A recent study suggests that Brazil's informal economy could lead to greater gains from trade liberalization than previously estimated, projecting a 24% increase in real income with a 33% reduction in trade costs.
Brazil's informal economy significantly impacts the potential economic benefits of trade liberalization, according to a study published in the prestigious journal Econometrica. The research, authored by experts including Rafael Dix-Carneiro from Duke University, posits that a hypothetical 33% reduction in trade costs could increase the country's real income by approximately 24%. In contrast, if the informal market were not a factor, the gain would be only 11%. This study highlights the complex dynamics at play in Brazil's economy, shaped by high levels of informality.
The authors argue that trade liberalization can help reduce prices, expand markets, and correct internal distortions that arise from the informal sector. Their findings suggest that the effects of trade policies are intricately linked to the level of informal economic activity, making Brazil's case particularly unique. Moreover, while the study focuses on Brazil, its implications may extend to other countries with substantial informal economies, indicating a broader relevance.
This research not only sheds light on the specific circumstances of Brazil but also encourages policymakers to consider informal markets when developing trade strategies. Understanding the potential for greater economic benefits through reform in trade policies could lead to more effective economic advancements in Brazil and potentially in other similar economic contexts.
