BOS student number: 27686095

Research the impact of globalisation on an economy other than Australia,

along with strategies that this economy is using to promote growth and
development

Economy chosen: Brazil

Introduction brief

In the past 3 decades, the global economy has become increasingly

interconnected with the initiation of globalisation. Globalisation is the process of
increased integration between assorted economies along with the increased
impact of international influences on all aspects of economic activity and general
life. There are mainly three forces that are contributing to the process of
globalization and these are the liberalization of capital movements, the opening
of global markets to trade and investment, and the increasing use of information
and communication technologies. This increased integration can have a
significant impact on a nations growth and development, trade and investment,
environment and inequality issues. Globalisation can have positive or negative
effects on distinct economies, depending on the economys structure.

Brazil, officially referred to as the Federative Republic of Brazil, is the second

largest and as well as the most populated country in South America. Brazils slow
response to globalisation meant that for decades, both the volume and variety of
its exports were very limited. The inefficiency of its industries due to the
economys determination to boost self-sufficiency amplified this process. In
order to improve economic growth and development, the Brazilian government
along with the IMF has developed a range of shorter-term microeconomic
policies and long-term microeconomic reforms to encourage fiscal discipline,
target inflation and float the Brazilian currency. As well as increasing investment
in infrastructure to reduce levels of inequality

Current state of play and trends

Brazil is classified as a newly industrialised country or as a part of the BRIC

emerging economies (Brazil, Russia, India, China). The Brazilian economy is that
of mixed market and includes characteristics of market-based capitalism, as well
as socialist planning. The economy can now be considered as a technology driven
economy and has experienced significant periods of growth and development
since the process of industrialization arose in the 1930s, growth that was mainly
motivated from exports.

Brazil is still measured as a developing country, due to its low GDP per capita,
low standard of living and high infant mortality rate along with other factors. In
addition to a high birth rate, Brazil also has a high death rate. This results from
limited access to adequate health care, deplorable housing conditions and
insufficient diets.

Brazils gross national income (GNI) per capital is currently 14,274.77 (PPP $)
and Brazils GDP is currently 2, 840.9 billion (PPP $). Brazils GDP grew by an
BOS student number: 27686095

annual average of 4.2% in the period between 2003 and 2008 before the global
financial crisis. After a solid 7.6% growth recovery in 2010, growth of real GDP
moderated to 2.1% in the past 4 years, to only 0.1% growth in 2014. The GDP
growth is currently -2.6% in 2015. This slowdown in GDP growth was induced
by the weak demand in the global economy and internal factors affecting the
domestic economy. The past 10 years of GDP growth are displayed in figure 1.

Figure 1
GDP growth rate
8.00%

7.00%
GDP growth (percentage)

6.00%

5.00%

4.00%
GDP growth rate
3.00%

2.00%

1.00%

0.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-1.00%
Year

Higher leverage in the private sector of the private sector and increased
exposure to global financial conditions have left multiple firms in emerging
markets, including Brazil, more susceptible to downturns in economic activity
and more exposed to capital outflows into deteriorating asset quality.

The introduction of Brazil to the foreign financial market has allowed for
financial inflows to fund growing industrialisation. Over the past 35 years,
investment in infrastructure has seen health care provisions increased levels of
life expectancy from 63 in 1980 to 73 in 2015. Funding industrialisation from
integration in the global financial market has also resulted in increased
investment in capital goods and the manufacturing industry, which has increased
employment levels

The economy of Brazil is financed by three main sources; overseas investments

from foreign countries, the International Monetary Fund (IMF) and the World
Bank. These countries and organisations intervene in Brazils funding of
development and growth strategies to restore the economy, with hope that their
investments will reap the benefits of the successes of growth and development in
Brazil.

In terms of education, Brazils mean years of schooling is 7.18 years. Which is

quite normal for a country with a medium to high human development index like
Brazil. This has increased significantly from the 1980s when the mean years of
schooling was only 2.6 years.
BOS student number: 27686095

Life Expected Mean years GNI per HDI value

expectancy years of of capita
at birth schooling schooling (PPP)
2010 73.08 14.2 7.2 13,880 0.726
2011 73.31 14.2 7.2 14,580 0.728
2012 73.62 14.2 7.2 15,010 0.730
2013 73.89 14.2 7.2 15,490 0.744
2014 73.57 14.2 7.2 15,590

Brazils international trade as a percentage of GDP is currently 26.54%, FDI net

inflows as a percentage of GDP is 3.38% and private capital flows as a percentage
of GDP is -3.39%.

Global trade and financial relationships

Trade is vital for economies in pursing economic growth. It allows economies to

produce greater output than they preciously did by exporting their comparative
advantages. Unemployment in Brazil is low, wages are rising and the level of
foreign direct investment is high. There are plenty of opportunities for
international investments in Brazil from business leaders around the world,
particularly in agribusiness, oil and gas, mining, retail, capital projects and
infrastructure, and in catering to a growing demand for education and
healthcare.

After a slowdown in 2009, foreign direct investment into Brazil boomed until
slowing slightly in 2011. In 2013 FDI inflows reached 64 billion USD, depressing
to 62 billion USD in 2014. Brazil is the largest beneficiary of FDI in Latin America
and currently the fifth largest in the globe. Brazil is the fourth largest investor in
emerging markets and the largest in Latin America. Currently, The Brazilian
development in several areas needs foreign investments in order to continue to
grow. Brazil lives a very favorable economic environment for receive foreign
investment.

Brazil is an attractive economy for international investors due to the following

factors:

Domestic market has nearly 200 million inhabitants

Economy is currently booming- economic stability
Easy access to raw materials
A diversified economy- less vulnerable to international crisis
Country is in a strategic position- allowing access to other countries in
South America.
BOS student number: 27686095

Cheap and abundant labour

Recent elevation in the levels of investment in the economy
Favourable exchange rate

Historically, Brazil has taken a rather cautious approach to global trade flows,
preferring to focus on developing the domestic industries to substitute imports
for domestically produced goods, with a fear that opening to trade will threaten
domestic industries. Brazilian strategies have been that of protectionism,
employing high tariffs and subsides. While this kept import levels down, it
decreased Brazils competitiveness in the global economy.

In the 1990s, Brazil adopted a more externally based economic strategy with
tariff levels falling from 32% to about 7.8% from 1990 to 2012 and a removal of
all quantitative restrictions. The reduction of barriers to trade has greatly
increased Brazils economic integration, with foreign trade increasing from 0%
in 1995 to 26% in 2006 and also an increase in export growth from 6.1% in 1985
to 11.5% in 2015. This also resulted in a 22% growth in commodity demand. The
opening of Brazil to the global trade market has both improved its international
competitiveness and added to economic growth and development.

Brazils major trading partners are Argentina, China, the European Union, Japan
and the United States. China is the largest Brazilian partner when it comes to
imports and exports. Brazil is a member of the Latin American Integration
Association (ALADI), the World Trade Organization (WTO), formerly the General
Agreement on Tariffs and Trade (GATT), and the Common Market of the
Southern Cone (MERCOSUR), whose members currently include Brazil,
Argentina, Paraguay and Uruguay, with Chile, Bolivia, Peru, Colombia, Ecuador
and Venezuela being associated countries. Brazil is a prominent member of the
Cairns group of 17 agricultural nations, leads the group of twenty (G20)
developed nations, and joined another 33 nations to form a Free Trade Area of
the Americas (FTAA). Brazil is also apart of APEC. These integrations have
contributed to the GDP growth in the Brazilian economy.

Brazil encourages exports by offering numerous incentives, including duty

exemptions or reductions for imported materials that are used in exported
goods, value-added-tax benefits and special financing arrangements, to name a
few.

The increasing investments by Transnational Corporations (TNCs) not only

provide significant employment opportunities for highly skilled labour, they also
provide increasing competition amongst local firms and TNCs. TNCs are global
companies that dominate global product and factor markets and are especially
important in telecommunications, chemical, medicinal, automotive and
mechanical industries. This has resulted in better quality of goods and services
in these industries, thus improved both HDI and standard of living measures.
With increasing participation in the labour force, the Brazilian government
received increased revenue in their budget, which can be utilised to pay their
foreign debts, which is of a very considerable amount.
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Similar to many other developing economies, Brazil has experienced a series of

exchange rate crises resulting from their industrialisation strategies which lead
to an uncompetitive export sector. Globalisation in Brazil has increased the
instability of the real, the Brazilian currency. Foreign investors during a global
financial recession will select stable economies rather than developing ones,
pulling out of the Brazilian stock markets and reducing demand for Brazilian
currency, causing depreciation.

Domestic growth and development policies

Economic growth refers to the increases in GDP over time, involving the
increasing the productive capacity of the economy, which results in rising
national input, increased incomes, decreased unemployment and increased
living standards. Economic development refers to the improvements of an
economys economic and social infrastructure. In response to globalisation and
its outcomes, the Brazilian government has implemented a number of domestic
growth and development policies.

Macroeconomic policies

A macroeconomic fiscal stimulus strategy was introduced in 2007 by the Da Lula

government, and updated again in 2010, to promote economic growth and
development in Brazil. PAC (growth acceleration program) aimed to increase
GDP to 5% p.a. It was made up of a mix of private, state, federal and municipal
investments. This focused on 6 main areas:

1. Better cities
Aim to improve quality of life in Brazils major cities, focusing on
sanitation, urban mobility, crime prevention and pavement
improvements
2. Community citizenship
Accessibility of state services in poorer areas of Brazil
Including health centres, emergency care units, pre-schools,
sporting facilities and community police stations
3. My house, my life
Aims to reduce Brazils housing deficit, provide construction sector
incentives and generate jobs
4. Water and light for all
Provides free access to lighting for poorer communities and the
provision of improved water supply and resources
5. Transportation
Improving, expanding and integrating a logistical network of
quality and safety of Brazils roads, railways, airports and
waterways
6. Energy
Continuing to lead the global status of producing clean and
renewable sources of energy, supporting production of oil,
electricity efficiency, mineral research and ship building
investments
BOS student number: 27686095

In Brazil, new econometric analysis of regional and municipal data demonstrates

that social and economic infrastructure spending has a positive effect on local
GDP growth and development.

It is government policy to welcome foreign direct investment and investment

incentives are generally available to both local and foreign investors The
Brazilian government encourages and promotes FDI. Most of the barriers to
foreign investor activity have been removed, particularly on the stock market. A
very large number of public companies have been privatized and many sectors
deregulated over the last fifteen years. The main investors in Brazil are the
United States, Spain and Belgium. The sectors of the economy that are attracting
the most FDI are the finance, the beverage industry, oil and gas, and
telecommunications. The Brazilian investment scenario in the Import
Substitution era was marked by notable stability. Certain investment policies
were formulated in the 1990s to appeal more FDI in to the country. The Central
Bank of Brazil simplified the registration process for FDI inflows in this decade.
This resulted in a decline in the administrative costs associated with the entry of
FDI inflows into Brazil.

Microeconomic policies

The Sistema nico de Strategy is an economic development strategy that ensures

that Brazils health system is fair, universal and comprehensive. This is achieved
through the government enforcing strict regulations upon the health sector. In
this strategy, implementations must be planned and administered directly by
Brazils population as it conducts conferences in local, city, state and national
health councils. This is considered as a very advanced system of direct
democracy and has established the guidelines for many initiatives similar to this
in various sectors in Brazil. As a result of this, life expectancy has increased from
67 in 1990 to 73 in 2015. The persistent improvement of medical services
enables the Brazilian government to maintain the health levels of the population,
improving standards of living, as well as experiencing strong economic growth.

The Bolsa Familia strategy, otherwise known as family fund strategy, is a

microeconomic reform to guarantee sustainable economic development. A major
issue of globalisation is that of inequality. The richest 10% of Brazils population
earns 49% of the nations total income, whereas the lowest 50% only earns 10%
of the national income. This family fund strategy gives 11.4 million of Brazils
poorest inhabitants up to 95 reals ($25USD) per month. This has minimised
resource wastage, thus benefiting the environment. It is also regarded as an
effective government program to relieve poverty. Brazil is currently on the road
towards a new development strategy, which will hopefully allow local
government to address Brazils severe problem of unequal income distribution.

In response to climate change, an economic development strategy was

introduced in January 2007. This was to introduce the use of ethanol in vehicles
around the country, as it reduces greenhouse gas emissions of automobiles by
30%. This results in improved air quality, reduction in respiratory health issues
BOS student number: 27686095

and to promote the development of Brazils sugar industry. This industry

employs over 1 million people and this strategy would reap great benefits in this
industry. This economic development is additionally sustained by a bilateral
agreement between Brazil and the United States to share technology and
expertise regarding the production of ethanol and to promote usage of ethanol in
the global economy. This is an astounding demonstration of faith that other
countries have in Brazils innovative and world-leading approach to the bio-fuel
industry and contribution to protect the environment through the reduction of
greenhouse gas emissions. This program has also promoted Brazils domestic
motor vehicle industry, which enabled manufacturers to compete globally.

Impacts of the global economy

The international business cycle refers to the fluctuating patterns in economic

activity, from above to below average growth, caused by changes in the level of
aggregate demand. Economic growth is known to be stronger when the rest of
the global economy is growing strongly, and weaker when other countries are
experiencing a downturn. This highlights the relationship between economic
growth performance of the worlds major economies and the degree of
integration the global economy experiences. The countrys engagement with the
global economy has played a largely positive role and Brazil has assumed a
leading position in world trade negotiations as a result.

Brazils international presence has increased in recent years as its economy

expands beyond the nations borders. TNCs are an increasingly important means
by which global upturns and downturns in economic activity are spread
throughout the global economy. Because of the key role played by TNCs in trade
and investment flows in Brazil, TNCs are increasingly dominating business
activity around the world. The globalisation of financial markets in the global
economy has seen increased reliance by Brazil on foreign sources of finance for
investment. Brazilian companies have been growing rapidly in recent years,
mainly due to the Real appreciation. For example, Petrobras, Brazils state-
owned energy corporation with a global spread (TNC), has been making large-
scale investments overseas. In 2007, Brazil discovered significant amounts of oil
resources off of the coast that will soon make it a leading distributor and
exporter of oil in the global economy.

The global financial crisis (GFC) began with weaknesses in economic

management in the USA allowing a real estate boom to get out of control. The
implications of the GFC are still being played out, with Brazil responding very
well to the crisis. Before the crisis, GDP in Brazil was expected to grow 6 per cent
in 2008. But when the GFC hit, GDP plummeted to -0.2% in 2009. However, in
2008, when the global financial crisis erupted, Brazil had established a compact
track record of macroeconomic stabilisation and had built up a large stock of
international reserves (over US$ 320 billion). This allowed the country to endure
the global turmoil fairly well, leaving it relatively intact in the immediate
repercussion of the financial disaster. Prior to the GFC, emerging nations were
providing more than 40% of the growth in world GDP. During the GFC, these
emerging economies were quickly successful in simulating their economies and
BOS student number: 27686095

avoiding recessions that were regular in advanced nations. Recently, emerging

economies have provided 80% of global economic growth.

The recent decline of China, the largest country in the world in terms of
population, has already had significant effects on the global economy. These
results have also affected the Brazilian economy in a variety of ways. The
Brazilian economy is expected to benefit less from Chinese external demand and
international commodity prices than it did in the post-crisis period. Falling
commodity prices could have a negative impact on trade, fiscal revenues and
investment in Brazil. However, Chinas new growth model, being more driven by
the domestic market, creates growth opportunities for other economic sectors in
Brazil. Resuming productivity improvement in Brazil is vital to reducing the cost
differential between the two nations.

Assess the impact of international organisations and

contemporary trade bloc agreements

Brazil is a member of the main important international organisations. These

include; Mercosur, The World Trade Organisation, The International Monetary
Fund and the United Nations.

Mercosur, established in 1991, is South Americas leading trading bloc and its
members include; Brazil, Argentina, Paraguay, Uruguay, Chile, Bolivia, Peru,
Colombia, Ecuador and Venezuela. Its aim is to bring about the free movement of
trade, in the form of goods, capital, services and people among its member states,
with the ultimate goal of full South American economic integration. The primary
interest of the organisation is to eliminate obstacles to regional trade, including
high tariffs, income inequalities or conflicting requirements in technology for
bringing products into markets. Mercosur accounts for more than three quarters
of economic activity in South America, the largest portion being from Brazil. The
common market in Mercosur is primarily based on Brazil. Brazilian domestic
policies are the real drivers of Mercosurs success as an international
organisation. Mercosur is considered to be the most important organisation that
Brazil is apart of, due to the fact that Mercosur serves as a positive instrument in
the external relations and national development policy of Brazil.

The World Trade Organisation is the only international organisation that deals
with the regulations of trade between nations in the global economy. WTOs goal
is to aid producers of goods and services, exporters and importers in their
business operations. Their main goal is to completely ensure that trade flows as
smoothly, predictable and feely as possible. Brazil joined the WTO upon its
creation and participates actively as a prominent voice for developing countries.
In 2011, Brazil submitted a proposal to discuss the link between currency
exchange rates and international trade in order to develop tools to combat
currency fluctuations. Brazil, together with China and India come to experience a
new level of influence in the WTO. These three countries are described as
advanced developing countries and with China, India and Brazil as majors within
the WTO represents an important step forward, moving the central negotiating
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dynamics to more closely reflect the active economic reality of the trading
system today.

The International Monetary Fund has 187 member countries and was
established toward the end of World War 2. The primary purpose of the IMF is to
ensure the stability of the international monetary system (the system of
exchange rates and international payments that enables countries to transact
together). The IMF helps member countries take advantage of the opportunities
and manage the challenges posed by globalisation and economic development.
The IMF often requires countries to change their economic policies and open up
their market before they receive financial assistance (structural adjustment
policies). For example, the current macroeconomic policy was negotiated
between Brazil and the International Monetary Fund in 2002 with a main aim of
minimizing external shocks. Brazil became a creditor to the fund for the first
time in 2009, revealing that it doesnt need the IMF. The purpose of the lending
was to boost its position within the organisation and strengthen Brazils
international political standing. Brazil, along with other developing countries,
have criticised the IMFs voting system. Stating that advanced economies, United
States and Japan, maintain the largest voting shares. In response to this, it was
decided that two seats are now reserved for emerging economies including
Brazil. The IMF makes a commitment to emerging economies, saying that even
more power will be given to these nations in years to come.

The World Bank was established in 1994 with their mission being to fight
poverty and to help people help themselves by providing resources, distributing
knowledge, building capacity and creating partnerships in both the public and
private sectors. The World Bank is an important source of finance and technical
assistance to developing countries around the world. As poverty remains a
struggle for the Brazilian economy, the World Bank plays a vital role in fighting
it. Brazil, as an emerging nation can also expect to receive more power within the
organisation. The fact that Brazil was able to grow as quickly as it did gives the
country experience of development that it can share with the global economy.
The World Bank has helped Brazil, in the last decade, to raise more than 20
million people from poverty and lay strong economic foundations for growth and
catastrophe resilience. The fact that Brazil has a growing role throughout the
world, makes the country a desired partner for the World Bank. Brazil is
currently taking on an active role in international development, which will
therefore have a positive effect on its influence on the World Bank and its
decisions in the future.
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BIBLIOGRAPHY

http://studenttheses.cbs.dk/bitstream/handle/10417/3062/gina_marie_hellan
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http://www.economonitor.com/blog/2008/10/the-impact-of-the-global-
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https://en.wikipedia.org/wiki/World_Trade_Organization

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https://library.brown.edu/fivecenturiesofchange/chapters/chapter-9/brazil-as-
a-global-economic-player/

https://www.equitymaster.com/ht/detail.asp?date=08/19/2013&story=9&title
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http://www.indexmundi.com/brazil/international_organization_participation.ht
ml

https://agenda.weforum.org/2015/01/how-will-chinas-next-steps-affect-
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