Growth, exchange rates and trade in Brazil: a structuralist post-Keynesian approach

Abstract

This paper presents a structuralist post-Keynesian analysis of trade adjustment in Brazil. Based on the concept of the balance-of-payments (BoP) constraint on growth, the paper investigates the relationship between income growth and real-exchange-rate devaluation necessary to adjust trade to a foreign-exchange constraint. The main result is that, with price-inelastic and income-elastic imports and based on its trade structure in 2002, Brazil may have to compensate an additional 1% of income growth with approximately 7% of real-exchange-rate devaluation in order to keep its trade balance stable in relation to GDP in the near future. Moreover, the trade parameters of Brazil seem to be unfavorable to growth with stable trade, that is, even moderate rates of GDP expansion lead to a substantial increase of imports and, therefore, require an also substantial devaluation of the real exchange rate to avoid a deterioration of the trade balance.structuralist macroeconomics, trade, growth, exchange rate, Brazil