Submitted by: Iqra Ashraf
The 1994 elections in Brazil brought profound change to the nation. The election of Fernando Cardosa ushered a wave of economic globalization through the introduction of foreign competition and investment. Economic globalization is defined as “long distance flows of goods, capital, and services as well as information and perceptions that accompany market exchanges” (Goryakin, Lobstein, James, and Suhrcke, 1). Brazil serves as a prime example of the correlation between the growth of economic globalization with the growth of economic welfare.
To analyze the correlation, we can define economic globalization as the independent variable and economic welfare as the dependent variable. Brazil is an important case to study due to their current position in the world economy. Brazil holds influence in South America because of their interactions with other regions and the role this plays on their rising economy. Holding dominance in South America, it is crucial to understand the source of this economic growth. The 1990s reveal the role globalization played on Brazil’s development. Between 1990 to 2000, Brazil saw a major economic shift with the large flow of globalization brought by Cardoso upon his election in 1995. The success of economic globalization can be seen by comparing the inefficiency of Brazil’s economy in 1990 to the developments by 2000.
On a micro level, the influx of economic globalization has promoted efficiency and growth in Brazil. Foreign competition enabled the country to minimize their domestic monopolies. This increase of foreign economic involvement can be measured through “Foreign Direct Investment” (FDI). FDI is defined as “a controlling ownership in a business enterprise in one country by an entity based in another country (Ezenwakwelu, 24).” FDI provides a statistical measure for the flow of goods and services across borders. To best measure FDI, the data collected by the World Bank subtracts the countries GDP in order to show only foreign production.
In 1990, the FDI for Brazil totaled to around $665,000.00 in USD (World Bank). At this time Brazil’s economy was experiencing increased instability in many economic sectors, including the energy sector. Returning to the dependent variable, economic welfare indicates a countries prosperity level in regards to productivity and income. GDP per capita is significant in measuring economic welfare because it displays the countries wealth distributed per person. Due to the high inflation rates at the time, it is necessary to measure this statistic in terms of purchasing power parity (PPP), which has remained consistent between the years 1990 and 2000.
The case of Brazil’s energy industry is salient because of the role energy plays in production and capital. Other sectors of a countries economy rely on energy. In 1990, the energy sector was under public ownership. The government held a monopoly on the companies within the industry, yet, were unable to provide proper funding for them. For instance, Petrobras, a state-owned oil company, was the only provider of natural gas in Brazil despite the huge demand (Hauge and Magnusson, 43).
Prior to the increase in foreign investment, Congressman Roberto Procopio de Lima Netto addressed the issue stating, “Brazil needs $4 to $7 billion every year in the oil sector, but Petrobras can only invest $2 billion a year” (Brooke, 1995). The lack of energy being provided led to a decrease in resource endowment for households and industries. This ultimately resulted in a collapse of Brazil’s total production (Batista, 6). The gross domestic product (GDP) per capita in 1990 was $6,686.23 PPP (World Bank). Between 1990 to 1992, the trend of the GDP pc PPP flatlines revealing a trend of economic inefficiency in Brazil. The productivity of the average individual indicated the lack of progress the growing country had. With the government controlling major industries and lack of foreign competition, Brazil’s economic production was jeopardized.
In 1995, under the Cardoso administration, foreign competition was introduced into Brazil to weaken the state-held monopolies. The wave of reforms targeted many sectors of Brazil’s economy including energy. As detailed by a news clipping from June 8th, 1995, Cordoso’s amendment proposal to end the oil monopoly caught the eye of the public (Brooke, 1). The amendment allowed for the gap between the demand for oil needed and the amount supplied to minimalize (Sampaio Contrieras De Almeida, 30).
In order to complete this, Brazil would need to turn to the global market. The final approved amendment enabled private oil companies to supply to consumers in Brazil. In 1995, Independent Power Producers (IPPs) were introduced to enable consumers to purchase power from any company. Private foreign companies now had access to Brazil’s market, in turn, breaking down previous monopolies.
Privatization continued post-1995, as reforms increased and alternative options became accessible to consumers within an industry. The previous monopoly, Petrobras, privatized their company following the new regulations. (Lewis, 30). Despite the fear of outsourcing income, the Brazillian petroleum company was able to maintain their business due to identity shared with their consumers. Other competitors who entered the market served to meet the market demands. In 1997, a petroleum company from Spain, Repsol, entered Brazil’s market. Repsol is one example of foreign investment in the energy sector of Brazil that began its expansion after 1995. The GDP pc PPP growth rate from 1995 to 1997 has a positive slope (World Bank). In this time period, foreign competitors such as Repsol were allowed into Brazil. Following the privatization practices introduced by Cordoso’s amendment, Brazil economic welfare progressed further. The rise of foreign investment continued through sectors such as energy, and by 2000, the FDI rate was $2,497,066.00 USD (The World Bank). Economic globalization opened up the market to negotiation, which created resource accessibility for consumers. In turn, the productivity of the nation increased rapidly. Only 5 years after the reform, the GDP per capita totaled to $9,012.96 PPP (World Bank).
The case of economic globalization in Brazil, specifically in the energy sector, reveals the power of globalization. Brazil in 1990 was an efficient economy struggling to produce enough product to meet the demand. Between the time period of 1990 to 2000, Brazil exhibited immense changes. Under the new leadership, foreign investment played a key role in providing Brazil with opportunities for growth. The oil sector is a prime example due to the deficit Brazil had. The monopoly on oil proved insufficient and the deficit was filled by foreign oil companies. As the independent variable, economic globalization increased from 1990 to 2000, the dependent varibale of welfare improved as well.
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“Figure 2f from: Irimia R, Gottschling M (2016) Taxonomic Revision of Rochefortia Sw. (Ehretiaceae, Boraginales). Biodiversity Data Journal 4: e7720. Https://Doi.org/10.3897/BDJ.4.e7720.” p. 03., doi:10.3897/bdj.4.e7720.figure2f.
“Foreign Direct Investment, Net Inflows (% of GDP).” Literacy Rate, Adult Female (% of Females Ages 15 and above) | Data, data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS.
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Lewis, Steven W. “Http://Ljournal.ru/Wp-Content/Uploads/2017/03/a-2017-023.Pdf.” Critical Issues in Brazils Energy Sector, Mar. 2017, doi:10.18411/a-2017-023.
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