Coffee exports and industrialization in Brazil

ABSTRACT

We investigate the dynamic relationship between coffee exports and machinery imports in Brazil from 1869 to 1939. Our tests reveal cointegration and bidirectional causality in the temporal sense. This evidence suggests that foreign exchange real revenues from coffee exports were important for the onset of industrialization, as machinery imports proxy for real investment demand. Capital growth, in turn, also helped to boost the country’s exports.

KEYWORDS:

• Growth
• exports
• imports
• causality

JEL CLASSIFICATION:

• F41
• F43
• E22
• N16

Acknowledgments

Ferreira would like to thank seminar participants at the Federal University of Paraná in 2012, Brazil (UFPR) and at the Workshop on ‘Thirlwall’s Law and Balance-of-Payments constrained growth’, 24–25 June 2011, Faculty of Economics, University of Coimbra, Portugal, where a draft version of this article, entitled ‘A Causality Test Between Coffee Exports and Machinery Imports in Brazil from 1869 to 1930’ was presented.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ See Duarte and Restuccia (2010) for a detailed discussion on this topic.

² Evidence on the importance of international trade for economic growth and vice-versa can be found in a number of articles (Edwards 1993). To cite a few that are related to our work: Dawson (2005) and Sanjuán-López and Dawson (2010) claim that exports of primary products can boost growth, mainly in emerging economies; Awokuse (2008), for instance, summarize the growth mechanisms behind export-led growth Al Mamun and Nath (2005), found that exports cause growth in Bangladesh, Shan and Sun (1998) found evidence of bidirectional causality between exports and industrial output in China; Khalafalla and Webb (2001) results suggest that exports caused growth in Malaysia and that primary exports had a stronger direct impact on economic growth than the manufacturing industry.

³ Esfahani (1991) advocates that this is a potential mechanism behind export-led-growth. Murphy, Shleifer, and Vishny (1989) argue that two factors precede industrialization: (i) agriculture or exports grow and generate demand for the domestic manufacturing industry and (ii) income generated by this growing industry is broadly distributed, creating a flow demand for a wide range of domestic products. Moreover, they claim that these conditions can explain some historical growth episodes.

⁴ The influential work of Suzigan (1984), especially among economic historians, is based on the same underlying idea.

⁵ This is the case, for example, if imports and exports are primarily functions of non-stationary stochastic incomes and stationary real exchange rates.

⁶ Dummies were endogenously selected for the dates that generated residuals with a 1% probability of occurrence.