The case for reindustrialisation in developing countries: towards the connection between the macroeconomic regime and the industrial policy in Brazil

Abstract

The majority of economic literature tends to discuss economic development issues by analysing the industrial policy and other long-term development policies separate from short-term macroeconomic policy. However, development strategies require a close coordination of the macroeconomic regime with the industrial policy. In addition to Brazil, our analytical discussion and normative implications can be addressed to other developing countries also facing premature deindustrialisation. We propose an analytical discussion of the phenomena of industrialisation, deindustrialisation and reindustrialisation, including a discussion on the connection between the macroeconomic regime and industrial policy, both oriented to reindustrialisation and catching up. The main point is that both policy regimes must be closely coordinated with each other. Concerning the macroeconomic regime, we argue that consistent monetary, fiscal, wage and exchange rate policies are those which are able to not only keep price stabilisation, but also provide average real interest rates below the average real return rates on capital, a competitive real exchange rate and real wage rates increasing in accordance with labour productivity growth. As for industrial policy, theoretical and empirical evidence suggest strategies aimed at the diversification of production, processes and products, especially within the manufacturing sector and within tradable segments of the service sector.

New Structuralism and the balance-of-payments constraint

“…manufacturing in GDP, the current account balance as a percentage of GDP, and the growth rate of the export of manufactured goods). The importance of the RER for growth and the income elasticities ratio is confirmed by Missio et al (2015) for a broad sample of 103 countries between 1978 and 2007 and by Nassif et al (2015Nassif et al ( , 2018 working with Brazilian data in the period 1980-2010. Gala (2008) highlights the differences in the management of the RER between East Asian and Latin American economies to explain the contrasting growth performance of the two regions since the '90s.…”

Structural change and productivity growth in Brazil: where do we stand?

“…The most damaging consequences of the overvaluation trend of the Brazilian currency throughout the 2000s were not only the aggravation of Brazil's premature deindustrialization (Nassif, Feijó and Araújo, 2015;Nassif, Bresser-Pereira and Feijó, 2018), a phenomenon that had begun in the mid-1980s (Nassif, 2008), but also a sharp reprimarization of the country's export basket. Between 2000 and 2016, the share of manufactured goods in Brazil's total exports decreased from around 71% to 53%, while the share of primary goods in total exports increased from around 26% to 45% in the same period (Nassif and Castilho, 2018).…”

“…We will argue that, between 1950 and 1979, the positive evolution of the Brazilian labor productivity was the result of a fine coordination of economic policies -industrial and technological as well as macroeconomic policies. The period during which labor productivity became stagnant, on its turn, coincided with a weak harmonization between industrial policy and the macroeconomic policies, especially after 1999, when Brazil adopted a very orthodox arrangement of monetary, fiscal and exchange rate policies (Nassif, Bresser-Pereira and Feijó, 2018).…”

Desindustrialização setorial e estagnação de longo prazo da manufatura brasileira

“…Em geral, a literatura qualifica toda a desindustrialização brasileira como prematura (PALMA, 2005;CANO, 2012;ROCHA, 2012;NASSIF;FEIJÓ, 2017). No entanto, as evidencias empíricas documentadas permitem organiza-la em três grupos: o primeiro reúne setores que apresentaram uma clara trajetória de desindustrialização normal; o segundo grupo agrega setores que apresentaram uma tendência bem definida de desindustrialização prematura; e ainda o terceiro grupo inclui poucos setores que não apresentaram tendência clara nem de industrialização nem de desindustrialização.…”