The developmental state reloaded: Brazilian industrial policy in the XXIst Century.

The developmental state reloaded: Brazilian industrial policy in the XXIst century Since 2002 Brazil has experienced the rebirth of an active industrial policy by the government in order to stimulate both technological upgrading and competitiveness of domestic companies. However, the Brazilian industrial policy has been characterized by heterogeneous sets of initiatives that vary by sector. Therefore, the goal of this project was to understand: 1) the political and economic factors that affect the process of elaboration and implementation of industrial policy in Brazil; and 2) to what extent these policies affect the ability of domestic firms to upgrade their technological and organizational skills. Empirically, the project focused on a comparative study of Brazil's two most important extractive industries: oil & gas (O&G) and mining. These two sectors are relevant since both oil and iron ore are Brazil's main export products. Despite being extractive industries, both sectors involve complex chains of suppliers that have been the target of different policies to stimulate the local production and provision of equipment and services. Additionally, both sectors present considerable differences in the set of policy instruments (e.g. local content requirements, training programs) and the intensity of the state intervention. The research design was based on three stages of data collection: 1) document analysis and interview with key-informants in order to map the evolution of the policy-making in each sector and identify relevant policy instruments; 2) case studies with firms within the supply chain of each sector in order to identify whether and how policy instruments affect firms' strategies; 3) collection of data through a survey with a larger sample of firms along the supply chain with the aim to identify general differences in the way policy instruments affect firm's strategies. The results of our project show that the organisation of each sector impacts directly the type of institutions and policies implemented in each sector. The Brazilian O&G sector has been traditionally dominated by the state-owned company Petrobras while the mining sector presents a much more fragmented composition of interests. As a result, the Brazilian government has been able to promote much bolder institutional reforms and policy initiatives in the O&G sector in comparison to the mining sector. As examples, since 1998, the O&G sector has a regulatory agency and a local content policy adopted to stimulate domestic suppliers. In the mining sector, interests from variety of companies have been blocking in Congress the approval of regulatory reforms that would allow the government to implement a more active industrial policy, including local content policies. Looking closely to the O&G sector, we have also identified important shifts in the orientation of its industrial policy along the time. During the Cardoso government, the emphasis on opening of the sector to private competition was accompanied by an outward perspective for the industrial policy. The main idea was to use local content policy as an instrument to allow competitive domestic suppliers to become part of global supply chains of oil companies. During the Lula and Dilma governments, there was a shift in the industrial policy orientation, characterized by the dominance of a more inward perspective. By expanding and increasing local content requirements, the government aimed to increase domestic output and create new domestic companies, particularly in the shipyard industry. In terms of effects of the industrial policy for the O&G sector, the data collected through interviews and the survey shows both positive and negative effects. The main positive aspects is that the expansion of local content requirements created opportunities for domestic companies to upgrade their production and management systems. Moreover, we identified a positive collaboration between companies along the supply chain, indicating the existence of an important process of knowledge transfer and co-learning. On the other hand, the expansion of local content requirements proved to be extremely ambitious. Many suppliers did not have the capacity to produce the required equipment, imposing delays and significant cost increases for many projects. Paralell to the emphasis on local content requirements, there was a lack of initiatives aiming to systematically improve other structural problemas affecting domestic suppliers. According to our survey results, local content requirements alone did not address problems related to training workers, limitations for research and development of new products, and tax system. In sum, our results show that industrial policy still has an important role in promoting economic development and domestic manufacturing capacity. However, the Brazilian experience shows that at the same time policy-makers must be aware about the limits of their actions.

The aim of this project is to understand:1) the factors that affect the process of elaboration and implementation of industrial policy in Brazil; and 2) to what extent those policies affect the ability of domestic firms to upgrade their technological and organizational skills. Empirically, the project focuses on a comparative study of Brazil's two most important extractive industries: oil & gas (O&G) and mining. These two sectors are relevant since both oil and iron ore are Brazil's main export products. Despite being extractive industries, they involve a complex supply chain that have been recently the target of policies to stimulate the local production and provision of equipment and services. Additionally, both sectors present considerable differences in the set of policy instruments (e.g. local content requirements) and the intensity of the state intervention. The research design is based on three stages of data collection: 1) Document analysis and interview with key-informants in order to map the evolution of the policy-making in each sector and identify relevant policy instruments; 2) Case studies with representative firms within the supply chain of each sector in order to identify whether and how policy instruments affect firms' strategies; 3) C ollection of data through a survey with a larger sample of firms along the supply chain with the aim to identify general differences in the way policy instruments in each sector affect firm's strategies. In doing so, we expect to raise the knowledge abou t the economic policy-making in Brazil and the viability of strategies to develop domestic industries in the context of a globalized economy.