Abstract
ABSTRACT This research seeks to understand the relationship between the rate of profit and the exchange rate and how this relationship can impact the productive structure. We construct a theoretical model in which the exchange rate influences the rate of profit, and we argue that although an overvalued exchange rate could benefit sectors with high imported input coefficients in the short term because it reduces costs, it negatively impacts the demand for their products and also reduces the aggregatedemand; hence, an overvalued exchange rate could shrink the profit rate of these sectors in the medium term. In the Brazilian case, these sectors are the high technological-content manufacturing sectors.
Highlights
Sectors with higher profit rates are better positioned to face profit-squeeze situations than sectors with lower margins
One possible explanation is the reaction of the entrepreneurs in relation to the chronic process of exchange rate appreciation. We suggested that they increase the imported inputs share in the production process to avoid decreasing profit rates, which was not followed by an export share increase in production and was due to the currency appreciation; this mix deepened the deindustrialization process of the Brazilian economy
The third section, we present profit margins in Brazil and their relationship with the exchange rate, while in the forth section 4, we show the evolution of the input-output coefficients of imported and exported inputs and their relationship with the chronic appreciation of the Brazilian currency and the Brazilian deindustrialization, which we named “the trap strategy”
Summary
Sectors with higher profit rates are better positioned to face profit-squeeze situations than sectors with lower margins. The relationship between profit rates and exchange rates would not be clear in the short term but in the medium term, and it would contribute to the deindustrialization process in Brazil We evaluate this hypothesis in this article after estimating the results of profit margins for the Brazilian economy since the 1990s for some sectors and the 2000s for others. The third section, we present profit margins in Brazil and their relationship with the exchange rate, while, we show the evolution of the input-output coefficients of imported and exported inputs and their relationship with the chronic appreciation of the Brazilian currency and the Brazilian deindustrialization, which we named “the trap strategy”.
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