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The Economics of Demand Led-Growth: Theory and Evidence for Brazil

  • José Luis Oreiro

    ()

    (Departamento de Economia (Department of Economics) Faculdade de Economia, Administração, Contabilidade e Ciência da Informação e Documentação (FACE) (Faculty of Economics, Administration, Accounting and Information Science) Universidade de Brasília)

  • Luciano Nakabashi

    (Universidade Federal do Paraná (UFPR))

  • Guilherme Jonas

    (Universidade Federal de Uberlândia (UFU))

  • Gustavo Souza

    (PhD Candidate at Universidade de Brasília.)

The objective of the present article is to present the theory of demand-led growth and some econometric evidence of the existence of a demand-led growth regime for the Brazilian economy. Initially, we will do a brief review of the theory of demand-led growth, based on Kaldor’s (1988) contribution for the theme. According to Kaldor, long-run growth is determined by the sum of the growth rate of government consumption spending and the growth rate of exports. Based on the methodology developed by Atesoglu (2002), we run some econometric tests for the hypothesis of a demand-led growth regime for the Brazilian economy. The results of the tests show that almost 85% of the growth rate of real GDP in the period 1990-2005 is explained by variables at the demand side of the economy, mainly exports growth and government consumption. However, due to the fiscal crisis of Brazil, growth can´t be led by fiscal expansion so that the only option for Brazil is to adopt an export led growth model. The econometric tests also show that natural growth rate of the Brazilian economy is endogenous, being determined by the growth rate of aggregate demand. Regarding the determinants of export growth, it is shown that the maintenance of real exchange rate at competitive levels is an important device for developing countries as Brazil.

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Paper provided by Departamento de Economia da Universidade de Brasilia in its series Working papers - Textos para Discussao do Departamento de Economia da Universidade de Brasilia with number 339.

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Length: 34 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:brs:wpaper:339
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