Exchange Rate and Trade Balances in Brazil: A Disaggregated Analysis by Major Economic Categories

Abstract

This work investigates the repercussions of real devaluations in the exchange rate on the trade balance for Brazil, when considering major economic categories, i.e., capital goods, durable consumer goods, semi-durable and non-durable consumer goods, intermediate goods, and fuels and lubricants. To this end, monthly data are used for the period January 2000 and July 2019, and vector error correction (VEC) models. The results suggest that, in the long run, real devaluations in the exchange rate have positive and elastic impacts on the trade balance in all sectors, except for fuels and lubricants. Only the durable consumer goods and fuels and lubricants sectors do not show the occurrence of the J curve. Domestic income has a negative impact on the trade balance in most models analyzed, while foreign income has a positive impact on all sectors, except for fuels and lubricants.

Dynamic of Brazilian Foreign Trade by Technological Intensity

“…They identify evidence of the J-Curve in 31 sectors. Arruda, Brito, and Castelar (2022) investigate the relationship between real exchange rate depreciation and the trade balance for Brazil, disaggregating trade flows into major economic categories, that is, capital goods, durable consumer goods, semi-durable and non-durable consumer goods, intermediate goods, and fuels and lubricants. They find that except for fuels and lubricants, real devaluations have positive and elastic effects on the trade balance.…”

“…Older studies tend to favor an aggregated approach (Lobo, 2007;Mendes & Piza, 2007;Vasconcelos, 2010;Serdar & Hakan, 2017;Azevedo et al, 2023;Gomes & Paz, 2005;Parray et al, 2023). Conversely, some researchers choose to disaggregate the economy into sectors (Sonaglio, Scalco, & Campos, 2010;Arruda, Brito, & Castelar, 2022;Bahmani-Oskooee, Harvey, & Hegerty, 2014;Ramos Filho & Ferreira, 2016;Ribeiro, Vasconcelos, & Silva, 2021;Arruda & Martins, 2020), adopting various approaches ranging from analyzing isolated sectors like agriculture to segmenting the economy into numerous industries, which may result in complexity and confusion. Additionally, a few studies opt for broader sector classifications, such as industrial and basic products, while only Ramos Filho and Ferreira (2016) and Ribeiro, Vasconcelos, and Silva (2021) specifically examine by technological intensity.…”