Brazil : Embracing Globalization

1343 Words Feb 8th, 2014 6 Pages
Brazil : embracing globalization

This case is about Brazil's development strategy since World War II and about the change of the economic model following the debt crisis of the 1980s. In 2000, Brazilian officials were pondering whether to go for regional integration (Mercosur) or globalization to ensure the country's economic prosperity and development.

Import-substitution strategy

After the Great Depression of the 1930s, Brazil followed an import substitution strategy which consisted of massive government investment, targeting of key industries, and protection against competition with high tariffs walls.

1. Positive effects of this policy : the Brazilian economy experienced rapid growth and considerable diversification.
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How to reach its goals (Reduction in trade barriers & increase of exports)
When their plan of using the WTO forum to fight against practices that damaged Brazilian interests failed, Brazil could try to negotiate bilaterally with the US and Europe or it could use the alternative of strengthening the Mercosur union. Brazil decided to negotiate with Argentina to diminish traditional geopolitical rivalries, to weaken respective military establishments, and to consolidate the emerging democracies.

1. Mercosur : the common market of South America

Purpose : to promote free trade and the fluid movement of goods, people, and currency among member states. Mercosur was an answer to combat the economic power of the United States and the European Union. The member countries adopted a common external tariff (CET) and quotas with nonmember countries.
Results : Mercosur became the fastest growing trade region in the world. During 1991 and 1997, exports within the region increased fourfold. Argentina became Brazil's second trading partner after the US. Bilateral trade between Brazil and Argentina represented approximately 75% of the total trade flows in the region. Intra-regional trade had created opportunities for economies of scale mostly in the manufacturing sectors without a major displacement of local production in the Brazilian economy.
Problems : short term benefits

Mercosur alone is not enough, to stay in the game Brazil has to

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