio de Janeiro prospers and inherits most of the countries industrial and financial muscle, states in the north and the northeast are still at a very low development level, some even at the level of Sub-Sahara nations.2
What are the implications for the whole country for that? How are economic output and the creation of human capital3 related to each other and what are the conclusions for the federal government in Brazil? This questions are the topic of this paper on Brazilʻs development and growth. The underlying hypothesis therefore is:
Brazil ʻ s development is slowed down by the differences in economic output and human capital among its regions.
In a next step, some explanatory models for development, theories on growth and the basic literature will be displayed before laying out the methodology of the inquiry. It has to be noted that the field of economic development and growth theories is vast and has many different facets, therefore the following paragraph will only display certain examples. Studies by the International Monetary Fund, the World Bank, or the UNDP are not the object of this review. The main part of the paper will then focus on a shot review of the Brazilian history, before the collected data will be displayed and analyzed. In the last paragraph, conclusions on the matter will be drawn and the hypothesis answered.
2. Literature Review and explanatory models of development
Development economics as a distinct field of study in economics began after World War II and the period of decolonization. The field of growth theories is vast, but can be framed into seven schools: the Classical, the Neoclassical, the Modern and the Evidence Theories.
Examples of various theories are the classical growth theory, the neo-classical growth theory, the endogenous growth theory, the useful work growth theory, the unified growth theory, the big push theory among others. Early efforts were focused on economic growth. An influential early theory on economic development was the Harrod-Domar model, which used fixed coefficients in its production function and exogenous savings rates while having a natural growth rate of the labor force. The dynamical instability, due to the fact, that no adjustment mechanism exists. All variables have to grow in the same way. This problem, called the knife-edge-problem, was addressed by Kaldor, who introduced a flexible savings rate in his model. The exogenous growth model, also known as the Solow model or neo-classical growth model, solved the knife-edge-problem by replacing the fixed coefficient production function by one that allows substitution between capital and labor, creating an adjustment mechanism called the capital-labor-ratio. Another model by Sir Arthur Lewis, written in 1954, addresses the labor transition between the rural and the urban sector. The model stresses that, if excess labor is withdrawn from the rural sector and put to the urban sector for a constant wage, a surplus would emerge. This led many LDC governments to neglect their agricultural sector in the believe they could trigger industrial growth.4 The Big Push Model is a concept that emphasizes on the outlook of firms for the actions of other firms, using the game theory. It assumes economies of scale and oligopolistic market structure and explains industrialization. It was developed mainly by Paul Rosenstein-Rhodan in the late 1940ʻs and then adjusted by other economists like Romer in the 1980ʻs.5
The research on development snowballed in the 1990ʻs after the breakdown of the USSR and the emerging conflicts in south east Europe and Africa. Mainly work on transformation processes in Sub-Sahara-Africa, Eastern Europe and Russia were published. Nowadays, the majority of scientists acknowledge that theoretical paradigms must be seen within a greater scope and that the complexity of underdevelopment is too great to focus on it in one certain theoretical framework.6
While scholars focused on emerging markets like Russia, China and India, Brazil seems to be less present in the academic discourse. Although scholars like Ronald M. Schneider or Joseph Smith did several historical and political reviews on Brazil, the economical studies on the Latin American countries were hard to be found until recently. The sustained growth paired with the political stability in the last fifteen years led to a stronger focus on Brazilʻs economic development. Inquiries and works by Andres Velasco, Ricardo Hausmann, Dani Rodrik or Andreas Busch payed greater attention to the biggest country in Latin America. Still, compared to other BRIC-States, Brazil remains underrepresented.
3. Methodology and Data
In this paper, statistical data of Brazil will be used to compare its major regions and draw conclusions out of the collected and interpreted data. The focus will be on education and income. To avoid data bias and an overflow of data, a closer look will be taken on the per capita income in Reais, the overall GDP in Reais, the regionsʻ share on the countryʻs GDP, the rate of population with less than one year of school education and the rate of population with more than fourteen years of education. This way, a comparison of the Brazilian regions will be sufficient for the objective of this paper. The sole purpose of the used data is to point out the differences in economic output and creation of human capital within the country, so that a conclusion on the differences can be drawn. Intertemporal changes, economic growth or the labor market are not the objective and will therefore be neglected, although respected. The basic categories of this analysis are income and human capital creation. Income is based on the variables GDP per capita and overall GDP as well as share of the country ʻ s GDP. Human capital creation is based on the variables percentage of state population with less than one year of school education and percentage of state population with more the fourteen years of school education.
The data used in this analysis is derived from the Brazilian Institute of Geography and Statistics (Instituto Brasiliero de Geographica e Estat í stica), IBGE of the year 2007. Although the data may seem dated, it still displays the differences within the Brazilian states up to the present day. The IBGE is the agency responsible for statistical, geographical, environmental, cartographic and geodetic information and is performing questionnaires and censuses through its 533 data collection agencies in major cities. It displays the current value and volume indices every quarter for the GDP at market prices along with other economic data, by using two series of index numbers: the basis of the previous year and chained with reference to 1990.
1 Martinez-Diaz, L., BRICs, 2009, p. 1 f.
2 UNDP, Human Development Report 2010, in URL: http://hdr.undp.org/en/media/PR8-HDR10- RegRBLAC-E-rev6.pdf, retrieved on 04-20-2011.
3 In this paper, the creation of human capital within the regions of Brazil will be measured with the years of schooling.
4 Hess, P., Economic Development, 1997, p.79.
5 Murphy, K., Big Push, 1989, p. 1003 f.
6 Nuscheler, F., Entwicklungspolitik, 2006, p. 223.