Is Sugar Sweeter at the Pump? The Macroeconomic Impact of Brazil&Apos;S Alternative Energy Program

36 Pages Posted: 2 Oct 2008 Last revised: 7 Oct 2021

See all articles by Marc Weidenmier

Marc Weidenmier

Claremont McKenna College - Robert Day School of Economics and Finance; National Bureau of Economic Research (NBER)

Joseph H. Davis

The Vanguard Group

Roger A Aliaga-Diaz

The Vanguard Group, Inc.

Date Written: October 2008

Abstract

The recent world energy crisis raises serious questions about the extent to which the United States should increase domestic oil production and develop alternative sources of energy. We examine the energy developments in Brazil as an important experiment. Brazil has reduced its share of imported oil more than any other major economy in the world in the last 30 years, from 70 percent in the 1970s to only 10 percent today. Brazil has largely achieved this goal by: (1) increasing domestic oil production and (2) developing one of the world's largest and most competitive sources of renewable energy -- sugarcane ethanol -- that now accounts for 50 percent of Brazil's total gasoline consumption. A counterfactual analysis of economic growth in Brazil from 1980-2008 suggests that GDP is almost 35 percent higher today because of increased domestic oil production and the development of sugarcane ethanol. We also find a notable reduction in business-cycle volatility as a result of Brazil's progression to a more diversified energy program. Nearly three-fourths of the welfare benefits have come from domestic oil drilling, however, as rents have been paid to domestic factors of production during a time of rising oil prices. We discuss the potential implications of Brazil's energy program for the U.S. economy by conducting historical counterfactual exercises on U.S. real GDP growth since the 1970s.

Suggested Citation

Weidenmier, Marc D. and Davis, Joseph H. and Aliaga-Diaz, Roger A, Is Sugar Sweeter at the Pump? The Macroeconomic Impact of Brazil&Apos;S Alternative Energy Program (October 2008). Available at SSRN: https://ssrn.com/abstract=1276624

Marc D. Weidenmier (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Joseph H. Davis

The Vanguard Group ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Roger A Aliaga-Diaz

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

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