The short‐run regional effects of new investments and technological upgrade in the Brazilian automobile industry: An interregional computable general equilibrium analysis

Abstract

With a greater commitment to market forces in recent years, the Brazilian federal government is left with fewer options to manipulate growth in the less developed regions of the country. Thus, private investments play a key role in the process of regional development. New investments in the Brazilian automobile industry are being sought by the regions in a strong competition for incoming capital through fiscal incentives. One of the issues that concern labor unions surrounds the production technology embodied in the incoming capital, which is claimed to be accompanied by sharp reductions in employment levels. In this paper, the regional impact of the new investments in the automobile industry is evaluated through the use of an interregional computable general equilibrium model. Attention is directed to employment estimates and the impacts on regional inequality. The simulation results for the short‐run show that: the employment effects of the labour‐saving technology in the automobile industry are positive for the economy as a whole; and even though investments in the less developed region (the Northeast) are more beneficial to the improvement of regional imbalances in the country, in terms of efficiency, investments in the Centre‐South generate higher national economic growth.