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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 shorterterm 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

BOS student number: 27686095


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 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.

GDP growth rate

GDP growth rate

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

BOS student number: 27686095


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.
Life
expectan
cy at
birth

Expected
years of
schooling

Mean
years of
schooling

GNI per
capita
(PPP)

HDI value

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.

BOS student number: 27686095

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.
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.

BOS student number: 27686095


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.
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

BOS student number: 27686095


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, preschools, 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
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

BOS student number: 27686095


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 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

BOS student number: 27686095


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

BOS student number: 27686095


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 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

BOS student number: 27686095


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 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

BOS student number: 27686095


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.

BIBLIOGRAPHY
http://studenttheses.cbs.dk/bitstream/handle/10417/3062/gina_mari
e_helland_hauge_og_marie_therese_magnusson.pdf?sequence=1
http://data.worldbank.org/
http://www.wsj.com/articles/brazils-economic-crisis-beats-theemerging-middle-class-back-down-1447115566
http://www.economonitor.com/blog/2008/10/the-impact-of-theglobal-financial-crisis-on-brazil/
https://en.wikipedia.org/wiki/World_Trade_Organization
http://sugarcane.org/the-brazilian-experience/impact-on-brazilseconomy
https://library.brown.edu/fivecenturiesofchange/chapters/chapter9/brazil-as-a-global-economic-player/
https://www.equitymaster.com/ht/detail.asp?
date=08/19/2013&story=9&title=Long-term-solutions-and-onequick-fix
http://www.indexmundi.com/brazil/international_organization_partici
pation.html

BOS student number: 27686095


https://agenda.weforum.org/2015/01/how-will-chinas-next-stepsaffect-brazil/
https://www.wto.org/english/thewto_e/countries_e/brazil_e.htm