Industrial policy matters: the co-evolution of economic structure, trade, and FDI in Brazil and Mexico, 2000–2015

Abstract

The early work by Kuznets and Chenery originally developed the theme that economic development was not simply a synonym for aggregate GDP growth, but entailed qualitative changes in the structures of production, employment, and consumption. Later work in international business and economics explored the co-evolution between FDI and economic structure. We investigate the co-evolution between FDI, economic structure and export structures in the two largest Latin American economies, Brazil and Mexico, over the period 2000–2015. Both initially followed similar development strategies during the import-substitution era. During the liberalization era they followed somewhat different strategies towards maintaining the competitiveness of domestic actors. In addition to the analysis of key indicators, we discuss the role played by industrial policies—or their absence—within Brazil’s and Mexico’s development strategies. Industrial policy instruments, such as infant industry protection, subsidies, tax and financial incentives, as well as performance requirements may be crucial to shift the economic structure in the direction of the desired industries. Tracing the co-evolution between FDI and economic structures, even in the absence of statistical rigour to support causal claims, provides interesting insights for industrial policy in the twenty-first century.

The influence of home-country resources and state ownership on subsidiary’s performance: a multilevel perspective

“…The authors contend that both domestic and foreign ownerships significantly contribute as resource providers to SOEs during internationalization. Consequently, SOEs from various Latin American countries, including Brazil, underwent privatization to foreign investors (Hennart et al , 2017; Pineli and Narula, 2023). This perspective aligns with Mariotti and Marzano’s (2020) assertion that foreign investors could assist SOEs in realizing their internationalization strategies by providing superior resources beyond the reach of governments.…”

“…For instance, accessible credits from development banks (e.g. BNDES) exert influence as a government policy (Caseiro and Masiero, 2014; Pineli and Narula, 2023). Hence, governments should formulate more effective mechanisms and policies for overseas expansion instead of politically intervening in SOEs (Zhang et al , 2022).…”

“…Two dummy variables were established to represent government support, with one dummy set to 1 for the industrial, technological and foreign trade policy (PITCE) policy (2004)(2005)(2006)(2007) and the other set to 1 for the productive development policy (PDP) policy (2008)(2009)(2010). These state policies aim to promote national industry growth, fostering "National Champions," and enhance the internationalization of flagship companies (Caseiro and Masiero, 2014;Hennart et al, 2017;Pineli and Narula, 2023). Finally, the natural logarithm of constant GDP (in US$) was used to examine the potential economic development of the host country (in US$) (Meyer and Su, 2015).…”

“…Second, since the 2000s, government banks, such as the Brazilian National Development Bank (BNDES), have influenced the growth of "National Champions" (Lazzarini et al, 2015). This was a type of government policy instrument (Pineli and Narula, 2023) that prioritized flagship companies from different Home-country resources and state ownership sectors, such as meat companies, construction, and petrochemicals (Caseiro and Masiero, 2014). A similar move emerged in other countries (e.g.…”