Essays on the general equilibrium effects of barriers to trade on economic growth, foreign trade and the location of economic activity in Brazil

This work presents a fully operational interstate CGE model implemented for the Brazilian economy that tries to quantify both the role of barriers to trade on economic growth and foreign trade performance and how the distribution of the economic activity may change as the country opens up to foreign trade. Among the distinctive features embedded in the model, modeling of external scale economies, port efficiency and land-maritime transport costs provides an innovative way of dealing explicitly with theoretical issues related to integrated regional systems. In order to illustrate the role played by the quality of infrastructure and geography on the country‟s foreign and interregional trade performance, a set of simulations is presented where barriers to trade are significantly reduced. The relative importance of trade policy, port efficiency and land-maritime transport costs for the country trade relations and regional growth is then detailed and quantified, considering both short run as well as long run scenarios. A final set of simulations shed some light on the effects of liberal trade policies on regional inequality, where the manufacturing sector in the state of São Paulo, taken as the core of industrial activity in the country, is subjected to different levels of external economies of scale. Short-run core-periphery effects are then traced out suggesting the prevalence of agglomeration forces over diversion forces could rather exacerbate regional inequality as import barriers are removed up to a certain level. Further removals can reverse this balance in favor of diversion forces, implying de-concentration of economic activity. In the long run, factor mobility allows a better characterization of the balance between agglomeration and diversion forces among regions. Regional dispersion effects are then clearly traced-out, suggesting horizontal liberal trade policies to benefit both the poorest regions in the country as well as the state of São Paulo. This long run dispersion pattern, on one hand seems to unravel the fragility of simple theoretical results from recent New Economic Geography models, once they get confronted with more complex spatially heterogeneous (real) systems. On the other hand, it seems to capture the literature‟s main insight: the possible role of horizontal liberal trade policies as diversion forces leading to a more homogeneous pattern of interregional economic growth.

Financial governance: the Brazilian experience on prudential regulation and its impacts on the effects of the 2008 financial crisis

The Brazilian economy was severely hit by the 2008 crisis. In the beginning of the crisis, the vast majorities of the economic agents and authorities thought that Brazil could face some sort of decoupling since some macroeconomic fundamentals were very good. What we saw, however, was that the Brazilian economy was not decoupled, and expectations faced a huge deterioration soon after the bankruptcy of Lehman Brothers in September 15th. Two aspects regarding the impact of crisis in Brazil, however, deserve a great deal of attention: (a) although deep, the impact did not last for a long time. Actually, the GDP growth experienced a good recovery in the second quarter of 2009, showing that the health of the Brazilian economy was good; (b) the Brazilian banking system performed very well during the crisis, although we cannot say the system was not in danger in the worst time of the crisis. In spite of the confidence crisis faced by the banking system 1, it showed a great deal of resilience. In this aspect, we argue that the restructure faced by the banking system in the aftermath of the Real Plan, as well as the development of a solid supervision regulation helped a lot the system to avoid the systemic crisis that was an open possibility to the Brazilian banking system in the end of 2008. These notes, thus, discusse why the Brazilian banking system performed pretty well in the 2008 financial crisis and how the Brazilian banking (and prudential) regulation can be taken as responsible for this good performance. More specifically, the paper back to the middle of the 1990s, when the Real Plan was implemented, in order to understand the role played by the restructuring of the Brazilian financial system in helping to pave the way to the great resilience experienced by the Brazilian banking system during the 2008 crisis. More specifically, the prudential regulation that was implemented in Brazil in the aftermath of the Real Plan seems to play a decisive role in the resilience of the system nowadays.