Abstract
Abstract This paper discusses the relationship between financial integration and structural change based on a Minsky-Kregel approach. The motivation for this investigation derives from the fact that the opening of the Brazilian economy in the 1990s did not generate a structural change capable of increasing the weight of higher-technological sectors in the manufacturing industry. In theoretical terms we assume that financial liberalization in developing countries induces the loss in importance of the industrial sector in the productive structure, leading to an early deindustrialization process. In addition, it increases the external fragility and reduces the scope for developing countries to implement long-term economic policies to increase their potential output. In our econometric exercise applied to the Brazilian economy in the 2000s it was observed that financial integration and dependence on foreign savings, captured by an international liquidity proxy and dummy variables to incorporate the external financial instability in the period studied, reduced the share of Brazilian industry in GDP.
Highlights
The opening of emerging economies, one of the main pillars of the neoliberal agenda, assumes that economic liberalization, including financial markets, would have a positive impact on growth as it would allow the absorption of foreign savings, on one hand, and the increase of competition with foreign competitors, on the other
The main reason is because policy space is greatly reduced in economies that are dependent on foreign savings and are financially integrated, and so economic opening might impair the catching up process and induce developing economies to become specialized in low income elasticity goods and so condemned to low long-term growth rates
In this paper we have argued that developing countries that open their economies and follow a growth strategy supported on external savings tend to narrow their policy space and become more vulnerable to external shocks
Summary
The opening of emerging economies, one of the main pillars of the neoliberal agenda, assumes that economic liberalization, including financial markets, would have a positive impact on growth as it would allow the absorption of foreign savings, on one hand, and the increase of competition with foreign competitors, on the other. The main reason is because policy space is greatly reduced in economies that are dependent on foreign savings and are financially integrated, and so economic opening might impair the catching up process and induce developing economies to become specialized in low income elasticity goods and so condemned to low long-term growth rates. It should be noted that the de-industrialisation process has been in motion since economic opening, in spite of the launch of policy incentives to stimulate the sector, which include: the Sustaining Plan of Investment (PSI- Plano de Sustentação do Investimento) that aimed to increase the disbursement of the Brazilian Development Bank (BNDES) to encourage productive investment; the Plano Brasil Maior (Greater Brazil Plan) launched in April 2013 based on several strategic actions (largely tax exemptions or reductions and innovation incentives) in different sectors, such as capital goods, automobiles, information technology and communication, oil and gas, chemical and others, as well as incentives to invest in (1) For developing countries, the deepening of the financialization process is closely linked to the capital account liberalization that was part of the neoliberal structural reforms that took place from the end of the 1980s. See Biancarelli (2010) and Carneiro (1999), among others
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