Dependencia da Industria Brasileira de Insumos Importados 2000-2014 - Analise Insumo-Produto

Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 Valéria Silva Mortari and Maria Aparecida Silva Oliveira Abstract The aim of this paper is to analyse the extent to which different sectors of Brazilian industry were dependent on imported inputs between 2000 and 2014 The methodology of inputoutput analysis was used for this purpose and the sectors were classified according to their direct and indirect demand for imported inputs Sectors with relatively little demand for imported inputs are those related to the food timber wood and cork product industries and the repair and installation of machinery and equipment The other industrial sectors relied on imported inputs to carry out their productive activities The increasing use of imported inputs in Brazilian production processes means that the benefits of sector growth are partly appropriated by other economies Keywords Industry imports inputoutput analysis industrial production industrial statistics Brazil JEL classification L60 L160 O14 Authors Valéria Silva Mortari is a masters degree student at the Institute of Economics and International Relations of the Federal University of Uberlândia UFU Brazil Email valeriasmortarigmailcom Maria Aparecida Silva Oliveira is a professor in the Economics Department of the Federal University of São Carlos UFSCar Email aparecidaoliveiraufscarbr 132 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 I Introduction Industry is hugely important for a countrys economic performance given its capacity to produce indirect intersectoral effects in terms of employment income and technology by establishing integrated national production chains As a result a stimulus to production in a given sector of industry is not confined to that sector alone but spreads to other economic activities that are directly or indirectly linked to it Hirschman 1958 Kaldor 1957 A countrys industrial production structure is crucial for generating dynamic growth and economic development in both the short and the long run Prebisch 1950 Furtado 19641 The Brazilian economy underwent profound structural changes in the 1990s not only because of the economic policy measures that were adopted to stabilize prices but also because of the way those policies were implemented which was prejudicial to Brazilian industry Key measures in the rapid process of opening up the economy entailed liberalizing imports without at the same time implementing an industrial policy to protect the various sectors of industry from increasing competition Kon and Coan 2009 p 13 This openingup process involved successive cuts in import quotas followed by an appreciation of the real and it marked the transition of Brazilian industry towards a new trade regime coming after at least four decades of vigorous import protection Moreira 1999 p 2952 These measures fuelled a continuous and generalized growth of imports into Brazil The data reveal the gathering pace of inflows mainly of intermediate goods which have been gaining an increasing share of Brazilian imports and presage a rising trend for the years to come as shown in figure 1 The import share in gross domestic product GDP grew significantly in the late 1990s and remained at a high level throughout the 2000 decade Figure 1 Brazil imports current values and share of gross domestic product GDP 19962013 Thousands of reais and percentages 0 2 4 6 8 10 12 14 16 0 50 000 100 000 150 000 200 000 250 000 1996 1998 2000 2002 2004 2006 2008 2010 2012 Intermediate goods Nondurable consumer goods Durable consumer goods Capital goods ImportGDP ratio Imports Source Prepared by the authors on the basis of data from Ipeadata and the System of National Accounts 1 See also Nakabashi Scatolin and da Cruz 2010 2 According to Cardoso 2001 the Real Plan which was designed to combat chronic inflation went through three stages measures to balance the government accounts establishment of monetary reform and use of the exchange rate as a nominal anchor The combination of these economic policies triggered a sharp rise in the real interest rate which attracted a large influx of capital into Brazil and caused the exchange rate to appreciate This in conjunction with trade liberalization policies damaged the industrial sector and fuelled higher unemployment Cardoso 2001 p 12 133 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira In view of the lengthy process of trade liberalization that accompanied the exchangerate appreciation industrial activity in Brazil has gradually become more externally dependent with more and more imported components and products being used in production processes3 According to Morceiro Gomes and Magacho 2014 imported inputs grew across the board between 2003 and 2008 to account for at least 60 of tradable inputs used in production This detracts from industrys contribution to GDP growth and job creation and it also weakens production linkages Marconi and Barbi 2010 Fonseca 2010 Morceiro 2012 Magacho 2010 and 2013 Morceiro Gomes and Magacho 2014 resulting in a lower degree of sectoral interdependence in the economy The aforementioned authors also show that the largest share of imported inputs is used in the production of hightechnology goods so the value added by these industries leaks out to the external sector In view of the external dependency that has developed in Brazilian industry in recent decades in which the import content of domestically produced goods is steadily increasing and given the adverse effects of this process on income and employment this article sets out to quantify the extent to which Brazilian industry is reliant on imported inputs The aim is then to identify which products are most needed those most widely used in domestic industry and where they are used in other words the sectors that generate the heaviest demand for imports The study uses inputoutput analysis to quantitatively identify the sectors that increase the economys external dependency when their output grows considering their direct and indirect needs for imported inputs and the substitution of domestic suppliers by foreign ones II Industrial production linkages and imports of intermediate goods According to Hirschman 1958 it is important to study industry linkages because of their capacity to boost economic growth through the intersectoral relations that are forged between different production chains The effects of a demand stimulus in one sector are not confined to that sector alone but are also felt in others through forward and backward linkages involving relations of buying and selling between productive activities Hirschman explains this in terms of the complementary capacities of industry when one industry increases its output it stimulates joint expansion in other sectors In this connection it is interesting to note the different points of view that exist on the use of imported inputs in the industrial production process in other words how an industrys deficiencies can be overcome by importing intermediate goods Ishikawa 1992 argues that the use of imported inputs in the production process should benefit industry because it represents a major source of technology transfer especially in developing countries Aurea and Galvão 1998 Lastres and Cassiolato 2000 The import process thus represents the transfer of knowledge and technology between nations Veeramani 2009 which can generate significant productivity increases in industrial activity as reported in the work of Bonelli and Fonseca 1998 Rossi Júnior and Ferreira 1999 and Carvalho and Feijó 2000 In a context of global value chains which has been a recent focus of the literature it is clear that the act of exportation requires a counterpart act of importation4 This can be inferred from the fact 3 See Fonseca Carvalho and Pourchet 1998 Levy and Serra 2002 Feijó Carvalho and Almeida 2005 and Fonseca 2010 4 The global value chains phenomenon entails the fragmentation of production processes worldwide The movement gained force in the 1970s but achieved greater prominence in the 2000 decade UNCTAD 2013 In the global value chains framework firms no longer operate in all stages of the production of a final good but spread them across different countries while themselves concentrating on higher value added activities This strategy enabled large firms to reduce their costs based on the greater incorporation of imported parts parts and components without losing control of the main areas of the business Gereffi Humphrey and Sturgeon 2005 134 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 that the consumption of intermediate goods in production accounts for 51 of all international trade Thorstensen Ferraz and Gutierre 2014 Accordingly policies that restrict the importation of inputs would have direct and indirect effects on a countrys capacity to increase the technological complexity of its industrial production destined for the domestic or external market It would therefore also hinder its differentiated integration into global value chains Thorstensen Ferraz and Gutierre 2014 In the current context the importation of intermediate goods is an inherent part of the production process and represents competitiveness gains based on a strategic and differentiated form of international engagement by the country in question5 The counterargument is based on the importance of a countrys production structure for its economic development and how the domestic sourcing intermediate goods supports the diversification of production and growth of per capita income as noted by Marconi and Rocha 2012 drawing on Chenery Robinson and Syrquin 1986 The reason for this is that intermediate goods are also produced from other intermediate goods thereby structuring a goods production chain or value chain Marconi and Rocha 2012 p 859 In view of this and following Marconi and Rocha 2012 it is argued that the continuous substitution of domestic inputs in the production process by imported ones hinders indirect interindustry effects and frustrates the industrialization process Authors such as Coutinho 1997 Morceiro 2012 Magacho 2010 and 2013 and Morceiro Gomes and Magacho 2014 also stress that importing inputs can break preexisting industrial linkages and impede the formation of new ones This view sees the substitution of domestic suppliers by foreign ones as leading to a reduction in the capacity of industry to generate indirect productive effects in terms of income employment and technology As noted in the studies by Marconi and Barbi 2010 and Marconi and Rocha 2012 the process of substituting domestic inputs with imported ones is also considered to be one of the causes of the deindustrialization process Lastly a number of studies highlight the harmful effects of this process on the capacity of industry to create jobs Soares Servo and Arbache 2001 Maia 2001 Moreira and Najberg 1998 and how the use of imported inputs in production can undermine the capacity of industry to endogenously generate the factors needed for economic growth Magacho 20136 III Methodology 1 Inputoutput table Inputoutput analysis is used to achieve the proposed aim of analysing the degree to which the Brazilian economy depends on imported inputs This model was developed in the 1930s by Leontief who managed to portray the economy in a given period by capturing contemporary relationships between sectors as if they were parts of a single organism Guilhoto 2004 The economic relations thus synthesized constitute the inputoutput table The inputoutput table describes the economy in terms of circulation as an integrated system of flows and transfers of inputs and outputs between sectors It is formed by calculating global production and is divided into three parts The first reflects intermediate demand in other words purchase and sale transactions between the different sectors of production The second consists of value added which includes factor remunerations and production taxes and subsidies and imports The third which corresponds to final demand comprises household and government consumption gross capital formation and exports 5 See Sá Porto Canuto and Mota 2017 6 The papers cited here are studies of the Brazilian case 135 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira To ease understanding of the methodology table 1 presents an illustrative inputproduct matrix in which X1 and X2 are sectors of production Y is final demand VA is value added M represents the share of intermediate consumption that is sourced abroad T is total taxes net of subsidies paid and X represents the gross value of production GVP The xij variables represent the intermediate consumption of input i in the production of good j The columns of the matrix represent the costs of input purchases and the rows show the income obtained by the sector from the sale of the good for intermediate consumption by other sectors and for final demand Table 1 Representative inputoutput table InputOutput Sectors Y GVP Costs Income X1 X2 X1 x11 x21 y1 X1 X2 x12 x22 y2 X2 M1 m11 m21 M2 m12 m22 VA va1 va2 T t1 t2 VBP X1 X2 Source Prepared by the authors on the basis of R E Miller and P D Blair InputOutput Analysis Foundations and Extensions New York Cambridge University Press 2009 The technical coefficients matrix can be obtained from the intermediate consumption matrix which is given by in which or 1 For each row of the inputoutput table x y X X y ij j n i i ij j n j i 1 1 a 2 in which n is the number of sectors in the economy In matrix terms AX Y X which can be rearranged to give or A Y X I X LY 1 R W or 3 where I is an identity matrix and is the Leontief inverse matrix in which according to Guilhoto 2004 each lij element represents the direct and indirect input requirements of sector i per unit of final demand in the production of sector j Equation 3 describes the basic Leontief model The intermediate consumption of the n sectors of the economy can also be satisfied through imports and here it is important to observe the relationship between the domestic and external sectors This is represented by the matrix M in which each element mij indicates the value of intermediate goods imported from external sector i that are used in the production process of domestic sector j The matrix M is at the heart of the analysis of this article and its components are used to achieve the proposed aim of the study as shown in the next section 136 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 2 Degree of dependence on imported inputs Dependency on imported inputs is analysed using the method proposed by Schuschny 2005 which consists initially of calculating the sectors direct requirements for imported inputs Let Am be the matrix of imported technical coefficients given by 4 is the value of input i imported by sector j and aij m is the coefficient that measures the value of imported inputs i used by sector j for each monetary unit produced by this sector Thus the total imports matrix is obtained by postmultiplying the matrix of import coefficients by the Leontief inverse as follows 5 Each qij element indicates the direct and indirect imports of input i needed to generate one monetary unit of production in sector j The sum of the elements of column j of the matrix reports the total import content needed to produce one monetary unit of sector j domestically According to Schuschny 2005 this calculation provides very useful structural information since it can be used to identify activities that rely heavily on imports from the rest of the world in other words they depend on external resources to increase their level of production Similarly the sum of the elements of row i of the matrix indicates the value of imports of input i needed for all sectors to increase production by one monetary unit This indicator identifies the foreign sectors on which the domestic economy as a whole relies most in other words those that do most to fuel the flow of imports when domestic production expands Comparing the indicators described above makes it possible to classify sectors in groups according to their behaviour as demanding or demanded of imported intermediate inputs as shown in table 2 Table 2 Sectoral classification according to the demand for imported intermediate inputs Demanding Relatively undemanding Demanded Type II Type I Relatively undemanded Type III Type IV Source Prepared by the authors on the basis of A R Schuschny Tópicos sobre el modelo de insumoproducto teoría y aplicaciones Statistical and Prospective Studies series No 37 LCL2444P Santiago Economic Commission for Latin America and the Caribbean ECLAC 2005 The sectoral characteristic of the typology presented in table 2 can be described as follows Type I when the production of the economy expands direct and indirect demand for imported inputs from these sectors increases by more than average but when the production of these sectors themselves increases their own demand for imported inputs is relatively small 137 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira Type II to increase their production by one monetary unit these sectors depend directly and indirectly on imported inputs to a greater extent than the economywide average and when the other sectors of the economy increase their production the direct and indirect importation of inputs from these sectors also increases by more than average Consequently these are sectors that need imported inputs for their own production and which supply the domestic demand for inputs by less than the average for the economy as a whole For that reason these sectors are unlikely to create many linkages in the domestic production system Type III although these sectors have direct and indirect demand for imported inputs above the average of the economy at large when the other sectors increase their production the direct and indirect demand for imported inputs from these sectors is below average Type IV these sectors depend little on imported inputs to increase their production so any incentives to industry sectors in this category are appropriated by the domestic sector They are also sectors that are relatively undemanded so when the economy as a whole grows the direct and indirect demand for imported inputs from these sectors is less than the average across all sectors The sectors classified as type II or type III tend to increase the countrys external dependency because their production directly and indirectly fuels imports through their intermediate demand As these sectors rely on imported inputs to increase their production they generate less value added domestically which has negative repercussions on the national production chain 3 Database This study makes use of the inputoutput tables for 20002014 that are available in the World InputOutput Database WIOD The inputoutput tables and tables of imports of intermediate inputs are broken down into 56 sectors 20 of which are industrial This enables a detailed analysis to be made of the external dependency of national industrial production The data contained in the tables are measured in millions of dollars at current prices IV Discussion of the results This section discusses the results obtained by applying the methodology explained above To improve understanding the classification of Pavitt 1984 and the Organization for Economic Cooperation and Development OECD 2005 is used which groups sectors by type of industry or technology As the groups contain sectors with similar industrial characteristics the discussion is subdivided as follows naturalresourceintensive industry scaleintensive industry sciencebased industry labourintensive industry and industry with differentiated technology 1 Naturalresourceintensive industry A recent discussion in the scientific literature noted a structural change in Brazilian industry which has intensified since the economic liberalization measures of the 1990s Some authors such as Nassif 2008 and Oreiro and Feijó 2010 have shown that industrial production in Brazil has shifted towards naturalresourceintensive industry which has come to play a key role in the performance of the national economy Thus the analysis of reliance on imported inputs is relevant for identifying the sectors that directly and indirectly stimulate imports when their production increases and thus establish whether the stimuli generated in this industry are appropriated abroad 138 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 The sectors that comprise naturalresourceintensive industry are listed in table 3 classified by their degree of external dependency Firstly although this industry has played a crucial role in the economy through its export performance when naturalresourceintensive sectors increase their production they generally demand imported inputs directly and indirectly to a greater extent than the average of the economy as a whole Table 3 Brazil classification of the degree of dependency on imported inputs naturalresourceintensive industry Sectors Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Extractive industry II II II II II II I II I II II II I I I Food products beverages and tobacco III III III III III III III III III III III III III III III Coke and refined petroleum products II II II II II II II II II II II II II II II Other nonmetallic mineral products III III III III III III III III III III II III III III III Metal products except machinery and equipment II III II II II III III III III III III III III II II Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Table 3 shows that between 2000 and 2011 extractive industry was generally classified as type II since its production generates more than average demand for imported inputs and the economy at large is also more than averagely reliant on imported inputs from this sector to increase its production Since 2012 however this industry has been classified as type I so its external dependency was relatively small during this period Figure 2 shows that the extractive industrys direct and indirect demand for imported inputs has dropped slightly below the economywide average in the last three years Figure 2 Brazil direct and indirect demand for imported inputs per dollar of output generated by the sectors natural resourceintensive industry 20002014 Dollars 0 005 010 015 020 025 030 035 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Extractive industry Manufacture of food beverage and tobacco products Manufacture of coke and refined petroleum products Manufacture of other nonmetallic mineral products Manufacture of metallic products except machinery and equipment Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD 139 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira Nonetheless figure 3 shows that the economy at large relies heavily on imported inputs from extractive industry and that this dependency has remained high over the years Whereas a onemonetaryunit increase in production in other sectors of the economy generated a direct and indirect import requirement from this sector of US 024 in 2000 the amount had increased to US 058 by 2014 In that year the sectors most dependent on imports of this type of input were the following manufacture of coke and refined petroleum products responsible for 27 of the result reported in that year manufacture of basic metals manufacture of other nonmetallic mineral products and manufacture of chemicals and chemical products manufacture of chemical substances and products Figure 3 Brazil direct and indirect demand for imported inputs per dollar of production generated in the economy natural resourceintensive industry 20002014 Dollars 0 010 020 030 040 050 060 070 080 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Extractive industry Manufacture of food beverageand tobacco products Manufacture of coke and refined petroleum products Manufacture of other nonmetallic mineral products Manufacture of metallic products except machinery and equipment Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Relative to the other sectors the coke manufacturing and oil refining sector stood out for its high degree of external dependency As shown in table 3 this sector was classified as type II since its need for imported intermediate goods is above the average for the economy as a whole and also represents inputs which economy as a whole must import to increase production When the coke and oil refining sector is analysed separately in the matrix Q it can be seen that its main imported input throughout 20002014 comes from extractive industry itself which on average accounts for 40 of its imports Thus the oil refining sector is dependent on an input that is closely related to its final product since oil and gas production is a sector of extractive industry Figure 2 shows that among the sectors analysed here the coke and oil refining sector has the highest import requirements In the period studied that sector directly and indirectly imported an average of about US 027 for each dollar produced and in 2014 the amount was US 032 Figure 3 also shows that when the production of the other sectors of the economy increases by a dollar the direct and indirect import demand linked to this sector averaged US 031 in the period analysed 140 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 The sectors that relied most heavily on imported inputs from the coke and oil refining sector during 20002014 were respectively coke and oil refining air transport chemicals and chemical products land transport and manufacture of rubber and plastic products The food beverages and tobacco sector has maintained its type III classification As shown in figure 2 the sector depends on inputs from abroad importing US 010 per dollar produced in the period under review Nonetheless the direct and indirect demand for imported inputs from this sector by the economy as a whole was in general below average The other nonmetallic mineral products sector was generally classified as type III in other words as one in which production directly and indirectly requires imported inputs to an extent that exceeds the average for the economy at large as shown in figure 2 Nonetheless when the other sectors of the economy increase their production their external dependency on this sector is low as can be seen in figure 3 Lastly the metal products manufacturing sector was classified as type II and type III during the period analysed since its production depends on imports and the economy as a whole relies on inputs from this sector for its productive activities Thus a stimulus to the manufacture of metallic products is associated as a counterpart with an increase in imports entering the country 2 Scaleintensive industry The sectors classified as scaleintensive industry are listed in table 4 which shows that production in this industry is highly dependent on imports of intermediate inputs This is evident because in general this industry was classified as type II demanding and demanded and type III demanding and relatively undemanded Table 4 Brazil classification of the degree of dependency on imported inputs scaleintensive industry Sectors Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Paper and paper products II II II II II II II III III III III III III III III Printing and reproduction of media III III III III III III III III III III III III III III III Chemicals and chemical products II II II II II II II II II II II II II II II Rubber and plastic products II II II II II II II II II II II II II II II Basic metals II II II II II II II II II II II II II II II Vehicles and trailers II II II II II II II II II II II II II II II Other transport equipment III II III III III II II II II II II II II II II Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD The classification of the paper and paper products manufacturing sector changed from type II to type III in 2007 as shown in table 4 This means that in carrying on their production activities the other sectors become less dependent on the paper and paper products manufacturing sector through time According to Montebello and Bacha 2011 firms in the Brazilian pulp and paper sector are vertically integrated and operate in various stages of the production process Their main comparative advantage is in pulp production exploiting the high level of production of wood from planted forests These authors also note that production in the pulp sector has expanded significantly in recent years 141 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira to serve the external market Interestingly according to the authors although the pulp sector is capitalintensive for each direct job generated another five are created indirectly based on activities that are interrelated with this sector It is therefore worth noting that the change in this industrys classification is linked to its internal development in creating new firms related to this sector which in turn enabled it to integrate into later stages of the national production chain and reduced the national economys external dependency in relation to the pulp and paper sector In general the printing and reproduction of recorded media sector was classified as type III in other words to increase its production its demand for imported inputs exceeds the average for the economy as a whole Although the sector reported average imported inputs of US 011 per dollar of production figure 4 shows that its direct and indirect requirement for imported inputs stayed broadly constant in the period studied In general it did not replace domestic suppliers with foreign ones over time Analysis shows that the Brazilian economys external dependency in relation to this sector is close to zero see figure 5 Among the sectors studied in this article the chemicals and chemical products sector displays the Brazilian economys highest degree of external dependency When the production of the economy increases by one dollar the direct and indirect need for imported inputs from the chemicals and chemical products sector averages US 081 The sectors displaying the highest level of external dependency in relation to imports of chemical and chemical product inputs were manufacture of chemical substances and products manufacture of rubber and plastic products animal and plant production and related services activities manufacture of paper and paper products and pharmaceutical products This sectors production demands an average of US 020 of imported inputs per dollar produced and nearly half of this amount is related to the chemicals and chemical products sector itself so the indirect effects generated by this sector are mostly not appropriated by the national economy Figure 4 Brazil direct and indirect demand for imported inputs per dollar of production generated by the sectors scaleintensive industry 20002014 Dollars 0 005 010 015 020 025 030 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of chemicals and chemical products Manufacture of basic metals Manufacture of vehicles and trailers Other transport equipment Manufacture of rubber and plastic products Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD 142 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 Figure 5 Brazil direct and indirect demand for imported inputs per dollar of production generated in the economy scaleintensive industry 20002014 Dollars 0 020 040 060 080 100 120 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of chemicals and chemical products Manufacture of basic metals Manufacture of vehicles and trailers Other transport equipment Manufacture of rubber and plastic products Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Table 4 shows that the rubber and plastic products sector and the basic metals sector were classified as type II throughout the years studied reporting average imported inputs of US 018 and US 017 per dollar of production respectively Thus when these sectors increase their production they draw imports into the country The rubber and plastic products sector is mainly dependent on imports of chemical substances and products which represents over 52 of their direct and indirect imports while the basic metals sector mainly requires imports from extractive industry 35 In general the manufacture of vehicles and trailers sector and that of other transport equipment were classified as type II in terms of their external dependency This means that they themselves depend on imported inputs to produce and that the economy as a whole also demands imported inputs from these sectors as shown in figures 4 and 5 These figures reveal that both sectors have direct and indirect input requirements that exceed the average for the economy at large and also that when the economy as a whole grows its demand for imported inputs from these sectors is above average As shown in figure 4 the vehicle and trailer sector gradually increased its direct and indirect demand for imported inputs during the period analysed to an average of US 016 per dollar produced This amount rises to US 022 in the case of the other transport equipment sector It is interesting to note that the main inputs demanded by these sectors come from external suppliers linked to the production of vehicles and trailers and other transport equipment respectively An analysis of scaleintensive Brazilian industry shows that the indirect intersectoral effects generated by it are largely appropriated by the external sector This is clear in the figures presented which show that all sectors of this industry directly and indirectly demand imported inputs to an extent that exceeds the economywide average In other words an increase in the production of these sectors is inexorably linked to increased flows of imports entering the country 143 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira 3 Sciencebased industry Sciencebased industry characterized by its high technological content consists only of the pharmaceutical industry and the manufacture of pharmaceutical products Table 5 shows that this sector was generally classified as type III in other words a sector that demands imported inputs Consequently an increase in the production of sciencebased industry stimulates imports both directly and indirectly Table 5 Brazil classification of degree of dependency on imported inputs sciencebased industry Sector Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Pharmaceutical industry and manufacture of pharmaceutical products IV III III III III IV IV III III III III III III III III Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Figure 6 shows that sciencebased industrys direct and indirect demand for imported inputs generally exceeds the economywide average and its external dependency increased gradually during the period under review This suggests that domestic suppliers in this sector have probably been replaced over time Between 2000 and 2014 the sector demanded an average of US 008 of imported inputs per dollar produced Figure 6 Brazil direct and indirect demand for imported inputs per dollar of production generated by the sectors sciencebased industry 20002014 Dollars 0 002 004 006 008 010 012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Pharmaceutical industry and manufacture of pharmaceutical products Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD As sciencebased industry was generally considered to be type III a sector that is relatively undemanded by the economy at large the value of direct and indirect demand for imported inputs is below average as shown in figure 7 Thus the economy has a low level of dependency on imported inputs from this sector so an increase in its production does not generate a great demand for imports from the pharmaceutical industry and the manufacture of pharmaceutical products Brógio 2002 argues that Brazilianowned pharmaceutical firms display fragilities since foreign capital predominates in serving the domestic consumer market The author notes that the firms that operate in Brazil display low levels of integration probably because large firms keep the inputproducing segment centralized in their countries of origin which results in a heavy reliance on imports from those countries Brógio 2002 p 115 Canchumani 2009 explains that the domestic and foreignowned firms operating 144 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 in Brazil are engaged in the final stages of the production process the formulation and marketing of medicines and have a high degree of dependency in relation to the earlier stages that develop in the matrix As a result the pharmaceutical industrys production process is associated with import growth Figure 7 Brazil direct and indirect demand for imported inputs per dollar of production generated in the economy sciencebased industry 20002014 Dollars 0 001 002 003 004 005 006 007 008 009 010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Pharmaceutical industry and manufacture of pharmaceutical products Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD 4 Labourintensive industry The sectors that comprise labourintensive industry in Brazil are listed in table 6 It can be seen that this industry in Brazil is not dependent on intermediate goods imports because when production in the economy grows imports of inputs from these sectors do not increase significantly as shown in figure 8 This is reflected in the classification of these sectors as type IV or III as shown in table 6 Figure 8 Brazil direct and indirect demand for imported inputs per dollar of production generated by the sectors labourintensive industry 20002014 Dollars 0 002 004 006 008 010 012 014 016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of textile wearing apparel and leather products Manufacture of wood products of wood and cork except furniture Manufacture of furniture and other manufacturing Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD 145 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira Table 6 Brazil classification of degree of dependency on imported inputs labourintensive industry SectorsYear 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Textile wearing apparel and leather products III III III III III III III III III III II III III III III Wood products of wood and cork except furniture IV III III III III III III III IV III IV III IV IV IV Furniture and other manufacturing III III III III III III III III III III III III III III III Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD In general the wood wood products and cork except furniture sector was classified as type IV in other words relatively undemanded Consequently its demand for imported inputs is lower than the average for the economy as a whole moreover intermediate imports from this sector were relatively undemanded by the other sectors as shown in figure 9 Thus production growth in this sector would have little impact on imports so the indirect effects generated by this growth would be appropriated by the national production chain Figure 9 Brazil direct and indirect demand for imported inputs per dollar of production generated in the economy labourintensive industry 20002014 Dollars 0 001 002 003 004 005 006 007 008 009 010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of textile wearing apparel and leather products Manufacture of wood products of wood and cork except furniture Manufacture of furniture and other manufacturing Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Table 6 shows that the textile wearing apparel and leather products sector was classified as type III throughout the period so an increase in its production generated higherthanaverage direct and indirect demand for imported inputs In the period under review the average value of intermediate goods imports was around US 011 per dollar produced and domestic suppliers were gradually replaced by external ones as shown in figure 8 According to Gorini and Siqueira 1997 the Brazilian textile sector trade balance was harmed by trade liberalization This balance had been trending down since 1992 and in 1996 it posted a deficit of US 1016866 not so much because of a drop in exports but because of significant import growth especially of products made from artificial or synthetic fibres including nonwoven textiles and cotton Gorini and Siqueira 1997 p 3 These authors listed various reasons for the increased share of cotton 146 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 in the textile industrys import structure such as the reduction in import quotas different payment terms between foreign and domestic suppliers an increase in global supply and consequent fall in prices and lastly the fact that in some countries such as the United States the product received subsidies According to Kon and Coan 2009 trade liberalization enabled and intensified the inflow of imports This increased competition and in turn pushed many firms in the sector into bankruptcy Nonetheless following the impact of the policies implemented in the textile industry during the 1990s steps were taken to restructure production to enable the sector to gain competitiveness and recover with a view to serving both the domestic and the external markets Innovation in the production process was very intensive in the textile industry because it required modernization of the industrys technology stock involving the computerization of production Kon and Coan 2009 p 21 According to these authors in the 2000 decade the Textile Sector Restructuring Program of the National Bank of Economic and Social Development BNDES made it possible to increase the sectors productivity and expand its productive capacity through huge investments not only in the formation of physical capital but also in technology and innovation Nonetheless another challenge faced by this sector in the 2000 decade stemmed from the high level of Chinas international competitiveness as described in Rangel Silva and Costa 2010 Lastly during the period under study the furniture and related manufacturing sector was considered as a demanding sector and consequently classified as type III Figure 8 shows that between 2000 and 2014 this sector substituted domestic suppliers with external ones to the extent that the direct and indirect demand for imported inputs was US 011 per dollar produced at the start of the series but had grown to US 015 by the last year of the series 5 Industry with differentiated technology The results of the classification of sectors belonging to industry with differentiated technology are shown in table 7 Except for the repair and installation of machinery and equipment sector this industry is classified as type II so to increase their level of production the sectors direct and indirect requirements for imported inputs are above the economywide average and analogously the production of the economy at large also depends on imported inputs from these sectors Table 7 Brazil classification of degree of dependency on imported inputs industry with differentiated technology Sectors Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Computer electronic and optical products II II II II II II II II II II II II II II II Electric equipment II II II II II II II II II II II II II II II Machinery and equipment not elsewhere classified II II II II II II II II II II II II II II II Repair and installation of machinery and equipment IV IV IV IV IV IV IV IV IV IV IV IV I I I Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD Over the entire period studied the manufacture of computer electronic and optical products sector was classified as type II that is as both a demanding and a demanded sector Figure 10 shows it has the highest demand for imported inputs among the sectors included in industry with differentiated technology with direct and indirect imports averaging US 030 per dollar produced between 2000 and 2014 Although its direct and indirect demand for imported inputs fell sharply in 2007 the literature has not found an explanation for this but as the values subsequently resumed their upward trend the inference is that the reduction reflects a conjunctural event 147 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira Figure 10 Brazil direct and indirect demand for imported inputs per dollar of production generated by the sectors industry with differentiated technology 20002014 Dollars 0 005 010 015 020 025 030 035 040 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of computer electronic and optical products Manufacture of electric equipment Machinery and equipment not elsewhere classified Repair and installation of machinery and equipment Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD The sectors main external dependency is linked to the importation of inputs from the manufacture of computer electronic and optical products sector which accounts for over half of its direct and indirect imported intermediate goods requirement Nonetheless figure 10 shows that the sector gradually replaced external suppliers with domestic ones during the period under review while the direct and indirect importation of inputs amounted to US 036 per dollar produced in 2003 the figure had fallen to US 031 by 2014 The same occurs when analysing the overall economys dependency on imported inputs from this sector as can be seen in figure 11 Figure 11 Brazil direct and indirect demand for imported inputs per dollar of production generated in the economy industry with differentiated technology 20002014 Dollars 0 010 020 030 040 050 060 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Manufacture of computer electronic and optical products Manufacture of electric equipment Machinery and equipment not elsewhere classified Repair and installation of machinery and equipment Source Prepared by the authors on the basis of data from the World InputOutput Database WIOD 148 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 Like the other sectors in this industry the manufacture of electrical equipment sector was generally classified as type II This means that the sectors production demands imported inputs in proportions that exceed the average of the economy at large and that the economy as a whole depends on imported inputs from this sector to undertake its activities The average demand for imported inputs from this sector during the period analysed was US 017 per dollar produced Between 2000 and 2014 the demand for imported inputs from this sector and the machinery and equipment sector remained within a certain range as can be seen in figure 10 The same is true of the overall economys dependency on imported inputs from this sector as shown in figure 11 The sector that encompasses machinery and equipment not elsewhere classified was considered type II In the period under review this sectors imports averaged US 016 per dollar produced with more than 39 of that amount corresponding to imported machinery and equipment in other words the sector draws in imports from the same sector Analogously the production of the economy as a whole demands inputs related to this sector in aboveaverage proportions as can be seen in figure 11 and the main demander is the machinery and equipment sector itself Thus when this sectors production increases import demand is stimulated by more than average thereby increasing the economys external dependency This is true for all of the sectors considered in this section Lastly the repair and installation of machinery and equipment sector was classified as type IV during the period studied that is as a sector that is not very demanding and relatively undemanded Nonetheless figure 11 shows that between 2000 and 2014 the economy relied increasingly on imported inputs related to this sector to undertake its own productive activities so the sector was reclassified as type I from 2012 onward V Overview of Brazilian industrys dependency on imported inputs To synthesize the findings of this research table 8 presents the 20 industrial sectors studied classified according to their direct and indirect demand for imported inputs Table 8 Brazil classification of industrial sectors by dependency on imported inputs Classification Demanding Relatively undemanding Demanded Extractive industry Coke and petroleum refining Manufacture of metal products except machines and equipment Chemicals and chemical products Rubber and plastic products Basic metals Vehicles and trailers Other transport equipment Computer electronic and optical products Electric equipment Machines and equipment not classified elsewhere Relatively undemanded Other nonmetallic mineral products Repair and installation of machinery and equipment Textile wearing apparel and leather products Wood products of wood and cork except furniture Furniture and other manufacturing Paper and paper products Printing and media reproduction Food beverage and tobacco products Pharmaceuticals and pharmaceutical products Source Prepared by the authors 149 CEPAL Review N 127 April 2019 Valéria Silva Mortari and Maria Aparecida Silva Oliveira The table shows that most of Brazils industrial sectors are both demanding and demanded that is sectors whose production directly and indirectly demands imported inputs in proportions above the economywide average By stimulating industrial production imports are also directly and indirectly stimulated Similarly when the production of the economy as a whole increases imports from the sectors listed in the first quadrant of table 8 are stimulated by more than the economywide average This reflects the fact that the structure of industrial production is heavily dependent on the external sector By contrast the economy has low levels of dependency on imported inputs from the food industry Sato 1997 argues that after the Real Plan which boosted workers real incomes the food sector made significant gains and the period was also characterized by mergers and acquisitions that fuelled growth in the sector Gouveia 2006 notes the importance of the food industry for the Brazilian economy since it employs about 1 million workers generated 15 of industrial sector sales in 2006 and plays a major part in generating trade surpluses Thus it can be stated that the indirect intersectoral effects generated by these sectors are mainly retained by the domestic sector An issue of concern however is that many of the most dynamic and technologically advanced industrial sectors belonging to differentiated and scaleintensive industries as well as the oil refining sector display high levels of external dependency they are shown in the first part of table 8 As a result part of the growth generated by these sectors is no longer appropriated by the national economy This is partly because of their large direct and indirect requirements for imported inputs but also because other sectors of the economy themselves depend on imported imports from these industries to increase their production VI Final remarks The industrial sector is crucially important for a countrys economic performance given its capacity to produce indirect intersectoral effects in terms of employment income and technology Nonetheless in recent decades Brazilian industry has gradually increased its reliance on the external sector by incorporating a large number of imported inputs into its production processes This weakens preexisting industrial linkages and hinders the formation of new ones limiting their capacity to form production chains and intensifying the countrys external dependency The aim of this study has been to analyse the extent to which different sectors of Brazilian industry were dependent on imported inputs between 2000 and 2014 The results made it possible to identify the activities that depend significantly on imports from the rest of the world in other words they draw on resources from external economies to increase their level of production They also make it possible to identify the external sectors on which the economy relies most that is those with the largest share in the increased flow of imports when domestic production grows In general it was found that Brazils industrial sectors depend on imports of intermediate goods to expand their level of production Moreover as noted in the graphical analyses the external dependency of Brazilian industry has intensified in the last two decades owing to the effects of economic liberalization combined with a policy of currency appreciation This increased incentives to replace domestic suppliers with foreign ones since domestic industry was unable to compete with the imported content The change and the intensive reduction of tariff and nontariff barriers made it cheaper to buy foreign goods and as they represented lower costs for domestic companies they succeeded in permeating the industrial fabric on an ongoing basis as was seen in the analysis of the results The process of replacing domestic suppliers with foreign ones was not reversed in the 2000 decade On the contrary it was maintained possibly owing to the productive restructuring of the previous decade and the continuation of the strong currency policy 150 CEPAL Review N 127 April 2019 Analysis of Brazilian industrys dependency on imported inputs between 2000 and 2014 Thus a large part of the indirect effects generated by Brazilian industrial production is appropriated by the external sector insofar as the gaps in the industrial matrix are partly filled by imported intermediate goods Moreover the main sectors that demand imported inputs are those with production that incorporates major technological content such as differentiated and scaleintensive industries and the oil refining sector Nonetheless the method used here has shortcomings as noted in Schuschnys work 2005 p 26 These relate to how the 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