analysis of economic growth and development of Brazil and Russian Federation Period 2000-2010.
. The level of development, indicators
. Dynamics of growth and development
. Characteristics of growth and development
.1 Gross value added by economical activity
.2 Growth accounting
.3 Consumption side of GDP structure (expenditures)
.4 Export structure
. Concluding comparison
my case study I will compare economic growth and development of Brazil and Russian Federation in period 2000-2010. First part is devoted to level of development, second to dynamics of growth and third to characteristics of growth and development of Brazil and Russian Federation.chosen period (2000-2010) coincide with time when new players in global society emerged. Goldman Sachs first identified Brazil, Russia, India and China as BRIC in 2001. Before that Brazil and Russian Federation and their economic performance were not role models for the rest of developing countries due to huge economical problems. Brazil called for IMF help in 1982 due to second oil crises (1977) and poor leadership. Russian Federation experienced economical brake down in 1998 and also called for IMF help. But they managed to overcome problems and gained interest of global society. In both countries new leaders started their mandates. In Brazil everything started with election of Fernando Henrique Cardoso in 1994 and successful presidency of Luiz Inacio (Lula) da Silva in period 2002-2010. Vladimir Putin is Russians choice from 2000 till now. This leaders started internal institutional reforms. Brazil and Russia started to think about competitiveness, fiscal discipline and showed economic growth.and Russian Federation can not be more different countries, both lying on different continents, having their own interesting history, dealing with their own country specific problems, but there are some similarities which brought Brazil and Russian Federation under BRIC countries and their increased role in the world economy and politics.similarities and differences between Brazil and Russian Federation from the point of view of economic growth and development will be presented in this case study.
1.The level of development, indicators
1: Level of development indicators for Brazil and Russia in 2000 and 2010
BRAZILRUSSIAN FEDERATION20002010Difference20002010DifferenceGDP per capita, PPP (constant 2005 international $)7909,105810055,91627,1%8612,658314182,55864,7%GDP per capita world rank73685674720GDP, PPP (constant 2005 millions of international $)1379548,81960360,642,1%1260057,72010377,559,5%GDP world rank9901064GNI per capita (constant 2000 US$)3593,324609,0628,3 %1729,12814,78326,8%Population (million)174,42194,9420,52146,30141,75-4,55Population world rank55069-3Inflation, GDP deflator (annual %)6,1757,3391,1637,6911,37-26,32HDI index0,6650,7150,050,6910,7510,06Life expectancy at birth (years) 70,173,136568,53,5Income Gini index59,7854,69-5,0937,4840,112,63Global competitiveness index-4,28--4,24-Index rank-58--63-Public debt (% GDP)58,560,82,334,15,9-28,2
2000 both analysed countries according to World Bank ranking of GNI were lower middle income countries. In 2010 Russia stayed in the same group, Brazil moved forward into upper middle income group. In 2000 both countries had medium human development index, but in 2010 high HDI. Global competitiveness index orders both countries into efficiency driven economies in 2010. According to WEF competitiveness Report 2010-11 Brazil was above average developed in area of innovation, business sophistication, financial market development, technological readiness and market size, but underdeveloped in macroeconomic environment and goods market efficiency between efficiency driven economies. On the other hand the largest problems are tax regulations, tax rates and inadequate supply of infrastructure. Russia is above average in market size, infrastructure, higher education and training and labour market efficiency, but below average in institutions, goods market efficiency, financial market development. The largest problems in Russia are: corruption, access to financing, tax regulations, crime and theft.is fifth largest country by area and population in the world, Russia is first largest country by area and in 2000 she was sixth in 2010 already ninth country by population. Russia has lost 4,55 million of hers population in ten years period in the same time Brazil gained 20,52 million of additional population. Percentage of people living below countries poverty line is 40 % (1999) and 13,1 % (2009) in Russia and 22 % (1998) and 26 % (2008) in Brazil.
2.Dynamics of growth and development
1: GDP per capita, PPP (constant 2005 international $) dynamics (1997-2010)
Brazils GDP per capita was quite stable in observed time period. The difference between the highest value (2009) and the lowest (1999) is 2363 international $. In whole period it was in growing trend, except of brief period of world financial crises in 2009. On the other hand Russians GDP per capita dynamics was more intensive. The lowest point was hit in 1998, the highest in 2008, both peak and bottom coincide with peak and bottom of oil prices.
Graph 2: GDP growth (1997-2010)
observed period average Brazilian growth was 3,14 %. The fundaments for Brazilian growth were set with Real Plan introduced by Cardoso. He undertook important reforms, but Brazil was the Latin American country most affected by the Asian crisis (1997-98), her economic growth was modest (0,0378 %), but still positive. They introduced new currency which was initially pegged to US $ in 1999 and experienced good results very quickly (inflation dropped fast). Economy was slowly growing after that. The turning point came with the election of Lula in 2002. He started orthodox fiscal program with inflation targeting, responsible fiscal federalism, export diversification, progress in reducing poverty with program Bolsa Família -Family Basket (income Gini index decreased by - 5,09 from 2000 until 2010). All this success is visible on Graph 1 and Graph 2. Brazil was also affected by global financial crisis in 2009 and she experience slightly negative growth (-0,644 %), but in 2010 the crisis for Brazil ended (4,03%), mostly due to conservative bank lending policies (high required reserves) before crisis (Brazils home mortgage debt amounts to just 1.7% of its GDP) and good state and private owned banks. The influence of discovery of Tupi oil field in October 2006 by state owned oil company Petrobras - the largest oil field found in Western Hemisphere in 30 years and some other discoveries also helped Brazil to recover from the crises. Brazil is also relative closed economy not so much connected with worlds financial system, but this doesnt decrease importance of their good pre crisis economy state, which helped Brazil to overcome crisis very fast.
On the other hand Russia was painfully hit in 1998 when she experienced -5,3 % economic growth due to failure Shock Therapy transition after breakup of Soviet Union in 1991, fixed overvalued ruble, chronic fiscal deficit, declining productivity, low prices of oil and Asian crisis (1997-98). The 1999-2000 elections marked a turning point. A post-Washington consensus had emerged - Moscow consensus. They focused on fiscal and monetary discipline, currency convertibility, price and trade liberalisation and privatisation. Putin started his mandate as Russian president in 2000 after Yeltsins resignation. And soon got a lot of help of Russians best economist: oil. The impact of oil prices on Russian economy can be overvalued. A study by the Rand Corporation suggested that increased energy rents accounted for between one-third and two-fifths of economic growth between 1993 and 2005. To avoid Dutch disease, the Stabilisation fund was established in 2004. Windfall energy revenues were used to pay back creditors, which had the additional advantage of being non-inflationary. Russian economy experienced budged surpluses and remarkable drop in inflation. The increase in real wage and pensions were remarkable, total convertibility of ruble opened doors for loans and new era of Russian economy began. In 2004 US declared Russia market economy. Russia was strongly hit by financial crisis in 2009 (-7,8 %) due to its resource based growth, which caused high vulnerability on external shocks. Active economics policy, public spending, sale of state owned investments and low public debt have brought Russia out of crisis after two quarters of negative growth in 2009 back to 4 % growth in 2010.
3.Characteristics of growth and development
3.1Gross value added by economical activity
Table 2: Gross value added by economical activity, 2008, Russia and Brazil (% of total GDP)
GROSS VALUE ADDED BY ECONOMICAL ACTIVITY, 2008, RUSSIA (% of total GDP)Wholesale and retail trade20,3%Manufacturing17,5%Real estate, renting and business activities11,3%Extraction of mineral resources9,3%Transportation and communications9,3%Construction6,3%Public administration and defense; social insurance5,4%Financial activities4,4%Agriculture, hunting, forestry, fishing4,4%Health and social services3,4%Production and distribution of electricity, gas and water2,9%Education2,8%Other community, social and personal serv