Finding The Economic Growth Within Brazil

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Federative Republic of Brazil, the country which gained independence in 1822, is located in the Eastern South America, bordering the Atlantic Ocean. It is the world's eighth largest economy in terms of nominal Gross Domestic Product (GDP) and seventh largest in terms of Purchasing Power Parity (PPP). It is one of the fastest growing economies in the world with an average annual GDP growth rate of around 7.5%. It is the largest nation in Latin America and the second largest in the entire western hemisphere. With an inward-oriented economy and moderately free markets, the Brazilian economy is predicted to become one of the five largest economies in the world in the coming time.

Other important facts and figures regarding Brazil are as follows:

Area - 8,511,965 sq. km.

Population - 193.253 million

Age Structure - 0-14 years: 26.2% (male 27,219,651/female 26,180,040)

15-64 years: 67% (male 67,524,642/female 68,809,357)

65 years and over: 6.7% (male 5,796,433/female 7,899,650) (2011 est.)

Annual population growth rate - 1.02%

Languages:  Portuguese (official), Spanish, English, French

Ethnic groups - African, Portuguese, Italian, German, Spanish, Japanese, Indigenous peoples, and people of Middle Eastern descent.

Religion - Roman Catholic (74%)

Government Type:  Federal Republic

Currency - Brazilian Real (BRL, R$)

Major Cities (Population) - Capital - Brasilia (pop. 2.5 million), Other cities - Sao Paulo (11.2 million), Rio de Janeiro (6.3 million), Belo Horizonte (2.4 million), Salvador (2.7 million), Fortaleza (2.4 million), Curitiba (1.7 million), Recife (1.5 million), Porto Alegre (1.4 million).

Terrain - Dense forests in northern regions including Amazon Basin; semiarid along northeast coast; mountains, hills, and rolling plains in the southwest, including Mato Grosso; midwestern savannahs; the world's largest wetland area; and coastal lowland.

Climate - Mostly tropical or semi-tropical with temperate zone in the south

Natural Resources - Bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, rare earth elements, uranium, petroleum, hydropower and timber.

Agricultural products - Coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus, beef

Industries - Textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment.

GDP (PPP) (in billion $) - 2,181.68 (2010)

GDP Per Capita (US$) - 11,289.25 (2010)

Exports - commodities - 60 percent of its exports are mainly of manufactured or semi-manufactured goods, which include transport equipment, iron ore, soybeans, footwear, coffee, autos, etc.

Exports - partners - China 12.49%, US 10.5%, Argentina 8.4%, Netherlands 5.39%, Germany 4.05% (2009)

Imports - commodities: Machinery, electrical and transport equipment, chemical products, oil, automotive parts, electronics.

Imports - partners - US 16.12%, China 12.61%, Argentina 8.77%, Germany 7.65%, Japan 4.3% (2009)

2005

2006

2007

2008

2009

GDP (Purchasing

Power Parity)

(in billion $)

1584.60

1700.94

1857.66

1995.77

2010.33

GDP Per Capita (PPP)

(in US $)

8100

8300

8800

9500

10,498.88

Exports (in billion $)

95

115.1

137.5

160.6

197.7

Imports (in billion $)

61

78.02

91.4

120.6

173.1

Population (million)

184.184

185.564

187.642

189.613

191.481

Population Growth

Rate (in %)

1.06%

1.04%

1.008%

1.228%

1.199%

(www.indexmundi.com, n.d.) (www.economywatch.com, n.d.)

Brazil shares common boundaries with every South American country except Chile and Ecuador, hence it enjoys a locational advantage. Brazil is a member of different economic organizations, such as Mercosul, Unasul, G8+5, G20, WTO, and the Cairns Group. It has hundreds of trade partners, of which the main trade partners in 2008 were: Mercosul and Latin America (25.9 percent of trade), EU (23.4 percent), Asia (18.9 percent), the United States (14.0 percent), and others (17.8 percent).

Q.2 There has been a proliferation of regional trading agreements in the 1990s and there have been a lot of successes such as NAFTA and EU. Discuss the reasons for the formulation of such unions.

Select any three countries that you may feel might have some logical fields for establishing a Multinational Market Organization and illustrate their capabilities as a regional trade group.

Identify various problems that would be encountered in forming a multinational market group of such countries.

Ans.2 In recent years, Regional Trade Agreements (RTAs) between countries have become a significant development. Generally, two or more countries from the same region enter into these agreements.

The most basic objective of these two regions or countries entering into agreements is to reduce trade barriers among the member countries. However, the objective may also include promotion of trade and investment and in some cases, forming economic union that consists of common legislative, judicial and executive institutions.

There has been a drastic change in the number of regional trade agreements since the mid 90s. Up to 2002, 250 regional trade agreements were notified to World Trade Organization, of which 130 were notified after 1995.

There have been some significant developments in the nature of regional trade agreement in the 1990s. First, there is an increasing acceptance that removing just tariffs and quota might not enable free flow of goods and services, investments and ideas. And there is an increasing realization that wide ranging policy measures are necessary to overcome the other barriers that segment markets and block trade and flow of investments.

Second, there is clear trend, different from "closed regionalism" towards more open association. Agreements that countries entered into in the 1960s and 1970s were motivated by import substitution development. Regional agreements with high trade barriers were used as instruments to implement this model. Agreements of recent times have been mostly outward looking and are meant to promote international commerce rather than hinder it.

Third development is that today developed and developing nations are getting together in such agreements. There are more agreements aimed at promoting growth across the developed-developing divide. Inclusion of Mexico in US-Canada trade agreement in 1994 is one of the prominent examples of such agreement. This agreement established in North America Free Trade Area (NAFTA).

Proponents of regional trade agreements argue that RTAs facilitate progress toward world free trade by giving domestic industries in member countries of regional agreement of trade, some time to adjust to competitive pressures. They are also of the opinion that it is easier to tackle troublesome issues such as agriculture subsidies and trade in services, at the regional level than at the world level.

Regional Trade agreements are based on the on the nature and level of economic integration.

Regional trade agreements can be classified into four categories:

Free Trade

Custom Union

Common Market

Economic Union

Free trade

A free trade area is a cooperative arrangement among two or more than two nations, pursuant to the General Agreement on Tariffs and Trade whereby trade barriers are removed between the members. Members eliminate tariffs among themselves but keep their original tariffs against the rest of the world.

Custom Union

A custom union is formed when two or more countries agree to remove all barriers to free trade with each other, while establishing a common external tariff against other regions. This is different from free trade area in the sense that member countries of free trade area lay tariffs separately against non-members. The southern common market (MERCOOSUR) and the Central American Common Market. (CACM) are the examples of custom union.

Common Market

A common market is grouping of countries that levies common external duties on import from non-members countries, but which eliminates tariffs, quotas and other miscellaneous government restrictions on trade among member countries. A common market is different from customs union because it allows free flow of factors of production such as labor capital and technology. A custom union does not allow this to flow of factors of production.

Economic Union

In a economic union, members move beyond the common market to unify their fiscal and monetary policy.

Characteristics of Multinational Companies

Assets responsibilities and decisions are highly decentralized

Overseas subsidiary is responsible for identifying and exploiting opportunities in the local environment

Knowledge is developed and retained by subsidiaries, e.g. Philips, Uniliver

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