Transcript Brazil in the Global Economy: Measuring the Gains from Trade

Brazil in the Global Economy:
Measuring the Gains from Trade
Sandra Polaski
Carnegie Endowment for International Peace
April 9 , 2009
Motivation for Study
• Trade can increase growth, create jobs
and lift people out of poverty, although it
creates both winners and losers
• During the global expansion of the past
decade, the net impact of trade on
employment and poverty in Brazil was
positive but modest
• In the current crisis, trade is likely to
shrink
Motivation, continued
• The current crisis will likely slow trade
negotiations; this is an opportunity to
revisit the long term objectives of trade
policy, as well as the distribution of gains
and losses and the adjustment costs
• Our study includes evaluation of
distribution of gains and losses among
the regions of Brazil
Motivation, continued
• It also includes detailed labor market
information and recognizes that there is
unemployment among low and medium
wage workers
• These approaches allow us to explore how
trade would affect different groups and
regions in Brazil and to take adjustment
costs into account
Nature of Study
• We use two computable general
equilibrium (CGE) models to simulate
trade policy choices and external shocks
• A global model to evaluate trade
scenarios:
• A Doha Round agreement at the WTO
• Various South-South agreements, including
FTAs with China, India and South Africa
Nature of Study, continued
• A country model is used to evaluate
external shocks that would effect Brazil
more strongly after trade liberalization
• Two external shock scenarios:
– Further rapid growth of China, India
– International price shocks and volatility
• 50% increase in price of soybeans
• 100% increase in price of wheat
• 35% increase in price of crude oil
Details of Study
• 11 aggregated regions of Brazil
(Table C.2, page 100)
• Two types of labor in global model:
skilled, unskilled
• Three types of labor in country model:
Low, medium and high wage workers
(Table C.4, page 102)
Main Results of Trade Scenarios
• Each of the trade scenarios has positive
but very small effects on overall economy
and households as a whole
• Both a Doha agreement and a broad
South-South FTA would increase real
income by about 0.4%
• IBSA gain would be about 0.1%
Macroeconomic Results of
Different Scenarios
PERCENT CHANGE
•2.50
Figure 8.1
2.00
1.50
1.00
0.50
0.00
Full Doha
liberalization
IBSA
Welfare
Source: Global model simulation results.
IBSAC
Real Exports
IMSAC
Real Imports
China & India
TFP shock
Doha Scenario:
Major Changes in Production
PERCENT CHANGE
• 4.00
Figure 4.1
3.00
2.00
1.00
0.00
-1.00
Source: Global model simulation results.
Electrical
Equipment
Oil seeds
Leather
products
Animal
agriculture
Animal
products
Sugar
Cereal
grains
-2.00
Doha Scenario:
Change in Welfare by Region
PERCENT CHANGE
• Insert figure 4.6
0.20
0.15
0.10
0.05
0.00
Doha food liberalization
Source: Country model simulation results.
Doha manufacturing liberalization
Espírito
Santo
Rio de
Janiero
São Paulo
Minas
Gerais
Other South
Paraná
Central
West
North
Other
Northeast
Pernambuco
Bahia
-0.05
Doha full liberalization
Global Commodity Price Increases:
Macroeconomic Results
PERCENT CHANGE IN REAL VALUES
2
1
Figure 8.2 here
0
-1
-2
-3
-4
Welfare
Soybean price rise
Source: Country model simulation results.
Export Supply
Wheat price rise
Import Demand
Crude Oil price rise
Global Commodity Price Increases:
Change in Welfare by Region
PERCENT CHANGE
•12.00
Figure 7.2 here
8.00
4.00
0.00
Soybean price rise
Source: Country model simulation results.
Wheat price rise
Espírito
Santo
Rio de
Janiero
São Paulo
Minas
Gerais
Other South
Paraná
Central
West
North
Other
Northeast
Pernambuco
Bahia
-4.00
Crude Oil price rise
Effects of Different Scenarios
on Unskilled Labor
PERCENT CHANGE
• 3.00
Insert figure 8.4
2.00
1.00
0.00
-1.00
-2.00
-3.00
Full Doha
liberalization
IBSA
IBSAC
IMSAC
China & India Soybean Wheat price Crude Oil
TFP shock price rise
rise
price rise
Source: Global model simulation results for Doha, IBSA, IBSAC, IMSAC, and China and India total factor
productivity (TFP) shock; country model simulation results for soybean, wheat, and petroleum price rises.
Effects of Different Scenarios
on Skilled Labor
PERCENT CHANGE
• Insert figure 8.5
2.00
1.00
0.00
-1.00
-2.00
Full Doha
liberalization
IBSA
IBSAC
IMSAC
China & India Soybean Wheat price Crude Oil
TFP shock price rise
rise
price rise
Source: Global model simulation results for Doha, IBSA, IBSAC, IMSAC, and China and India total factor
productivity (TFP) shock; country model simulation results for soybean, wheat, and petroleum price rises.
Adjustment costs
• Different sectors gain or lose from each
trade pact
• Capital and labor will move to expanding
sectors and leave contracting sectors
• To estimate adjustment cost for Doha
scenario, we summed the changes for
each factor divided by the total amount of
the factor used in the economy
Adjustment Costs, continued
• To give a sense of the extent of factor
reallocations, we compare it to the
amount of adjustment that Doha would
induce in the European Union
• Brazil would face 4.5 times as much
adjustment for unskilled labor, and
almost twice the adjustment for capital
• However the EU would face higher
adjustment costs for land
Employment Adjustment
• In the trade scenarios, employment shifts
from manufacturing to agriculture
• Wages, working conditions and job skills
in these sectors are quite distinct
• Production typically does not occur in the
same areas or regions and migration
would be required
Main Conclusions
• New trade agreements produce positive
but small gains for Brazil—about 0.4%
improvement in overall real income from
Doha or broad South-South FTAs
• Further trade liberalization will leave
Brazil more exposed to world price
volatility, with the simulations showing
gains or losses from price changes that
are greater than from the trade pacts
themselves
Main Conclusions, continued
• The distribution of gains and losses
among Brazil’s regions is uneven and
results in some redistribution of welfare
and incomes
• The major trade pacts increase unskilled
employment by about 0.4% to 0.6%
• At the same time, sectoral restructuring
would be required that could result in
transitional and perhaps longer term
structural unemployment
Main Conclusions, continued
• Value-addition is lower in most expanding
agricultural sectors than in contracting
manufacturing sectors
• This raises the question as to whether the
resulting structural adjustment would
increase or reduce value addition and
thus whether it would serve the country’s
long-term development goals
Main Conclusions, continued
• As Brazil pursues trade liberalization
policies, it will be important to plan for
the distributional consequences between
regions, workers and households as well
as the long-term impact on the structure
of the economy
• Additional transitional adjustment
programs may be needed, particularly for
unskilled labor
Brazil in the Global Economy:
Measuring the Gains from Trade
Sandra Polaski
Carnegie Endowment for International Peace
April 9, 2009