Vol. 42 No. 4 (2022): Oct-Dez / 2022

Vol. 42 No. 4 (2022)

Oct-Dez / 2022
Published December 21, 2022


Current equilibrium exchange rate: methodology and estimations for Latin American countries
Luiz Carlos Bresser-Pereira, Nelson Marconi, Tiago Porto, Eliane Araujo, Rafael Leao
Brazilian Journal of Political Economy

This paper proposes a methodology for the estimation of the current account
equilibrium exchange rate – the exchange rate that guarantees the intertemporal current
account equilibrium for a country. Moreover, the methodology is tested throughout
appropriate econometric technics (VECM Models) for Argentina, Brazil, Chile, and
Colombia, using quarterly data from around 2000 (according to data availability for each
country) to 2020. The model includes both long-term structural variables such as terms of
trade, goods and service trade as percentage of GDP and GDP per capita as well short term
policy variables such as interest rate differential and EMBI plus. Apart from proposing an
innovative methodology for estimating the current account equilibrium exchange rate, the
paper brings important insights in terms of chronicle and cyclical appreciation (depreciation)
of the exchange rate in LA countries. In addition, it shows high correlation between the
exchange rate negative (positive) misalignments and the current account deficits (surpluses)
in the countries analyzed.

JEL Classification: F30; F31; F4.

A note on the political economy of exchange rates in Argentina: new and classical developmentalism re-evaluated
Alejandro Fiorito, Matías Vernengo
Brazilian Journal of Political Economy

The paper develops a model in which the relation between the real exchange
rate and the real wage, in the context of conflictive income distribution, is made explicit. It is
noted that the central bank tries to regulate the distributive relation exchange rate and real
wages through the changes in the interest rate. The theoretical point is that, under certain
circumstances, a relatively depreciated or high level of the real exchange rate might reduce
real wages and have a negative impact on economic growth. The paper also provides some
evidence for the Argentine case, and suggests that the Classical Developmentalist elasticity
pessimism seems, in the case of Argentina, to be validated. Also, the use of the exchange
rate as an instrument to bolster redistribution away from the working class, and to promote
investment and growth is also not born in the data.

JEL Classification: O11; F31; O54.

The impact of exchange rate misalignments on manufacturing investment in Brazil
Nelson Marconi, Tiago Couto Porto, Eliane Araujo
Brazilian Journal of Political Economy

We analyze the hypothesis that variations on manufacturing investment are
influenced by the difference between the real effective and industrial equilibrium exchange
rates and by the difference between the current account and industrial equilibrium exchange
rates (a proxy for the Dutch disease). The current account equilibrium exchange rate
is defined as the rate that guarantees that the current account of a country is balanced
intertemporally, and the industrial equilibrium exchange rate corresponds to the rate that
makes competitive those companies producing internationally tradable non-commodities
goods and services in the so-called state-of-art. First, the concepts and methodologies for
estimating the current account and industrial equilibrium exchange rate are explained. Then,
to test our hypothesis, a database for 24 Brazilian manufacturing sectors was built from
2007 to 2017. A dynamic panel data model was adopted to estimate the relationship between
these currency misalignments and the manufacturing investment. The results suggest that the
magnitude of those differences influences investment decisions, potentially contributing to
economic growth and development.

JEL Classification: E22; F31; L60.

Can correcting for real exchange rate misalignment help countries escape the middle-income-trap? An analysis of a natural resource-based economy: Chile
Esteban Pérez Caldentey, Lorenzo Nalín, Leonardo Rojas Rodriguez
Brazilian Journal of Political Economy

Chile is classified as a high-income country but suffers from the same
weaknesses affecting middle-income countries. The same policies that have encouraged the
dependency on natural resources and restricted the expansion of the productive and export
base, have prevented the use of exchange rate policy as an instrument of economic and
social development. The performance of the economy is greatly determined by the evolution
of the terms-of-trade which is negatively correlated with the real exchange rate. Also, the
nominal exchange rate has been used mainly as an instrument for price stability purposes
rather than for economic development. Building on the exchange rate misalignment concepts
developed by the New Developmentalism, the analysis shows that, at the macroeconomic
level, the real exchange rate has appreciated over time. However, the evidence also shows
that the industrial/manufacturing sector has an external price competitive advantage in
relation to the rest of the economy. This raises the broader question as to what extent is
price competitiveness a powerful enough incentive for a broad-based structural change
towards innovation and more knowledge intensive production which is needed to escape
the middle-income trap.

JEL Classification: E32; F41; O11; O24; O54.

Current account equilibrium exchange rate in Colombia (2000-2020)
Gonzalo Hernández
Brazilian Journal of Political Economy

Using estimations by Bresser-Pereira et al. (2021), this paper analyses the
misalignment between the real exchange rate and the current account equilibrium
exchange rate in Colombia in the last two decades (2000-2020). Evidence suggests that the
commodity boom and bust cycle in this period is important to explain (i) the main trend
of the misalignment, (ii) the deterioration of the current account in recent years and (iii)
the general macroeconomic performance of the Colombian economy. A discussion about
macroeconomic development and stability is also provided in the context of the Colombian
financial configuration, characterized by a flexible exchange rate regime, central bank
independence and inflation targeting. Ideas in this paper are consistent with key elements in
the New Developmentalism Theory.

JEL Classification: E44; E61; F41.

Current account and real exchange rate equilibrium: the case of manufacturing in Mexico, 2001-2019
Lorenzo Nalin, Juan Carlos Moreno Brid
Brazilian Journal of Political Economy

In this paper, we follow Bresser-Pereira et al. (2021) and estimate for Mexico
a a series of the real exchange rate (RER) that balances the current account for Mexico for
the period 2001q1-2019q4. In this process we take into account numerous determinants,
including policy variables and financial indicators the evolution of the terms of trade, as
well as a proxi for the Balassa-Samuelson effects, inter alia. Our results show that in most
of the period analyzed there has been a trend tendency towards overvaluation, with the
RER fluctuating above its equilibrium level. With cointegrating methods, and dynamic
ordinary least squared (DOLS) techniques, we examined the effects of exchange rate under and overvaluation on manufacturing; disaggregated in three sectors: i) technology intensive,
ii) natural resource intensive and iii) labor intensive activities. Overall, our results indicate
that the real exchange rate has a significant influence on the rate of expansion of Mexico’s
manufacturing real GDP.

JEL Classification: C22; E44; F31; O24.

Brazil’s economic growth and real (div)convergence from a very long-term perspective (1822-2019): An historical appraisal
Natalia I. Doré, Aurora A. C. Teixeira
Brazilian Journal of Political Economy

The reconstruction of the economic history of Brazil since independence from
Portugal (1822) may lead to a new understanding of its economic growth. The deep-rooted
idea that Brazil could have done better means there is a need to delve into each phase of its
development. In this paper, we provide a very long-run perspective (1822-2019) of Brazil’s
economic growth and process of real convergence. On the one hand, this review indicates
that structural changes observed in the middle of the 20th century were crucial in promoting the country’s growth and real convergence with technologically advanced countries. On
the other hand, poor institutional conditions and deficient human capital formation have
emerged since colonial times as critical factors underlying Brazil’s inability to establish
robust and sustainable economic growth.

JEL Classification: N10; N16; O40.

Public and private investments in Brazil between 1996 and 2018
Sabrina Monique Schenato Bredow, André Moreira Cunha, Marcos Tadeu Caputi Lélis
Brazilian Journal of Political Economy

This work analyzes the dynamic effects generated by public investments
on private investments in machinery and equipment in Brazil, between 1996 and 2018.
Theories based on the principle of effective demand support the hypothesis formulated
about the complementarity between public and private investments. We have developed an analytical scheme that identifi es the induction channels for public investments for private
ones, through demand and supply sides of the economy. From an empirical point of view,
the work uses the specifi cation of the econometric model of Autoregressive Vectors (VAR)
that allows treating public investments as exogenous to the system. The results show that
an increase in public investments boosts private investments during the analyzed period.

JEL Classification: O11; E22; O23.

Development finance innovations and conditioning factors: The case of the Brazilian Development Bank and sustainable industries
João Carlos Ferraz, Luma Ramos, Bruno Plattek
Brazilian Journal of Political Economy

This article analyses the policy capacity of the Brazilian Development Bank,
BNDES, to develop and implement finance innovations to foster the local wind industry and
their suppliers in the 2010s and which exogenous and endogenous factors conditioned its
actions and the related outcomes. It demonstrates that technology, market, and policy drivers
constituted exogenous windows of opportunities while, from an endogenous perspective,
BNDES timely mobilised internal competencies to implement successive finance innovations
resulting in a significant development of such sustainable industry. It is hoped that this
article may be a source of inspiration for those engaged in researching and promoting policy

JEL Classification: O13; O16; O25; Q01; Q48.

Progressivity and distributive impacts of personal income tax: the case of China and Brazil
Pedro Rossi, Ricardo Gonçalves, Ping Shang
Brazilian Journal of Political Economy

This paper aims to evaluate and compare the distributive impact of the personal
income tax (PIT) on individual’s income in Brazil and China by measuring the Gini Index
before and after this tax incidence. The paper also proposes a methodology for transposing
the PIT backets from one country to another. The results show that a more progressive
scheme implemented by China, with more brackets and higher rates, does not guarantee
reduction of inequality, due to the level of income exemption and to the incomes on which
the marginal rates affect. Thus, it can be perceived that the PIT brackets of these two
countries deserves revisions if they seek to fulfill the distributive function.

JEL Classification: E62; H24; N45; N46.

Artificial Intelligence and employment: a systematic review
Rafael de Acypreste, Edemilson Paraná
Brazilian Journal of Political Economy

This paper presents a systematic literature review, grounded on bibliometric
procedures, of the (political economy) works, produced from 2008 to 2020, on the relations
between Artificial Intelligence and employment. It detects a growing tendency of published
papers in this field, especially from 2019, and identifies four main groups of concerns on
this topic. Within these groups, a prevalence of more optimistic over skeptical accounts
and, especially, of economic orthodox over heterodox approaches on the issue can be noted.
Overall, it is possible to understand that both the reviewed works and their metrics are quite
dispersed and varied in scope. Among other reasons, this is due to the lack of a common
basic definition, within the field, of AI in the first place.

JEL Classification: J21; O33; P16.

The rhetoric of austerity
Guilherme Cardoso
Brazilian Journal of Political Economy

Under the influence of Deidre N. McCloskey’s contribution in the field of
Economic Methodology, this article aims to explore the rhetoric employed in the field of
fiscal economics, specifically in the context of fiscal consolidation. The text unveils some
“myths” of austerity and inquiries about the latent moral component in the current Brazilian
economic policy agenda.

JEL Classification: B4; E65.

Measuring human capital: methodological framework for assessing competitiveness and economic development
Alexey Koryakov, Irina Kazaryan, Margarita Afonasova, Irina Litvin
Brazilian Journal of Political Economy

This article focused on the relationship between human capital (HC) and
competitiveness in Russia. The study examined (1) the impact of investments in knowledgeintensive
industries on the socio-economic development; (2) the impact of the share of
employees; (3) the impact of religious factors on HC; and (4) the problems of forming H at innovative enterprises. At the national level, the investments in knowledge-intensive
industries exert no effect on the country’s socio-economic development. The GDP growth
was proved to be directly related to the people’s desire to improve their qualifications. The
impact of cultural, educational, and health factors differ across regions.

JEL Classification: E24; J24; O15.

Fiscal compliance and behavioral economics: an analysis of the influence of the decision context
Ana Carolina Astafieff da Rosa Costa, Morgana G. Martins Krieger, Yuna Fontoura
Brazilian Journal of Political Economy

Tax evasion remains a relevant problem in Brazil and worldwide. Behavioral
Economics has sought to understand this behavior by carrying out experiments that aim
to understand the decision-making process of individuals. This work aims to analyze how
the structure of the decision-making context can influence the effectiveness of behavioral
interventions that seek to increase tax compliance. Through content analysis of scientific
articles in the area, five contextual categories were identified that influence the experiments. Thus, the research provides an understanding of contextual aspects and how they influence
the design of interventions.

JEL Classification: B40; B41; C90; C91; C93; D91; H26; H30; D91; K34.

The performance of the Banco do Brasil’s Carteira de Crédito Agrícola e Industrial (CREAI): 1937-1969
André da Silva Redivo, Pedro Cezar Dutra Fonseca
Brazilian Journal of Political Economy

Banco do Brasil’s Carteira de Crédito Agrícola e Industrial (CREAI) was the
most important institution for financing production in Brazil until the creation of the BNDE
in 1952. However, the work aimed at evaluating its performance is still scarce, even in the
face of his contribution in the period from 1937 to 1969, marked by the Import-Substituting
Industrialisation and developmentalism. The main hypothesis points out that, despite having
innovated by institutionalizing credit for production for the first time, the main limiting
factor for CREAI’s performance was its funding structure. The primary source is the Banco
do Brasil reports presented at the General Shareholders’ Meetings, using here the statistics of financing of economic activities and resource structure. The results confirm the hypothesis
but also highlight that the predominance of the agricultural sector cannot underestimate the
importance of the portfolio to industry financing, for the first time in an official way.

JEL Classification: G24, O23, O43.