Semi-endogenous growth in a non-Walrasian DSEM for Brazil: Estimation and simulation of changes in foreign income, human capital, R&D, and terms of trade
In an empirical, dynamic simultaneous equation model (DSEM) for Brazil
with 22 equations and variables, we show that foreign income is a driver
of economic growth besides semi-endogenous technical change. With a
balance-of-payments constraint and endogenous terms of trade, the major
mechanism is (i) world GDP driving exports, (ii) exports paying for
imported capital goods, which (iii) enter a production function
increasing output and the foreign-debt/GDP ratio and (iv) increase the
endogenous labour force, and (v) slightly reduce human capital growth.
Permanent increases of human capital increase the R&D/GDP ratio,
labour-augmenting productivity, and GDP. A policy to increase the
R&D/GDP ratio leads to more human capital, labour productivity and GDP
levels. Both knowledge policies reduce the debt/GDP ratio. A lasting
shock on the terms of trade reveals that there is no
Harberger-Laursen-Metzler effect. The results hold in the presence of
endogenous terms of trade, foreign debt, net foreign income, and net
current transfers from abroad, and non-Walrasian (dis-)equilibrium
variables: inflation and changing inventories for the goods market, and
unemployment in the labour market. Policy should strengthen the weak
link from R&D to technical change and make education more attractive.
Keywords: dynamic simultaneous equation model, balance-of-payments constrained growth, imported capital goods, foreign debt, human capital, R&D.
JEL Classification: F43, O11, O41, O47, O54