Maria Cristina T. Terra
Balance-of-payments crises have been recurrent throughout Brazilian history. The depth and length of these crises depend basically on the country's vulnerability to external shocks and its capability to generate the necessary trade surplus after an adverse external shock. These, in turn, depend on trade diversification and competitiveness. With more diversified exports and imports, the country becomes less vulnerable to specific sector shocks. Increased competitiveness, furthermore, should facilitate trade balance reversals. This chapter focuses on one possible determinant of competitiveness, which is the existence of credit constraints. In a world with no missing markets, no informational asymmetries and no transaction costs, credit supply and demand should be equalized by an appropriate interest rate level, with no need for a financial sector. A vast literature, both theoretical and empirical, studies the effects on the economy when these conditions do not hold. In the real world, information asymmetries and transaction costs for acquiring information create the need for a financial system. The role of the financial sector is then, in summary, to allocate savings to the best investment projects, to monitor managers and to diversify risk (see Levine (1997) for a discussion on the roles of the financial system). In such an environment, financial system imperfections create credit restrictions, which in turn may affect firms' investment decisions. Hence, financial sector underdevelopment may be harmful for growth.
Moreover, it is plausible to presume that firms in different sectors have different financial needs. Rajan and Zingales (1998) compute the external financing pattern for different industries in the United States, and they arrive at large disparities among them. If that is the case, the effect of credit restrictions should not be equal among industries. In this chapter, I try to identify whether Brazilian firms are credit constrained, and the relation between industries' financial needs and their competitiveness.
The period from 1974 to 1997 is studied, comprising four different situations with respect to macroeconomic environment, trade policy and balance-of-payments conditions. They are briefly described below.