Financial Development, Political Instability, Trade Openness and Growth in Brazil: Evidence from a New Dataset, 1890-2003

Abstract

What is the relationship between financial development, political instability, trade openness and economic growth and how does it change over time? This paper examines these links using a new econometric approach and unique data set. In this paper, we apply the logistic smooth transition model (LST) to annual data for Brazil from 1890 to 2003. The main finding is that financial development has a time-varying effect on economic growth, which depends significantly on (jointly estimated) trade openness thresholds. In addition, political instability displays a negative effect on growth whereas trade openness a positive one. Finally, our estimates show that in 56% of the years in which financial development has a ‘below the mean’ effect, we find that trade openness experiences a substantial ‘above the mean’ change.

Do human capital and institutional quality contribute to Brazil's long term real convergence/divergence process? A Markov regime-switching autoregressive approach

“…In line with the studies that analysed Brazil's economic growth (e.g. Campos et al, 2020Campos et al, , 2023, we found that institutional quality is likely to promote Brazil's real convergence; however, the Markov Regime-Switching Autoregressive approach used permitted to uncover important non-linearities overlooked by previous studies: non-significant impacts of institutional quality on Brazil's real convergence were founded in the catching-up phase for Brazil/Portugal and in the falling behind phase for Brazil/LA6. Such an evidence suggests it is critical to independently scrutinize real convergence and economic growth processes (Bernardelli et al, 2021), and to recognize that in countries paved with high levels of poverty and inequality even after establishing more democratic regimes, the constitution, stability, and appropriate reforms proposed by it to enhance convergence may be more challenging to negotiate and achieve.…”

“…The relevance of these latter variables has been analysed by several recent studies, such as Campos et al . (2020, 2023), Chhabra et al . (2023), and Doré and Teixeira (2023), although they focus on Brazil's economic growth and not on the country's real (div)convergence process.…”

“…Besides assessing the real (div)convergence, our study estimates the extent to which human capital and institutional quality influence the Brazilian catching up/falling behind process towards LA6, Portugal, and the US. The relevance of these latter variables has been analysed by several recent studies, such as Campos et al (2020Campos et al ( , 2023, Chhabra et al (2023), and Doré and Teixeira (2023), although they focus on Brazil's economic growth and not on the country's real (div)convergence process. Although of high relevance, these studies miss a great deal in analysing and discussing potential explanatory factors associated with real convergence/divergence of Brazil towards other economies.…”