The peculiar insertion of Brazil into global value chains

• Author: Carlos Eduardo Carvalho,Julia Callegari,Tatiana Massaroli Melo
• DOI: http://doi.org/10.1111/rode.12386
• Published date: 01 August 2018
• Date: 01 August 2018

RESEARCH ARTICLE

The peculiar insertion of Brazil into global value

chains

Julia Callegari

1

|

Tatiana Massaroli Melo

2

|

Carlos Eduardo Carvalho

3

1

Universidade de S~

ao Paulo (USP),

Brazil

2

Universidade Estadual Paulista

(UNESP), S~

ao Paulo,Brazil

3

Pontif



ıcia Universidade Cat

olica de S~

ao

Paulo (PUC-SP), Brazil*

Correspondence

Julia Callegari, Universidade de S~

ao

Paulo (USP), Brazil.

Email: juliacallegari1@gmail.com

Funding information

The work was partially supported by

FAPESP; Grant/Award Number: 2016/

18414-4.

Abstract

Brazil plays a very peculiar role in global value chains

(GVC): the country imports high technological goods in

general while going through early deindustrialization and

relying mainly on basic goods for its exports. Even after

developing a broad, diversified industrial framework and

becoming one of the countries that has received more for-

eign direct investments since the 1990s, Brazil has been

struggling to occupy a more technologically oriented

place in GVCs. This paper examines the conditionings of

this pattern of insertion by characterizing the country’s

quantitative and qualitative model of integration into

GVCs and by analyzing the elements that can explain this

performance.

1

|

INTRODUCTION

The fragmentation of production in global value chains (GVCs) challenges traditional forms of par-

ticipation of countries in the international economy and imposes new conditions on the integration

of nations across global trade.

The concept of “value chain”refers to the various production stages in which companies engage

in order to provide products or services to the market, from their conception to their delivery as final

products. Examples of these activities range from design and marketing to assembly, logistics, an d

distribution, and can be internalized by one company or coordinated among several (Backer & Mir-

oudot, 2013; Baldwin & Venables, 2013; Kowalski, Gonzalez, Ragoussis, & Ugarte, 2015). Techno-

logical advances across communication and transportation, as well as the reduction of trade barriers,

*Also affiliated to Interinstitutional Graduate Program in International Relations San Tiago Dantas (UNESP, UNICAMP,

PUC-SP), São Paulo, Brazil.

DOI: 10.1111/rode.12386

Rev Dev Econ. 2018;22:1321–1342. wileyonlinelibrary.com/journal/rode ©2018 John Wiley & Sons Ltd

|

1321

have resulted in companies sourcing inputs from other countries, signifying the emergence of value

chains as a global feature. The main objective of leading companies with the division of production

into stages located outside their national territories is to reduce costs and improve quality, in order to

expand or maintain their position in the markets in which they participate.

The process of geographical fragmentation of production has accelerated in speed, scale a nd

complexity since the end of the 1970s owing to a significant reduction of the costs involved in

business transactions. More reliable, dynamic and cost-effective telecommunication systems; faster

and safer means of transportation; liberalization of investments; a reduction in trade barriers; and

the development of management software and powerful computers are examples of elements that

have facilitated and strengthened the exchange and coordination of activities among companies dis-

tant from each other.

With this new global arrangement, significant changes started to take place in the international

economy. Regions and countries began to enter the global market as producers of inte rmediate

goods, which currently account for over 60 percent of world trade. Specialization in specific parts

and subprocesses has become a more competitive alternative to vertical integration of production

within one country and bilateral or regional trade agreements are slowly replacing multilateral

negotiations.

Nations of South and Southeast Asia provide examples of successful insertion into GVCs. The

integration of their economies into world production began in low technology sectors with intense

demand for low-skilled labor and, in some cases, natural resources. In some of these nations,

upgrading in GVCs towards more advanced stages of production allowed consolidation of

advanced technology sectors.

In Latin America and the Caribbean (LAC), in contrast, the results have been different: while

56 percent of total South and Southeast Asian exports were integrated into GVCs in 2009, a level

similar to that of all developed nations (59 percent), the corresponding percentage for all LAC

nations was 40 percent (Zhang & Schimanski, 2014, using data from UNCTAD).

1

Looking at

specific nations from both regions and considering the 25 biggest exporters in 2009, the UNCTAD

data also reveals that Singapore, the Philippines, and Malaysia had high rates of participation in

GVCs, 71 percent, 67 percent, and 66 percent respectively, while Brazil was the second lowest

ranked nation, at 36 percent, only ahead of India.

Brazil’s insertion into these GVCs can be initially characterized by the low use of imported

inputs in the country’s exports (a concept known as backward participation)—and that is usually

the case in countries with a large domestic market and high levels of industrial development.

While imports are mostly used to add value to exports in countries with high backward participa-

tion, Brazilian imports of technological goods are mainly for domestic consumption. This is rein-

forced by the “early deindustrialization”process that the Brazilian economy is going through as

the share of the industrial sector in total employment and GDP decreases without a corresponding

increase in service sector productivity.

Considering the forward participation criteria, that is, the share of national inputs in third coun-

tries’exports, Brazil’s performance is similar to that of other developing countries, but with a high

concentration of basic goods with a low level of processing and few bonds within the country’s

domestic industrial structure.

Therefore, Brazil’s singular insertion in GVCs can be characterized by (i) an industrial sector

that is highly focused on the domestic market and boosted by high foreign direct investments and

imported medium-high technology goods; and (ii) increasing basic goods exports. In informal set-

tings, this process has been described as a kind of “inverted maquila industry,”oriented to the

internal market. That is a reference, though exaggerated, to Mexico’smaquila industry, which is

1322

|

CALLEGARI ET AL.