WASHINGTON, Apr 9—A Doha trade agreement or a major trade pact with other developing countries, including China, would provide a small boost to Brazil’s economy, according to a new report from the Carnegie Endowment, the International Labour Office, and the UN Development Program.

After eight years of strong growth, Brazil has emerged as a key player in global trade negotiations and an advocate for a greater role for emerging powers in international economic policy making. At the same time, Brazilian policy makers face complex challenges as they try to grow their economy in ways that will increase employment and living standards. Carnegie’s Sandra Polaski and co-authors from the ILO and the UNDP examine the trade policy choices Brazil faces and their impact for household incomes, employment, and production at the national and regional levels.

Key points:

  • Potential gains from each of the trade scenarios are small—less than 0.5 percent improvement in real income.
  • Gains or losses from fluctuations in soy, wheat, and crude oil prices—like those seen in 2007 and 2008—have larger impacts on Brazil’s economy than the trade policy choices examined.
  • The trade scenarios would provide modest gains in employment of unskilled workers, a welcome finding, but could shift workers to agriculture, where wages are lower.
  • Despite concerns to the contrary, strong growth in India and China would slightly increase employment in Brazil.
  • Policy makers should consider additional social safety net measures to help households adapt to the structural changes induced by Brazil’s engagement with the global economy.

The authors conclude:

“As Brazil continues to integrate more deeply into the changing world economy, it is instructive to compare the relative impact of its trade policy choices, as well as the effects of the shocks it may experience as a result of greater integration…. As policy is debated, it is important that the pattern of gains and losses and the resulting adjustment costs be taken fully into account.”

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AUTHORS

  • Janine Berg is an employment specialist with the International Labour Office, Brasília.
  • Scott McDonald is a professor in the Department of Economics and Strategy, Oxford Brookes University, Oxford.
  • Sandra Polaski is a senior associate and director of the Trade, Equity, and Development Program at the Carnegie Endowment for International Peace, Washington, D.C.
  • Karen Thierfelder is a professor in the Economics Department, United States Naval Academy, Annapolis, Maryland.
  • Dirk Willenbockel is a research fellow at the Institute of Development Studies, University of Sussex, Brighton.
  • Eduardo Zepeda is a senior associate at the Carnegie Endowment for International Peace, Washington, D.C., and a senior policy adviser in the Bureau for Development Policy of the United Nations Development Program, New York.

NOTES

  • This study uses computable general equilibrium models to examine the impact of different trade policy choices, including a multilateral agreement in the Doha Round of negotiations at the World Trade Organization and a series of free trade agreements with other developing countries, including India, China, and South Africa.
  • The study also probes the effect of world price volatility for commodities that are important to Brazil and the effects of rapid growth in China and India.
  • The study includes detailed regional information that allows an assessment of the effects on different regions and the potential for cross-regional migration.
  • Unlike most traditional models, the study does not assume full employment, instead reflecting Brazil’s actual unemployment levels.