Trade restrictions in Brazil: Who pays the price?

Abstract

This study finds that a unilateral reduction in Brazil’s relatively high barriers to trade would increase its integration into the world economy and expand production and jobs. Using a multi-region Computable General Equilibrium model that is particularly well-suited to gauge the impact of trade policy shocks in global value chains, this study documents the effects of reducing important barriers to trade in Brazil: reducing import tariffs and local content requirements, and eliminating indirect taxes levied on exports. The largest gains in production and exports would accrue to manufacturing sectors, contradicting the widespread perception in Brazil that lifting trade protection would reduce the share of manufacturing in production. Moreover, deeper integration into global value chains would raise economic efficiency, and the higher share of foreign intermediate goods used in production would lead to lower prices, boost international.