Why has the Brazilian economy stagnated in the 2010s? A Minskyan analysis of the behavior of non-financial companies in a financialized economy

Abstract

The Brazilian economy entered a deep recession in 2015–2016 and since then has shown a sluggish recovery. In this paper, we offer an interpretation for the slow growth based on Minsky’s financial instability hypothesis and recent literature on financialization and growth. We analyze the balance sheet of large non-financial companies over the period 2012–2019, a period that comprises the positive investment cycle—initiated during the commodities boom which lasted from the second half of the 2000s until 2014—the 2015–2016 recession, and the period preceding the shock of the COVID-19 pandemic. Based on Minsky’s taxonomy of financial profiles, we map a proxy for financial instability at the firm level based on Davis et al. (2019). We also propose an aggregate financial stability index. We conclude that after the 2015–2016 recession, companies have been restructuring their debt profile and adopting a defensive behavior, increasing their liquidity preference. Our analysis supports the interpretation that, even with the sharp fall in domestic real interest rates, the degree of confidence on expectations to recover investment in productive assets is low. This corroborates with the thesis that agents’ decisions do not respond only to supply stimulus, but are guided by expectations of future returns, which fundamentally depend on the performance of aggregate demand. Since 2015, Brazilian economic policy has been driven by fiscal consolidation, which has proven ineffective in increasing economic growth.

Tax Aggressiveness and Corporate Financialization in Brazil

“…The onset of financialization in Brazil can be traced back to the 1970s-80s, gaining momentum after the Real Plan's economic stabilization (Mantoan et al, 2021). Between 2003Between -2008, Brazilian companies saw improved performance, but the 2008 crisis exposed their financial vulnerabilities, leading to strategic shifts (Corrêa et al, 2017).…”

“…Post-crisis, Brazilian firms, facing rising inflation, increasingly engaged in short-term, volatile activities (Mantoan et al, 2021;Yang & Li, 2023). Large listed companies, in particular, underwent restructuring and intensified their financialization practices (Mantoan et al, 2021;Zhu et al, 2023).…”

“…Consistently facing higher interest rates compared to other countries, Brazil, since 2015, has grappled with the challenges of the pandemic amid lost economic policy autonomy, compelling nonfinancial firms to adopt aggressive financial solutions (Mantoan et al, 2021;Yang & Li, 2023).…”

“…Financialization in Brazil's capital market is possibly influenced by dominant group or family controls, augmented by a dual asset class system (Mantoan et al, 2021;Corrêa, 2017).…”

Race, Gender and Poverty: Evidence from Brazilian Data

“…. and since then has shown a sluggish recovery" (Mantoan et al, 2021). The government has implemented economic policy that is focused "heavily on the fiscal agenda" and "seeks to resolve problems through structural changes in the State apparatus, generation of new income, and reduced public spending."…”