Deindustrialization, economic complexity and exchange rate overvaluation: the case of Brazil (1998-2017) by José Luis Oreiro, Luciano Luiz Manarin D’Agostini and Paulo Gala published por PSL Quarterly Review (12/2020).
We analyze the determinants of the deindustrialization of the Brazilian economy in the period between 1998 and 2017. This is a typical example of ‘premature deindustrialization’ in the sense that the major reason for the fall in the manufacturing share has not been the increase in per-capita income but rather real exchange rate overvaluation. In the Brazilian case, real exchange rate overvaluation results both from an appreciation of the real effective exchange rate, and an increase in the equilibrium value of the real exchange rate, the “industrial equilibrium exchange rate” of the new developmentalist literature. The elimination of the real exchange rate overvaluation requires not only the adoption of a macroeconomic policy regime in which some kind of real exchange rate targeting is adopted, but also industrial policies designed for increasing the economic complexity of the Brazilian economy and, hence, to reduce the equilibrium value of the real exchange rate.
A New Developmentalist model of structural change, economic growth and middle-income traps by José L. Oreiro, Kalinka M. da Silva, Marwil J. Dávila-Fernández published by Structural Change and Economic Dynamics (2020).
When a rapidly growing country stagnates at middle-income levels and fails to transition into a highincome economy, we say it has fallen into a middle-income trap. An original interpretation of the causes of this phenomenon was offered in recent years by the so-called Brazilian New Developmentalist School. It must be noted, however, that this approach lacks a coherent formalization of its main propositions. This article aims at filling this gap in the literature. We assess, analytically and through numerical simulations, whether the Dutch disease can be propelled by the discovery of natural resources and the adoption of an external savings growth strategy. In both cases, a class coalition between workers and rentiers leads to an overvaluation of the real exchange rate. As a consequence, inflation is kept under control while artificially increasing real wages and financial incomes. The model provides a bridge between classical development theory and demand-led growth theories, drawing on elements from both traditions.
