The paper analyses the patterns of economic growth that characterized the huge decline of the Brazilian trend GDP growth rate in the period between 1970 and 2006. The analysis is based on an analytical framework that combines the classical supermultiplier demand led growth model with the hypothesis that the balance of payments is the main potential (and often the effective) constraint to the expansion of the Brazilian economy in the period under consideration.
From this perspective, the proximate causes of the decline of the GDP growth trend are the following. First, we have the relatively low growth rate of the domestic components of final demand which combined, with its high weight in total final demand explains the low contribution of this type of expenditure to the GDP growth rate since the 1980s. Secondly, the external sector contribution to GDP growth was both very unstable and, whenever its contribution was relatively high, it could not sustain the relatively high GDP growth rates of 1970s. These patterns of demand led growth are quantitatively investigated with the application of a demand led growth accounting methodology which allows us to analyze the expansion patterns of a set of periods between 1970 and 2006. In what concerns the more fundamental causes, the paper points out to the relevance of: (a) the changing patterns of commercial and financial external insertion of the Brazilian economy; (b) the worsening of the income distribution conditions associated with the trend decline in the wage share, the high percentage of the population still below the poverty line and the high inequality in personal income distribution; and (c) the macroeconomic policy regimes, in particular from 1999 on with the adoption of the policy mix combining inflation targeting, large primary government budget surplus and floating (but very much managed) exchange rates.
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