**Figure 12: Brazil – limited structural transformation** Except for a doubling in the share of petroleum products, the relative importance of Brazil’s leading industries <u>was virtually unchanged between 1996 and 2004.</u>

<!-- Start of picture text --> Brazil: Industrial Structure : Share of MVA in 1996 Brazil: Industrial Structure : Share of MVA in 2004<br>Other non- Fabricated publishing, 3 Printing & metallic mineral Other non-<br>metallic metal products, products, 3<br>mineral 4<br>Printing & products, 3 Food Food products,<br>Fabricated publishing, 5 products, 15 Paper & 14<br>metal products, 4<br>products, 4<br>Paper & Machinery,<br>products, 4 electric, 4<br>Industrial<br>Machinery, electric, 6 chemicals, Industrial Machinery, except chemicals, 12<br>Machinery, 13 electrical, 7<br>except<br>electrical, 7 Iron & steel, 8 Transport<br>Iron & steel, Transport equipment, 10<br>4 equipment, 9 Petroleum<br>Petroleum products, 10<br>products, 5<br>Source: UNIDO, authors’ calculations<br><!-- End of picture text --> The Korean experience of catching up with the OECD and Chinese experience of catching up with Korea were positively correlated with a rapid transformation of the industrial structure. This did not occur in Brazil. A widening of the distance from Korea’s technological frontier in some of its largest industries and narrowing in others on average preserved Brazil’s industrial structure - in 2005 it was not too different from that in the 1990s. This is discernible in the relatively unchanged shares of Brazil’s medium and high tech industries during this period (figure 7). Interestingly, the share of medium tech industries in Brazil was significantly higher than in Korea in 1985, but had not changed by 2005-06. And Brazil’s high-tech industries remained relative laggards in comparison to the Korean technological leaders.<sup>11</sup> Unlike Korea or China, Brazil’s catch up strategy was neither selective not focused on leveraging innovation to catch up. It did not invest heavily in distance shortening policies that would have pushed it closer to the frontier when it initiated trade liberalization in the 1990s. Consequently, an inward-oriented economic orientation and a slower pace of reforms have limited industrial transformation even after Brazil opened up (figure 12).

# **_Reforms – competition and innovation_**<sup>**_12_**</sup>

In the late 1980s, protection rates in Brazilian industries were clustered into two main sets. The Food, Transport and Machinery industries were farther from the frontier and had nominal rates of 45-50 percent. The Petroleum products, Iron and steel, and Industrial chemicals industries were closer to the frontier and had tariffs in the range of 25-35 percent. Tariff rates in the other industries were also in the lower range. Tariffs declined with liberalization in the 1990s (figure 13), but with the exception of Food, the assignment of industries in the low or high tariff brackets did not change. In 2007, tariffs on most industries were between 8 – 17 percent in comparison with Korean tariffs that were already below 5 percent.

> 11 See I.Costa and S.R.Reis de Queiroz (2002), and C.H.B.Cruz and L.de Mello (2006).

> 12 For a recent account of the evolution of Brazil’s trade policies see Lattimore and Kowalski (2008).

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