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Firstly, a huge development in the economy would be the improvement of infrastructure. As Brazil will now
host the FIFA World Cup in 2014 and the Olympics in 2016 the government estimates that public works of
US$63 billion will take place. The development of infrastructure would benefit the Brazilian economy in many
ways. The government could first draw up a specification for various infrastructure projects and then invite
private firms (both domestic and foreign) to compete for the contract. This is called competitive tendering.
Foreign firms which are more efficient and have the technology could undertake such projects in the form of
Foreign Direct Investment (FDI). This would therefore cause the transfer of technology and know-how into
Brazil, from which domestic firms could benefit. This would make domestic construction companies more
competitive and therefore this could help in the development of the secondary sector.
In addition, various other transport infrastructure could be improved. Airports, ports and train services could
all be improved. This would make trade operations cheaper and more efficient. This would attract more in-
vestors and multinationals (MNCs) and as investment would increase this would cause economic growth.
Also with electric power and telecommunication networks also improved, further economic development
would be achieved. In order to accommodate the 15% increase in tourism which is expected in 2016, many
hotel facilities could be built. As favelas now occupy the most beautiful parts of Rio, with hotel and housing
projects in the region, such an area could be used to develop the tourist industry. Such operations are esti-
mated to create 121,000 new jobs mostly benefiting civil construction and real estate as well as the oil and
gas industry. This would decrease the general level of unemployment as well as improve equality and raise
the income of people. There would also be a multiplier effect offset, and this would lead to further job cre-
ation and growth. This would result to higher levels of social and economic development. However with all
the focus on improving stadiums more important projects may be neglected.
A second strategy that could be employed in order to achieve economic development is taxation reform.
Firstly, the removal of the surtax on corporation tax would largely benefit the Brazilian economy. With a more
favorable corporation tax, more multinationals would choose to invest in Brazil. Therefore there would be
more inflow of FDI, leading to job creation, growth and development of the economy as well as increased tax
revenues for the government, which would be used to repay any outstanding debts the government has.
More employment and higher wages for workers would mean that their own standard of living would in-
crease.
In addition income tax reforms could also help economic development. Non-residents are taxed at a flat rate
of 27.5% for earned income and 15% on other income. With the decrease of income tax for both residents
and non-residents, consumers in the economy would have more disposable income. With more disposable
income savings would increase. Savings would provide the necessary capital to banks to lend money for in-
vestment purposes. With more money, the interest rate would fall, thus incentivizing investments and there-
fore projects would increase capital stock. This would lead to more economic growth and development. This
is known as the “Harrod-Domar Model”. According to the World Bank, Brazil had gross savings (as a % of
GDP) of 17% in 2011. This is relatively low compared to saving ratios observed in the ‘Asian Tigers’ that allowed
them to take off. However, tax reforms present a huge opportunity cost to the government. The government
is facing a huge public debt problem, and decreased government finances would not help. With increased in-
vestment government revenues may actually increase but this nevertheless a risk.
A final strategy Brazil could employ is property rights. Property rights refer to laws created by governments
that give individuals the right to control and benefit from their property. In ‘perfect’ property rights markets,
all resources are privately owned, owners are able to prevent others from benefiting from their resources and
are allowed to sell said resource whenever they want to (Economic Development, Michael P. Todaro, 7th Edi-
tion). The implementation of property rights would suggest that owners would take account of costs and
benefits when taking economic decision and therefore this would lead to more efficient use.
With laws implemented, assets would now enter the economy and increase investment and consumption.
Property can be transformed into collaterals for people wanting to take a bank loan, or can be used them-
selves (when rented or for personal use) in order to invest and start new businesses. This would increase
Long Run Aggregate supply and offer a higher standard of living for owners of resources, as well as the econ-
omy in general as employment levels would rise. In addition, property rights can help reduce income in-
equality and poverty. “For over a billion poor people in the developing world, changing their relationship to
the land they live upon could measurably improve their quality of life.” (Lindsay Clinton, Property Rights: A
Development Imperative). With land ownership, people involved in agriculture are able to realize their re-
sources into wealth. ‘There are 1.2 billion people worldwide who own or lease physical property for which
they do not hold formal rights or documentation.’ The ‘Property Rights Index’ attempts to measure and rank
the ability of an individual to own private property in a country. Brazil ranks 62nd worldwide and 8th in Latin
America, therefore a strong legislative background providing more freedom would be beneficial for sustain-
able economic development. Empirical evidence has shown that property rights have succeeded in another
economy of Latin America, Chile. Chile, has the highest score in the property rights index in Latin America,
and the rule of law there is the strongest. In addition, GDP per capita has been growing steadily from $2,800
in 1980 to $15,000 in 2012, and it is partly due to property rights. As also shown by the figure above there is
a definite correlation between property rights and GDP per capita signifying that property rights would help
an economy to raise its standards of living.
Brazil has been known to face unsustainable growth in the past. According to locals “Brazil is the country of
the future and will always be” (Economic Development, 10th Edition. Michael P. Todaro & S. Smith). The
above strategies have proposed ways to deal with problems of inequality and government debts while at the
same time promoting development. Brazil’s best chance to reach the stage of development of a developed
country is by raising standards of living as well as taking measures in order to protect the environment.
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