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Economic Growth, The Trade Balance and the Investment-Exchange Rate Trade Off

Marco A. F. H. Cavalcanti
Institute of Applied Economic Research (IPEA)

September 2001

IPEA Working Paper No. 821

Abstract:
We present projections of the trade and current account balances for Brazil in the period 2001/03. We show that external deficits shall persist during this period; given an international environment characterized by decreasing capital flows (especially those directed to emerging economies), this may impose considerable restrictions on domestic growth. We then discuss possible external adjustment strategies and their implications for domestic activity. The adjustment strategy could be based either on exchange rate devaluation or on additional investments in productive capacity. However, there are limits to both strategies, and we conclude that the evolution of the Brazilian economy during 2001/03 will depend on its ability to walk on the razor's edge given by the exchange rate/investment relationship.

Working Paper Series

Date posted: February 03, 2002 ; Last revised: June 07, 2002

Suggested Citation

Cavalcanti, Marco A. F. H., Economic Growth, The Trade Balance and the Investment-Exchange Rate Trade Off (September 2001). IPEA Working Paper No. 821. Available at SSRN: http://ssrn.com/abstract=297901 or doi:10.2139/ssrn.297901

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Contact Information

Marco Antonio Freitas de Hollanda Cavalcanti (Contact Author)

Institute of Applied Economic Research (IPEA) ( email )

Av. Presidente Antonio Carlos 51
17.andar
RJ 20020-010 Rio de Janeiro Brazil
+55 21 3804-8120 (Phone)
+55 21 3804-8115/8920 (Fax)