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International Liquidity and Growth in Brazil

Nelson Barbosa-Filho

No 2001-04, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: This paper analyzes the relation between international liquidity and growth for Brazil in 1966-2000. Defining the former as the ratio of foreign reserves to foreign (interest-bearing) debt, the objective is to build a model connecting growth with international liquidity, and then check whether the results from such a model hold up in practice. The model builds upon Thirlwall's (1979) law and uses some basic accounting identities to specify a liquidity constraint on small open economies. The main implication of such a model is that, similar to what happens with liquidity constrained agents in closed economies, small open economies tend to adjust their current account, especially their trade balance, to the availability of external finance. Thus, in face of fluctuations in international liquidity, one should expect fluctuations in growth after a time lag. This is exactly what the paper verifies for Brazil in 1966-2000, that is, changes in Brazil's international liquidity tends to lead changes in its growth rate. Overall, inertia and international liquidity explains approximately 40% of the variation in Brazil's growth rate in 1966-2000.

Keywords: international liquidity; liquidity constraint; growth; Brazil (search for similar items in EconPapers)
JEL-codes: F41 F43 O20 O54 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001-11
New Economics Papers: this item is included in nep-dev, nep-lam and nep-rmg
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