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  • Cavalcanti and Frischtak was the first paper in

    2018-10-30

    Cavalcanti and Frischtak (2001) was the first paper in the Brazilian literature that employed cointegration tests with endogenous structural break to detect parametric instability. Analyzing the quantum of total imports and end-use category over 1980 and 2000 (quarterly data), the authors found evidence in line with the previous literature that a structural break happened in the long-run relationship among imports and its major determinants during the 1990s. According to the estimations, there was an important increase in the income elasticity of imports. Azevedo and Portugal (1998) studied the period over 1980 and 1994 using quarterly data of total imports. The authors found clear evidence of parametric instability in the beginning of the 1990s. Structural break regressions showed that domestic income, meanwhile not significant in the first part of the sample (1980s), became an important determinant of imports during the 1990s (with an estimated income elasticity of 2.1). The capacity utilization, however, lost its predictive power at the end of the sample. This fact is related to the non-tariff policies used during the 1980s. According to the authors, the trade liberalization in the 1990s changed the relative importance of those variables in terms of predictive power. Finally, it is important to cite two other studies that provided important innovations to deal with parametric changes. Silva et al. (2001) studied the period from 1978 to 1999 using the quarterly indexes of quantum of total imports and intermediary goods. Employing artificial neural networks technique, the authors found ruptures in the data behavior in 1989 and 1994. The main results were that the capacity utilization became irrelevant to explain the p2x7 receptor of total imports and there was an increase in the income elasticity of imports. Morais and Portugal (2005) analyzed the evolution of total imports using an annual Laspeyres index from 1947 to 2002 and a quarterly index of quantum from 1978 and 2002. The authors estimated error correction models with regime changes using markov-switching regressions. The reported annual model has three regimes with changes only in the intercept. The changes are associated with periods of external sector adjustments, periods of closed economy and trade liberalization reforms. The quarterly model in its turn has only two regimes, but it allows for changes in all parameters, including the variance. However, the characterization of each regime depends only on the intercepts.
    Table 2 shows average percent variation in the quantum imported by principal end-use category over the sample period for consecutive three-year intervals. Imports of consumption goods reduced until 2002–2004, but they have grown very fast starting in 2005–2007. The growth rate of imports of durable goods in particular was much higher than the growth rate of total imports. Imports of capital goods in turn grew fast during the three-year period of 1996–1998 and from 2005–2007 onwards. In 2005–2007 and 2008–2010, the growth rates of imports of capital and durable goods were very similar. Also, it is not surprising that the growth rates of raw materials and intermediary goods increased after 2005–2007 (see Table 2), given the complementarity with capital goods. Table 3 presents the share of each group in total imports (in US$), showing that the capital goods weight is much higher than the durable consumer goods (23.1% and 7.4%, respectively). Its share is only lower than that for raw materials and intermediary goods (48.8% on average). Given the weight of capital goods (and raw materials and intermediary goods) in total imports, it is intuitive to foresee a strong association between the gross capital formation and total imports. In addition, the domestic supply of this type of good is limited and, therefore, imports increase (decrease) every time investment rises (declines). Fig. 1 shows the strong association between these variables using chained quarterly national account data (reference 1995, series in log).