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Rising commodity prices and welfare in Brazil: A simulation of medium-term effects using a SAM price model

Pedro Esteban Moncarz (Facultad de Ciencias Económicas, Universidad Nacional de Cordoba, Córdoba, Argentina) (Consejo Nacional de Investigaciones Cientificas y Tecnicas, CABA, Argentina) (Centro de Investigaciones en Ciencias Económicas, CIECS (UNC-CONICET), Córdoba, Argentina)
Sergio Victor Barone (Facultad de Ciencias Económicas, Universidad Nacional de Cordoba, Córdoba, Argentina)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 9 January 2020

Issue publication date: 24 April 2020

169

Abstract

Purpose

Brazil, a large developing economy whose main exports consist of primary commodities, benefited greatly from the boom in commodity prices during the first decade of the current century. However, with a large share of its population with low and very low incomes, there is a potential for some adverse redistributive effects. The purpose of this paper is to address this issue by simulating the ex ante effects using a mixed endogenous–exogenous social accounting matrix (SAM) price model.

Design/methodology/approach

The methodology consists of two parts. First, using a mixed endogenous–exogenous SAM price model, the authors obtain the elasticities of domestic prices (goods, services and factors) in response to the increase in international prices of three types of commodities: agricultural, oil/gas and minerals. Second, the authors run micro-simulations at the household level on welfare effects, as well as on some distributive indices. Analysis at the regional level is also carried out.

Findings

Following increases in the international prices of primary commodities, the responses of internal prices (goods, services and factors) mean a welfare loss all over the entire distribution of household per capita expenditure; the least affected are those households at the low end and around the median of the distribution. However, the differences among households are not very important. Moreover, once we take into account government transfers and payments from social security, the magnitude of the effects reduces even further. Also, inequality indices and poverty rates show little responsiveness to the simulated shocks. Finally, poorer regions are the most likely to be affected, but also the distribution of effects across households shows differences between regions.

Originality/value

Economies with comparative advantages in the production of primary commodities can benefit at a macro-level from the increase in the international prices of such commodities. However, when a large part of the population spends a high proportion of its income on goods whose prices may be affected by the increase in commodity prices, there is a room for some undesirable effects from a redistributive standpoint. This study provides valuable results about such potential effects for Brazil, a large developing economy.

Keywords

Acknowledgements

This research is part of the project Impactos redistributivos y de bienestar de cambios en los precios de los commodities agropecuarios. Posibles respuestas de política económica. Evidencia para países seleccionados de América Latina, supported by the Fondo para la Investigación Científica y Tecnológica (FONCyT) through the Research Grant PICT 2012-1807.

Citation

Moncarz, P.E. and Barone, S.V. (2020), "Rising commodity prices and welfare in Brazil: A simulation of medium-term effects using a SAM price model", International Journal of Emerging Markets, Vol. 15 No. 5, pp. 1029-1060. https://doi.org/10.1108/IJOEM-02-2019-0091

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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