Trade Liberalization and the Political Economy of Protection in Brazil since 1987

The paper analyses aspects of trade liberalization and the political economy of protection in Brazil since 1987. Section I considers the internal and external constraints to the continued adoption of a strategy based on import substitution industrialization. In section II trade liberalization up to 1994 is described including its adjustments related to the creation of Mercosur. It also places trade liberalization in the context of the wider reforms implemented in Brazil in the 1990s. The impacts of trade liberalization on import penetration, productivity and the cost of investment as well as its distributive effects are examined in section III. The relative importance of trade liberalization and inflation acceleration on the cost of investment is also discussed. Section IV deals with the political economy of trade liberalization and the protectionist backlash in the mid-1990s. An analysis is made of long-term factor mobility and the Brazilian case is compared with findings on other economies about the transition from a political economy of protection centered on the clash of "class interests" to one concerned with "special interests".