The industrial equilibrium exchange rate in Brazil: an estimation

Transcription

1 Brzilin Journl of Politicl Economy, vol. 32, nº 4 (129), pp , October-December/2012 The industril equilibrium exchnge rte in Brzil: n estimtion Nelson Mrconi* This pper presents methodology for clculting the industril equilibrium exchnge rte, which is defined s the one enbling exporters of stte-of-the-rt mnufctured goods to be competitive brod. The first section highlights the cuses nd problems of overvlued exchnge rtes, prticulrly the Dutch disese issue, which is neutrlized when the exchnge rte strikes the industril equilibrium level. This level is defined by the rtio between the unit lbor cost in the country under considertion nd in competing countries. Finlly, the evolution of this exchnge rte in the Brzilin economy is estimted. Keywords: exchnge rte; Dutch disese; deindustriliztion; economic development. JEL Clssifiction: F43; O11; O14; O24. INTRODUCTION New developmentlism defines the exchnge rte s key vrible in the development process ccording to its impct on investment decisions nd economic growth. Becuse they define the rtio between the prices of trdbles nd nontrdbles, the exchnge rte level nd fluctutions influence the competitiveness of country in foreign mrkets, the profitbility of vrious sectors, the composition of ggregte demnd, of investments nd of the productive structure nd, consequently, growth rtes. Currency pprecition for prolonged periods cn jeoprdize * From the São Pulo School of Economics of the Getulio Vrgs Foundtion nd the Ctholic University of São Pulo. The uthor thnks Luiz Crlos Bresser-Pereir, José Luíz Oreiro nd Pulo Gl for their comments nd Brun Pezzin, Heitor Mot Fior, Mrco Brncher, Pietro Consonni nd Roberto Argão for their ssistnce in the clcultions mde here. All errors nd omissions re certinly the uthor s lone. 656 Brzilin Journl of Politicl Economy 32 (4), 2012

2 the trde blnce nd lter its composition, incresing the reltive shre of primry goods in exports nd of mnufctured goods in imports (minly intermedite goods), possibly leding to regressive speciliztion in the productive structure nd deindustriliztion. Bresser-Pereir (2009, 2011) emphsizes this phenomenon nd his rguments re supported by Rzmi et l. (2009), Rodrik (2008), Gl (2007) nd Plm (2005), mong other uthors. The exchnge rte tends to be overvlued in countries suffering from the Dutch disese nd/or with excessive cpitl inflows. While the influence of the ltter on the exchnge rte is cyclic, since it is ssocited with the difference between domestic nd foreign interest plus the expected exchnge rte nd to the ttrctiveness of investments in n economy, the Dutch disese hs structurl bering on the exchnge rte, s it is ssocited with country s nturl resource endowment chrcteristic. It is therefore necessry to neutrlize its effects, since in this cse the pressure brought bout by over-pprecition cnnot be relieved by mrket mechnisms. And for the Dutch disese process to be neutrlized, the gp between wht Bresser-Pereir (2008b) refers to s current equilibrium nd industril equilibrium exchnge rtes must be reduced. Therefore, the im of this pper is to estimte the industril equilibrium exchnge rte of the Brzilin economy using methodology proposed by the uthor. For this purpose, the chrcteristics of the Dutch disese will be discussed to provide n understnding of the concept behind the industril equilibrium exchnge rte nd of its effects on economic growth; subsequently, methodology for clculting this exchnge rte nd estimting its evolution in the recent pst will be presented. CHARACTERISTICS OF THE DUTCH DISEASE PROCESS According to Bresser-Pereir (2008), the Dutch disese is mrket filure tht mkes it possible for country to chieve current ccount blnce despite the exchnge rte to be holding overvlued. Countries ffected by this problem hve bundnt nturl resources produced t very low cost nd, becuse of the scrcity of these products in the globl mrket, their producers ern Ricrdin rent nd they enjoy much higher revenues from exports (in foreign currency) leding to n overvlued exchnge rte. Such pprecition reduces the revenues in Brzilin currency of exporters t lrge, but given the low production cost ( structurl fctor) of commodities, which is often ssocited with higher interntionl price cused by higher demnd ( cyclicl fctor), the exporters of these goods mnge to preserve their profitbility nd presence in foreign mrkets. However, for exporters of other goods whose production process is not fvored by the sme bundnce of nturl resources tht ensure high productivity or cost edge over their foreign competitors, profitbility is jeoprdized (nd thus investments) when the exchnge rte is pprecited. In developing countries, this is wht hppens to mnufctured goods. The exchnge rte level tht would enble Revist de Economi Polític 32 (4),

3 efficient producers of mnufctured goods to export them nd preserve their profitbility, referred to here s the industril equilibrium exchnge rte, is higher thn the exchnge rte tht would ensure current ccount blnce but ctully lters the composition of exports nd of the country s productive structure towrd greter speciliztion in primry goods. In this scenrio, there would be two equilibrium exchnge rtes in n economy suffering from Dutch disese process: one tht Bresser-Pereir (2008) refers to s the current ccount equilibrium exchnge rte, which ensures current ccount blnce intertemporlly but leds to regressive chnge in the productive structure of the economy; in such sitution, the commodity trde blnce more thn offsets the deficit in the trde blnce for mnufctured goods, but it contributes to the bovementioned chnge in the productive structure; the other one is the industril equilibrium exchnge rte, which enbles producers of stte-of-the-rt mnufctured goods with the cpcity to compete in foreign mrkets to do so with fir profit mrgin. The mgnitude of the Dutch disese process is defined by the difference between these two exchnge rtes, nd the ctul exchnge rte must be brought to the industril equilibrium level to void this undesirble chnge in the productive structure. The effects of the Dutch disese re not restricted to chnges in the composition of exports brought bout by n overvlued exchnge rte. An pprecited domestic currency lso stimultes imports of intermedite nd finl goods, the impct of which on production nd on the composition of the productive structure cn be hrmful. 1 Problems re creted for the mnufcturing sector ssocited not only with profitbility, but lso with foreign competition derived from currency pprecition. In response to currency pprecition, the purchsing power of wges nd ggregte demnd rise in the short term, s rgued by Corden nd Nery (1982). The higher demnd for non-trdbles brought bout by the rise in disposble income is met by domestic production (given the fetures of these goods nd services), which cn result in chnges in reltive prices fvoring them. As for commodities, the higher demnd is lso met by domestic production, given the bundnt supply nd productivity edge between domestic nd foreign producers. However, in the cse of mnufctured goods, reltively lrge shre of this incresed demnd is met by imports, i.e., the currency pprecition will hve bering on the composition of supply, reducing the shre of domestic products in it. Incresed competition brought bout by the currency pprecition will lso inhibit the trnsfer of rising unit lbor costs to the prices of domesticlly produced mnufctured goods, which rise less thn the prices chrged in other sectors of the economy. Therefore, if producers of mnufctured goods expect to see long-term cur- 1 Mrconi nd Roch (2012) show tht the negtive effect tht incresed imports of intermedite inputs hve on the production chin nd on the mnufcturing shre on vlue dded previled in the Brzilin economy in recent yers over the positive effects tht cheper imported inputs cn bring bout through greter verticl integrtion of exported mnufctured goods. 658 Brzilin Journl of Politicl Economy 32 (4), 2012

4 rency pprecition (nd thus lower profit mrgins), investments will be discourged, thus inhibiting productivity improvements tht could offset the wge increse derived from higher ggregte demnd. As result, the decrese in profits for such producers is further reinforced. To offset this increse in verge wge costs nd, in the cse of exporters, the dditionl decrese in their revenues (converted to the domestic currency) due to the exchnge rte pprecition, producers of mnufctured goods increse the shre of imported inputs in their production process to tke dvntge of their cheper price in domestic currency nd thus reduce their verge production cost. This ffects the domestic production of intermedite goods, inter-industril demnd, the production chin, nd production diversifiction. Thus, the rise in demnd brought bout by the incresed purchsing power of workers resulting from n overvlued exchnge rte would be incresingly met by imports, undermining not only the finl goods industry, but lso tht of intermedite goods nd thus the production chin. As result of this process, growth in mnufcturing is lower thn in other sectors nd its shre in vlue dded decreses. Such n economy will grow t slower pce, s the effects of mnufcturing on economic growth (widely discussed by Kldor (1966), Chenery et l. (1986), Bernt (1996), Mrinho et l. (2002), Plm (2005) nd Veermni (2009), mong others) will be thwrted. In ddition, country in such sitution my fce blnce-of-pyment constrints in the medium term. As stted bove, exchnge pprecition lters the foreign trde nd production frmework, leding the economy to regressive speciliztion in primry goods nd higher imports of mnufctured goods. The chnge in the production structure, in turn, chnges the income elsticity of imports, which increses s result of reltive drop in the production of mnufctured goods, s well s the income elsticity of exports, which decreses becuse demnd for them is less elstic in reltion to income thn demnd for mnufctured goods (Bresser, Oreiro nd Mrconi, 2012). Thus, the Dutch disese process leds to reprimriztion of exports nd incresed imports of mnufctured goods in economies enjoying significnt comprtive dvntges in the production of primry goods, to higher demnd for non-trdbles due to the rise in domestic income nd to lower shre of mnufcturing in vlue dded nd in the growth rte of the economy. To prevent this dynmic, the Dutch disese must be neutrlized by txing exports of commodities by countries ffected by it so s reduce sles brod nd reverse the exchnge pprecition process by reducing the inflow of foreign exchnge. Estblishing sovereign fund is nother solution. Consequently, the exchnge rte will rise to the industril equilibrium level nd the process described bove will be voided. It is therefore necessry to know the level of the industril equilibrium exchnge rte to ensure the fesibility of strtegies nd policies designed to suppress overvlution of the exchnge rte, i.e., the difference between tht rte nd the one previling in the economy. In the next section, methodologicl proposl for clculting this rte will be presented. Revist de Economi Polític 32 (4),

5 METHODOLOGY FOR CALCULATING THE INDUSTRIAL EQUILIBRIUM EXCHANGE RATE The industril equilibrium exchnge rte is one tht enbles efficient entrepreneurs, i.e. those who produce goods in the stte-of-the-rt technology, to remin competitive brod. The necessry condition for this to occur is the equliztion between their profit mrgins nd those enjoyed by their competitors. In the process of producing mnufctured goods, which is bsiclly trnsformtion process, the min production cost (considering ll production stges) is tht of lbor, contrsting with the production of primry goods, which re more nturl-resource intensive nd less lbor-intensive. Therefore, possible pricing rule tht producers of mnufctured goods might seek to dopt is the following one: 2 P = TRAD M + AVC (1) M Assuming tht m =, P TRAD P = 1 TRAD * 1 m AVC AVC = W λ, or unit lbor cost (ULC) 2, P TRAD = price of trdble mnufctured goods m = mrk-up on the verge unit cost, clculted s percentge of the price. AVG = verge unit cost W = wge rte l = lbor productivity Thus, the prices of mnufctured goods would be defined by setting mrk-up over verge costs, which would be primrily composed of the unit lbor cost. A key condition for producers to continue to compete in foreign mrkets is tht m = mb, where (2) = ll other competitors in the interntionl mrket b = producer (exporter) in the country in question. If the price of mnufctured good in the interntionl mrket is uniform 2 Another possibility, which strictly speking is more relistic, would be to define tht AVC = * W + ( 1 α) *( PM * E), where P λ M = price of imported inputs (in foreign currency) used in the production process, E = nominl exchnge rte, = shre of domestic inputs in the production process of the trdble good, nd (1 ) = shre of imported inputs in the sme process. When the nominl exchnge rte pprecites, is likely to drop, reducing production costs nd requiring lower industril equilibrium exchnge rte to ensure profit mrgin for exporters of mnufctured goods, but it would contribute to reduce the shre of mnufcturing in vlue dded (Mrconi nd Roch, 2012). Since this is n undesirble effect, simpler pricing process will be considered tht mesures only the exporting compny s competitiveness bsed on unit lbor costs, without it hving to increse the shre of imported inputs in the production process to try nd ensure desired profit mrgins. 660 Brzilin Journl of Politicl Economy 32 (4), 2012

6 which is resonble ssumption, given the fierce competition previling in it nd the verge cost for exporters is rising more thn tht of its competitors, producers will hve to scrifice their profit mrgin (mrkup) to remin competitive, tht is, not to lose their mrket shre. Thus, P TRAD = P TRADb, The condition for m = m b is AVC = AVC b, AVC AVC b = ULC ULCb =, E E = Nominl effective exchnge rte between the currency of the country in which exporting compny b produces nd the currencies of the countries in which their competitors in the interntionl mrket () produce. Thus, for m = m b, ULC ULC E ULC b b =, nd = (3) E ULC For the competitiveness of producer b to be preserved, the nominl effective exchnge rte should correspond to the rtio between her unit lbor cost nd the unit lbor cost of her competitors. In ggregte terms, this exchnge rte should correspond to the rtio between the unit lbor cost for producing mnufctured goods in country b nd the weighted verge of the unit lbor cost for producing the sme goods in countries in which her competitors produce them. Multiplying both terms by 1 Pb 1 P, where: P = weighted verge price level in the countries in which competitors of b produce the goods, P b = price level in the country in which producer b produces the goods, 1 1 Pb ULCb Pb E * = * = 1 ULC 1 P P ULC p EP. Pb = (4) P ULC b P If the verge cost per unit is bsiclly composed of the unit lbor cost, the rel exchnge rte of country will be t stisfctory level to preserve the competitiveness of its producers of mnufctured goods in foreign mrkets when it is equl to the rtio between the unit lbor costs, in rel terms, of b nd. If it Revist de Economi Polític 32 (4),

7 is lower, it will be over-pprecited for producers of mnufctured goods in the country under nlysis nd vice vers. The industril equilibrium concept is therefore microeconomic concept tht is used to define fundmentl mcroeconomic price in ny economy the exchnge rte. The best wy to clculte it is by defining smple of compnies using globl stte-of-the-rt technology nd clculting, for ech of them, the exchnge rte tht would enble them to export with stisfctory profit mrgins. From the ggregte stndpoint, the vlue of the unit lbor cost in mnufcturing in country nd for competitors could be lso clculted. However, estblishing such smple or mking ny of these two clcultions is not possible. Therefore, the rtio between the unit lbor cost in nd b, s shown in equtions (3) or (4), is clculted s reltive or index number tht cn be used for estimting the evolution of the rel industril equilibrium exchnge rte, but not its level. In order to estimte its level over time, bsis for clcultion must be estblished. It should correspond to level of the rel effective exchnge rte for mnufctured goods tht is recognized s close to industril equilibrium. Once the vlue of this effective rte nd the period over which such threshold previls re defined, the subsequent vrition of the rtio between the unit lbor cost (ULC) in nd b to the present dy is pplied to estimte the evolution of the industril equilibrium exchnge rte. The rel effective exchnge rte for mnufctured goods is lso n index; to estimte its corresponding level, one should choose n verge nominl exchnge rte in period close to the present nd pply vritions in the rel effective exchnge rte retroctively from there. In the next section, the industril equilibrium exchnge rte will be estimted using the clcultion methodology described bove. ESTIMATING THE INDUSTRIAL EQUILIBRIUM EXCHANGE RATE FOR BRAZIL The first step in this estimtion is setting the vlue of the rel effective exchnge rte tht will be equivlent to the bse of the series, from which level the evolution of the rtio between the unit lbor cost in Brzil nd in its trding prtners countries will be pplied. This vlue should correspond to n exchnge rte level identified s tht of industril equilibrium. A decision ws thus mde to select the rel exchnge rte vlue rte in period in which: ) the exchnge rte ws mnged; b) the country neutrlized the Dutch disese process; c) the shre of mnufcturing in vlue dded ws not declining, so s to confirm tht the rel exchnge rte stood t stisfctory level. 3 3 Another possibility would be to pply the verge triff chrged on imports nd exports during the period in which the country ws neutrlizing the Dutch disese (thus before the trde nd cpitlccount liberliztion drive in the erly 1990s) to the current equilibrium exchnge rte. However, neither of these two pieces of informtion triffs nd exchnge rte resulting in intertemporl equilibrium in the current ccount blnce re vilble priori. 662 Brzilin Journl of Politicl Economy 32 (4), 2012

8 For building n effective exchnge rte for mnufctured goods tht is sufficiently retroctive, one must know the shre of the different prtners involved in the Brzilin trde flow in such products in distnt pst nd, unfortuntely, this informtion is not vilble. For this reson, in order to build series of the rel exchnge rte over longer period, only the evolution of the bilterl exchnge rte between Brzil nd the US ws considered, s clculted for the period. The defltors re the wholesle price indices of the two countries nd the bse of the series is the vlue of the verge nominl exchnge rte in It ws decided tht this bse would be set in close period, so tht the vlues of the series to be clculted would be comprble to those seen tody, more specificlly in 2010, s this is the lst yer in the series for the unit lbor cost (s per the vilbility of dt). 4 When the bse of the rel exchnge rte is defined s the vlue of the nominl exchnge rte in given period, its vlue is equl to: z t et = Ei * (5) e Where: i z t = vlue of the rel exchnge rte in period t, clculted from the new bse; E i = verge nominl exchnge rte in period i, defined s the new bse; e t = index number of the rel exchnge rte in period t, in the originl bse; e i = verge index number of the rel exchnge rte in period i, in the originl bse. Grph 1 shows tht this series (s clculted for monthly vlues nd referred to s the bilterl rel exchnge rte) ws reltively stble between 1968 nd 1979, indicting tht the policy mkers mnged the exchnge rte to prevent it from over-ppreciting; in ddition, the following structurl chnges took plce in the Brzilin economy over this period: ) the shre of mnufctured goods in exports incresed significntly; in 1964, it mounted to 9.3%; in 1968, it rose to 14% nd in 1979 to 44.1% (just to illustrte the point, there ws pek in 1993, t 61.3%, nd this percentge dropped to 36.8% in 2011); b) the shre of mnufcturing in vlue dded incresed to its highest level during this period verge of 21.1% t constnt 1995 prices (by wy of comprison, in 2011 this shre dropped to 14.6%). Dt clculted by the uthor bsed on dt from the Ntionl Accounts, Funcex nd Doellinger et l. (1973). It should lso be noted tht, in the period, the Dutch disese process ws neutrlized by pplying customs triffs. 4 The vlues of the series were lso clculted on the bse corresponding to the verge nominl rte in 2009 nd 2011 nd the results were very similr. It is importnt to note tht this bse is just used to clculte the level of the exchnge rte over time, ccording to the rel evolution of its index. It is distinct from the bse tht corresponds to the pproximte vlue of the industril equilibrium exchnge rte, from which level the evolution of the rtio between the unit lbor cost in Brzil nd in its trding prtners countries will be pplied. This other bse will be estimted in the following step of this clculus. Revist de Economi Polític 32 (4),

9 Grph 1: Bilterl rel exchnge rte Brzil / USA nd Rel effective exchnge rte for exports of mnufctured goods Averge monthly vlues Defltors: PPI BR nd PPI USA (Bilterl RER) nd PPI (t mnufcturing) for Brzil nd PPI for other countries (Effective RER) Bse = verge nominl R$ / US$ exchnge rte in ,00 6,00 5,00 4,00 3,00 2,00 1,00 0, Bilterl rel exchnge rte Effective rel exchnge rte Polynomil (Trend for Bilterl RER) Source: Ipedt; prepred by the uthor. Thus, bsed on these dt, it cn be estimted tht, between 1968 nd 1979, the rel exchnge rte stood t fvorble level for boosting exports nd the shre of mnufcturing in vlue dded, mening tht it ws t level tht cn be referred to s tht of industril equilibrium. In the series clculted ccording to the criterion defined in Eqution 5, this level would be R$ 4.09 (verge for the period), which in turn is very similr to the verge level registered in 1988 (R$ 4.07), the yer from which dt series for the evolution of the unit lbor cost for most of Brzil s trde prtners re vilble. 5 This wy, the rel verge exchnge rte in 1988 is defined s vlue corresponding to the industril equilibrium level, from which vritions in the rtio between the unit lbor cost in Brzil nd in its trding prtners countries will be pplied. However, one should remember tht the rel exchnge rte clculted ccording to the bove-mentioned criterion is bilterl, mening tht it does not tke into ccount other trde prtners of Brzil nd neither specifies those tht re more relevnt for the trde in mnufctured goods. A rel exchnge rte possessing these fetures ws clculted by Ipedt bsed on post-1980 dt. 6 A possible strtegy to ddress this problem would thus be one of clculting the vlue of the rel ex- 5 Reclling once gin tht this vlue ws clculted for series whose bse is the verge nominl exchnge rte in The rel exchnge rte mentioned is the one clculted by IPEA for mnufctured products, with wholesle price indices s defltors, which re better indictors of the evolution of costs for producers thn retil indices. This rte is ctully weighted verge index of bilterl exchnge rtes between Brzil nd its min trding prtners in mnufctured goods. The weight is clculted ccording to the 664 Brzilin Journl of Politicl Economy 32 (4), 2012

10 chnge rte for the Ipedt series ccording to the criterion defined in Eqution 5, dopting the sme bse period (verge nominl vlue in 2010) nd estblishing, once gin, the verge clculted in 1988 s tht of industril equilibrium, nmely, R$ This series is lso included in chrt 1 s the rel effective exchnge rte. To vlidte this strtegy, the series of the bilterl exchnge rte clculted by the uthor nd tht of the effective exchnge rte estimted by Ipedt nd lso reclculted should hve high correltion. The correltion between the monthly vlues for the two series is indeed significnt: 77.7% over the whole period during which the series coexist ( ), 77.5% between 1980 nd 1989, thus defined becuse it is the one in which the vlues in the series hve the lrgest gp, s shown in Grph 1, nd 91.3% in the period. 7 Once the bse yer for clculting the industril equilibrium exchnge rte is set t 1988 nd its mgnitude is defined s the corresponding vlue of the verge rel effective exchnge rte in tht period t 2010 prices, one must pply vritions in the index tht mesures the rtio between the unit lbor cost (in rel terms) in Brzil nd in its prtners countries (idem) fter 1988 to estimte the vlue of the industril equilibrium exchnge rte over time. As defined bove, ULC W W = = N Y = λ N m Wm Y (6) Where: ULC = unit lbor cost W = wge rte l = productivity W m = totl ernings N = number of employees Y = vlue dded The unit lbor cost is therefore clculted by dividing the index for the evolution of totl ernings in mnufcturing nd the vlue dded index in the sme sector. OECD nd the Bureu of Lbor Sttistics, which re the sources of informtion on most of our trding prtners, mesure n index for the verge nnul shre of the 16 min trding prtners of Brzil in our totl exports of mnufctured exports in See 7 Another implicit ssumption in this strtegy is tht the series of the rel effective exchnge rte lso hs high correltion with the series of the rel bilterl exchnge rte throughout the 1970s. This ssumption is necessry becuse the series of the effective exchnge rte for the 1970s is not known; thus, future improvements in the estimte mde in this rticle will include tht of clculting the rel effective exchnge rte for mnufctured products for longer period. Revist de Economi Polític 32 (4),

11 evolution of the unit lbor cost for severl countries bsed on this criterion (in nominl terms totl ernings in nominl terms/vlue dded in rel terms), which the uthor then converted into n index for rel evolution using the respective consumer price indices (nnul verge) s defltors. For Brzil, given the evolution of infltion over the period under considertion, monthly series ws clculted by the division between the rel pyroll index nd the rel production index (both of which re clculted nd disseminted by IBGE bsed on its industril surveys) nd then the nnul verge of the vlues of this series ws clculted. It should be noticed tht the result of clculting the unit lbor cost is n index, which therefore only indictes its evolution. 8 Subsequently, n verge of the indices representing the evolution of the unit lbor cost, in rel terms, for Brzil s min trding prtners for mnufctured goods ws estimted. The weight ws the shre of ech of these trding prtners in these products trde flow with Brzil. Both exports nd imports were considered, s the gol is tht of knowing the exchnge rte tht mkes exporters competitive nd voids distortions in the prices of imported goods, cusing them to drop too much, thus leding to excessive consumption of imported products. The rtio between the unit lbor cost evolution index in Brzil nd its verge evolution in its trding prtners countries is n indictor of the country s competitiveness tht in relity represents the evolution of its industril equilibrium exchnge rte. 9 Grph 2 shows the unit lbor cost evolution index (in rel terms) in Brzil nd in its min trding prtners countries (on verge) nd the rtio between these indices. A drop in the rtio between these indexes constitutes gin in competitiveness for Brzil. 10 During the period under considertion, it cn be seen tht Brzil experienced competitive gins (considering the clcultion criterion dopted in this pper, bsed on vritions in the unit lbor cost) in reltion to its prtners until 2000, when the rtio stbilized nd subsequently, from 2003 onwrd, Brzil lost the competitive edge it hd chieved erlier in the period nd found itself in worse sitution thn tht observed in Becuse the unit lbor cost rose, one cn lso see tht productivity did not evolve in pce with rel wges in mnufcturing in the Brzilin economy fter 2007 (with the exception of 2010) For countries for which informtion is not vilble in the OECD dtbse, n effort ws mde to use the sme clcultion methodology. Detils bout the criteri cn be provided by the uthor. 9 The countries considered in the estimte, sources of dt nd weights tht were used re described in Annex. 10 The series strts in 1988 due to the vilbility of dt for most countries from tht dte nd becuse this yer ws defined s the bse for clculting the industril equilibrium exchnge rte. 11 The figure for 2011 ws clculted for Brzil from existing dt sets nd for the other countries it ws estimted tht the rel unit lbor cost would remin constnt. The only country for which dt for 2011 re lredy vilble, the United Sttes, seems to hve stble nominl unit lbor cost (-0.1%, ccording to dt from the Bureu of Lbor Sttistics), which implies in reduction in rel terms. Thus, by ssuming stble unit lbor cost for Brzil s trding prtners, n optimistic ssumption is dopted for the evolution of the competitiveness of Brzilin exporters of mnufctured goods in Brzilin Journl of Politicl Economy 32 (4), 2012

12 The link between the vlue of the rel effective exchnge rte in 1988 nd vritions in the index pplied to mesuring the competitiveness of our exporters of mnufctured goods results in n estimte of the verge nnul vlues of the industril equilibrium exchnge rte t 2010 prices. Thus the series for the competitiveness indictor included in Chrt 2 lso corresponds to the evolution of the rel industril equilibrium exchnge rte, the initil vlue of which being equivlent to the one previously clculted for 1988 (R$ 2.67). The evolution of the competitiveness indictor llows one to estimte tht the vlue of the rel industril equilibrium exchnge rte stood t R$ 2.65 in 2010, which is virtully the sme vlue estimted for 1988, nd t US$ 2.75 in Grph 2: Rel unit lbor cost in Brzil nd trding prtners (2005 = 100) nd industril equilibrium rel exchnge rte (evolution = competitive index) (Bse = 1988 vlue, t 2010 prices) 3, ,67 2,74 2,65 2,75 2, ,42 2, ,24 2,25 2, , , ,50 Rel ULC - Brzil Source: See Annex. Rel ULC - trding prtners Industril equilibrium rel exchnge rte (bse = 1988) - right xis Given ll the ssumptions considered in the clcultion crried out ccording to the methodology proposed here, it should be emphsized tht the resulting rte should not be seen s n exct vlue. A better pproch would be tht of considering tht the industril equilibrium exchnge rte would stnd t n intervl round this vlue. Thus, due to the model nd the estimtes mde, it is ssumed tht if the observed exchnge rte stool t level close to R$ 2.75, efficient enterprises producing mnufctured goods would be encourged to look for wys to increse their sles brod nd would be exposed to less unequl competition in reltion to importers, given the chnge tht would tke plce in reltive prices. This scenrio would contribute to recovery in our mnufcturing sector. For this exchnge rte level to be chieved, interest rtes must continue to be reduced nd the Dutch disese process neutrlized, s both of them led to the pprecition of our currency. Revist de Economi Polític 32 (4),

13 REFERENCES BERNAT, G. Does Mnufcturing Mtter? A Sptil Econometric View of Kldor s Lws, Journl of Regionl Science, 36 (3), BRESSER-PEREIRA, L. C. A tx de câmbio no centro d teori do desenvolvimento. Disponível em: < pdf>. Drft pper, Bresser-Pereir, L. C. Globlizção e Competição. Rio de Jneiro: Elsevier-Cmpus, BRESSER-PEREIRA, L. C. The dutch disese nd its neutrliztion: Ricrdin pproch. Revist de Economi Polític, v. 28, n. 1, pp , Bresser-Pereir, L. C.; OREIRO, j.l.; MARCONI, N. A theoreticl frmework for Structurlist Development Mcroeconomics. Drft pper, Crlos Von Doellinger et l. Trnsformção d Estrutur de Exportções Brsileirs: 1964/70. Reltório de Pesquis No. 14 INPES/IPEA (Rio de Jneiro: INPES/IPEA, 1973) CHENERY, H.; SHERMAN, R.; MOSHE, S. Industriliztion nd growth. Oxford University Press, published for the World Bnk, CORDEN, W. M.; NEARY, P. Booming sector nd de-industrilistion in smll open economy. Economic Journl, v. 92, n. 368, GALA, P. Polític cmbil e mcroeconomi do desenvolvimento. Tese (Doutordo) Fundção Getulio Vrgs, São Pulo, KALDOR, N. Cuses of the slow rte of economic growth in the United Kingdom, In: TARGET- TI, F.;THIRLWALL, A. P. (Ed.).The Essentil Kldor. Holmes & Meier Publishers, New York, MARCONI, N.; ROCHA, M. Insumos importdos e evolução do setor mnuftureiro no Brsil. Texto pr discussão IPEA, to be published, MARINHO, E. L. L.; NOGUEIRA, C. A. G.; ROSA, A. L. T. Evidêncis empírics d lei de Kldor- -Verdoorn pr indústri de trnsformção do Brsil ( ). Revist Brsileir de Economi, Rio de Jneiro, v. 56. n. 3, jul.-set PALMA, G. Four sources of de-industrilistion nd new concept of the dutch disese. In: OCAM- PO, J. A. (Org.). Beyond reforms: structurl dynmics nd mcroeconomic vulnerbility. Stnford University Press nd World Bnk, RAZMI, A.; RAPETTI, M.; SKOTT, P. The rel exchnge rte s n instrument of development policy. Working Pper Deprtment of Economics, University of Msschusetts Amherst, RODRIK, D. The rel exchnge rte nd economic growth: theory nd evidence. Wetherhed Center for Interntionl Affirs, Hrvrd University, 2008 (Working Pper, ). VEERAMANI JR., C. Impct of Imported Intermedite nd Cpitl Goods on Economic Growth: A Cross Country Anlysis. Indir Gndhi Institute of Development Reserch, Annex Definition of the weight for clculting the verge unit lbor cost for Brzil s min trde prtners The first step in this clcultion included identifying countries with more significnt shre in Brzil s nnul trde flow (exports nd imports t current vlues). Adjustments were subsequently mde in this list of countries ccording to the vilbility of informtion on the unit lbor cost. These countries ccount for 69%-90% of Brzil s totl trde flow ech yer. Intervls in which prticulr weighing previls were then defined. The criterion for grouping periods ws the observtion of reltive stbility in the coun- 668 Brzilin Journl of Politicl Economy 32 (4), 2012

14 tries shre in the trde flow; when dt suggested more significnt chnge in this shre, nother intervl ws estblished. The weight is the verge shre of the countries in question in the trde flow in the yers considered in ech intervl. A specific weight ws clculted for 2009 nd 2010 due to chnges in the set of countries for which dt were vilble for these periods. The tble below includes the selected countries nd their shre in the clcultion of the verge unit lbor cost (of our trde prtners) in ech intervl considered: Shre (%) of prtners in Brzilin trde flow Country Germny 11,8% 11,2% 7,6% 7,4% 8,2% 7,6% Argentin 8,2% 15,4% 9,9% 11,4% 11,6% 12,6% Belgium 2,3% 2,0% 1,4% 1,4% 1,3% 1,2% Cnd 2,7% 2,1% 1,4% 1,6% 1,1% 1,3% Chile - - 1,9% 2,0% 1,6% 1,6% Chin - - 3,1% 8,6% 11,9% 13,2% South Kore 1,0% 2,4% 2,0% 2,6% 3,2% 4,0% Spin 1,2% 2,0% 1,9% 1,6% 1,5% 1,8% United Sttes 38,7% 32,2% 29,1% 20,1% 17,1% 15,5% Frnce 3,8% 3,4% 3,4% 3,0% 3,1% 1,5% Itly 6,5% 7,1% 4,2% 3,2% 3,2% 2,9% Jpn - - 4,4% 3,5% 3,9% 3,1% Mexico 1,9% 2,1% 3,5% 3,6% 3,2% 3,7% The Netherlnds 2,7% 2,7% 1,7% 1,6% 1,9% 3,3% Portugl 3,8% 1,8% 0,5% 0,3% 0,3% 1,9% United Kingdom 2,2% 2,3% 2,8% 2,0% 1,9% 0,3% Sweden 1,2% 1,7% 1,3% 1,0% 0,8% 1,9% Tiwn 2,0% 2,4% 1,2% 1,5% 1,6% 0,9% Venezuel - - 1,1% 1,9% 1,4% 0,9% Totl (of countries included in the estimte only) 81,8% 90,8% 78,5% 74,1% 74,7% 69,9% The gry cells indicte tht there is no informtion bout the trde flow ( -) or bout the unit lbor cost (the shre of the country is included on the tble, but it is highlighted). Dt source: Argentin: Indec, Undt nd IPC-7 provincis Brsil: IBGE Chin: Undt, Lborst, IMF nd People s Bnk of Chin Germny, Belgium, Cnd, South Kore, Spin, Frnce, Itly, Jpn, The Netherlnds, Portugl, United Kingdom, Sweden nd Mexico OECD Chile: Extended Penn World Tbles v. 4.0 United Sttes: OECD nd Bureu of Lbor Sttistics (BLS) Tiwn: BLS Venezuel: Extended Penn World Tbles v. 4.0 Revist de Economi Polític 32 (4),