Seattle, Barcelona, Gothenberg - as the protest movement against globalisation and trade seems to
get stronger, it becomes increasingly important to examine the evidence from emerging economies
that have over the last ten years opened up to international trade. The post-1990 Brazilian trade
liberalisation is an important test case.
In the latest issue of the Economic Journal, Donald Hay, an economist at Oxford University,
reports the results of an analysis of the impact of trade liberalisation on more than 300 major
Brazilian manufacturing enterprises in the period 1986-94. He finds that:
l The 'shock' of the liberalisation launched in 1990 was huge: the domestic market share of
the 300 firms fell on average by 25% as imports grew rapidly, and profits collapsed in the
face of international competition.
l But far from giving up in the face of intense competition, the vast majority of firms fought
back, with productivity increasing by 50% in the period 1990-4. Initially industrial output
fell, but it then recovered strongly in 1993 and 1994 as the Brazilian firms got their act
together, and this substantially mitigated the otherwise inevitable decline in manufacturing
employment.
l There is little doubt that Brazilian consumers gained, not only from real reductions in the
prices, but also from expanded choice and quality, for a wide range of consumer goods
such as cars, household appliances and electronic consumer goods.
The trade liberalisation was instigated by the Collor administration as soon as it took office in
1990. A complex system of import controls was abandoned more or less immediately, and a fouryear
programme of tariff reform was announced with progressive reductions in tariffs. Despite the
prospect of international competition, surveys showed that Brazilian managers supported the
measures and were remarkably sanguine about their ability to compete successfully.
The results of this research support very clearly the long-held suspicion among economists that
protection has a profoundly negative effect on the efficiency of the domestic manufacturing sector.
The relative ease with which large productivity gains were achieved once the threat of
international competition was introduced is eloquent on this point. The findings suggest that of the
measured average increase in productivity of 50%, about 22% is attributable to the abandonment
of import controls, 10% to the progressive tariff reductions, 5% to the recovery from recession,
and the remaining 13% to general liberalisation of the economy.
The analysis of this report suggests that the optimism of enthusiasts for trade liberalisation is wellfounded,
at least in a major emerging economy like Brazil.
Notes for Editors: 'The Post-1990 Brazilian Trade Liberalisation and the Performance of Large
Manufacturing Firms: Productivity, Market Share and Profits' by Donald Hay is published in the
July 2001 issue of the Economic Journal. Hay is at the University of Oxford.
For Further Information: contact Donald Hay on 01865-281440 or 270556 (email:
donald.hay@economics.ox.ac.uk); RES Media Consultant Romesh Vaitilingam on 0117-983-9770
or 07768-661095 (email: romesh@compuserve.com); or RES Media Assistant Niall Flynn on 020-
7878-2919 (email: nflynn@cepr.org).