Trade Liberalization and the Use of Imported Inputs in Brazil: 1990/95

Abstract

In 1994, the Brazilian government launched a stabilization program based on a dollar-peg exchange rate regime. In January 1999, that regime was abandoned; the result was an exchange rate devaluation of about 50%. There was a fear that inflation would come back due to the relative price change in favor of tradable goods caused by the exchange rate devaluation. That fear was based on the fact that nowadays the Brazilian economy is more open to imports. However, to reach such a conclusion, one should consider not only final products imports, but also the use of imported inputs. In order to do so, two import coefficients relating the use of imported inputs to total value of production are proposed for 29 sectors of the economy. Their analysis shows that the Brazilian economy is still relatively closed to imported inputs. That is one of the reasons why a relative price change caused by the exchange rate devaluation was not translated into permanent higher inflation. A comparison between price changes and the import coefficients is also made for the periods January/April and January/July 1999. The aim is to check whether the sectors that rely more heavily on imported inputs are the same ones that raised their prices most after the exchange rate devaluation.