Trade patterns in a globalized world: the case of Brazil

Abstract

Globalization can be defined as the extent and intensity with which a country’s production, trade and capital flows are integrated in the world economy. Our focus is on the globalization through international trade flows. After analyzing the main theoretical predictions about the effects of global trade integration on trade patterns between countries of different levels of income and technology, this paper investigates the case of Brazil, focusing on its trade integration over the last 26 years (1990-2016). Particularly, we are interested in investigating whether or not (and if so, to what extent) Brazil’s recent trajectory has been directed to a regressive pattern of specialization. By regressive specialization we refer to that in which both production and export structures are strongly oriented to goods of low technological sophistication and low income-elasticity of demand. The recent theoretical literature on technological gaps and long-term growth suggests that, when a country enters into a quick and sustained regressive pattern of specialization, its capacity of showing growth rates aligned with its balance-of-payment equilibrium is reduced and, therefore, a falling behind trajectory is observed. Our main empirical findings are: (i) the technological gap significantly widened for all groups of manufactured goods classified by factor content and technological sophistication; (ii) the income elasticity of demand for Brazilian exports is greater than for Brazilian imports, suggesting a regressive specialization concentrated in low-tech goods and implying that growth has been constrained by long-term balance-of-payments equilibrium (Thirlwall’s Law); and (iii) a very marked trend of high concentration of Brazilian exports in primary goods, but a more diversified basket of imports composed of high technologically sophisticated manufactured goods, reinforcing the regressive specialization of Brazil’s trade pattern in the last decades.