A note on foreign direct investment and industrial competitiveness in Brazil

Regis Bonelli

Oxford Development Studies, 1999, vol. 27, issue 3, 305-327

Abstract: This paper addresses aspects of the links between capital inflows through foreign direct investment (FDI) and industrial competitiveness in Brazil. It provides an analysis of the two-way theoretical relationship between FDI and competitiveness, as well as some empirical evidence drawn from the Brazilian experience in the 1990s. Inflows of FDI to Brazil increased significantly during the 1990s. Although manufacturing has been losing out in terms of its share in total FDI, the stock of foreign capital in the manufacturing sector more than doubled (in current US dollars) between 1990 and 1996. In addition, rapid growth of manufacturing productivity has been amply documented, in the same period of time. There seems to exist, therefore, a prima facie case for supposing that foreign investment has contributed to increased productivity and competitiveness in Brazil. When looking at data within the manufacturing sector linking the growth of competitiveness (whether measured by unit labour costs or export performance) to FDI, however, there does not appear to be a clear-cut relationship with either the growth of FDI or the share of foreign capital within different industries. The relationship applies to some industries, but not to others. In other words, if one interpreted the causation as running in the opposite direction, this evidence would suggest that there is no general tendency for FDI to be attracted primarily to industries where competitiveness is improving most rapidly. This has the implication that rapid productivity growth might be the result of factors other than FDI as well—such as trade liberalization, for instance.

Date: 1999
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/13600819908424180

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