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Industrial Development Policies Industrial Policy and the Evolution of the Portuguese Economy Since the 1960

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Industrial Development Policies Industrial Policy and the Evolution of the Portuguese Economy Since the 1960 s Lecture Slides Rui Baptista - 1999 – PowerPoint PPT presentation

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Title: Industrial Development Policies Industrial Policy and the Evolution of the Portuguese Economy Since the 1960


1
Industrial Development PoliciesIndustrial
Policy and the Evolution of the Portuguese
Economy Since the 1960s
  • Lecture Slides
  • Rui Baptista - 1999

2
The Portuguese Model of Development in the 1960s
  • Enhancement of trade relations with the African
    colonies, leading eventually to the establishment
    of a common market corresponding to what was then
    the Portuguese political space
  • Direct involvement in the European economic
    integration initiatives, becoming a founding
    member of the European Free Trade Association
    (EFTA).

3
Main Characteristics of the Estado Novo
Economic Policy
  • Price and foreign exchange stability
  • Public sector budget balance
  • Control of international capital movements and
    restraints to imports, in spite of the
    progressive opening of the economy to foreign
    trade and investment
  • Regulation of entry in industrial markets
  • Wage and price controls through corporative
    mechanisms

4
1970s Exogenous Chocks and Economic Policy
Fractures
  • Progressive liberalisation of trade tariffs and
    quotas increases pressures on prices
  • Oil crisis increases operational costs across
    industries, leading to inflation and reducing
    returns on investments
  • The political changes occurring in 1974-75 lead
    to a radical modification of the institutional
    framework for economic activity by an alteration
    of the system of property rights
  • De-colonisation drastically reduces Portuguese
    assets held abroad

5
1977-1984 - External Trade Balance and the
Increasing Role of Government
  • The main objective of macroeconomic policy was
    external trade balance, achieved through
    systematic currency devaluation and the
    enforcement of import restrictions
  • Price stability and budget balance were deemed
    secondary to external balance
  • The government controls directly several economic
    sectors, without a proper definition of an
    intervention strategy
  • The instability of prices and interest rates
    hinders private investment

6
1980s Macroeconomic Equilibrium and European
Integration
  • Control of trade balance and inflation
  • Substantial increase in foreign direct investment
  • Greater co-ordination of economic policies
  • Increase in external competition
  • EC structural funds help to finance large
    infra-structure investments

7
Economic Policy and European Integration
  • Main objectives control of inflation and the
    promotion of economic growth
  • Greater control of the budget deficit, although
    it keeps expanding into the 1990s
  • Major institutional changes brought about by the
    progressive co-ordination of monetary, exchange
    rate and competition policies
  • Reduction of distortions achieved through
    improvements in tax policy, infra-structure
    investments and privatisation of a large range of
    industrial sectors

8
Obstacles to Industrial Development During the
Estado Novo
  • Lack of a coherent institutional framework as
    regards market access rules and competition
    policy
  • Economic policy and tax structure distorted
    income distribution, favouring the producers of
    final goods and damaging the producers of
    intermediate and investment goods
  • Industrial policy and the use of state resources
    favoured specific sectors, without a coherent
    strategy, overlooking investment in
    infra-structure

9
De-industrialisation and the Increase in the
Weight of Services from 1975
  • Policies of job creation in a growing public
    sector, particularly in healthcare, education,
    transport and public utilities
  • Progressive growth in trade and tourism sectors
    and, from the mid-1980s, in the liberalised
    financial services sector
  • Increasing specialisation and vertical
    disintegration of industrial activities
  • Lack of external competitiveness of industrial
    sectors led to an increase of investment in
    services

10
Market Failure and Trade Barriers
11
Market Failure and Barriers to Entry
(Condicionamento Industrial)
12
Trade Policy and Export Promotion
13
Entry Barriers and Export Promotion
14
Internal Efficiency and the Estado Novo
Industrial Policy
  • Barriers to entry and to international trade
    without effective promotion of internal
    competition The regulatory authorities failed to
    act in the public and national interest, limiting
    competition and allowing incumbents to remain
    inefficient
  • Government Failure the insufficiency of
    corporative organisation and the lack of
    legislation preventing price collusion led to a
    situation where incumbents were granted
    opportunities to grow and were not penalised for
    failing to take advantage from them.

15
Industrial Policy and EU Structural Funds
  • Incentives to mobility new entry, internal
    growth, RD and environmental investments
  • Criteria for approval based on the candidates
    financial structure and on the nature of the
    project
  • The main objective is not the correction of
    specific market failures, but to increase the
    competitiveness of national firms, so total
    market efficiency can improve

16
The Structure of PEDIP
  • Three kinds of investment incentives physical
    capital RD quality management and environment
  • RD and quality/environment investment projects
    were had higher rates of approval, but received a
    relatively low percentage of total funds
  • Physical capital projects, the large majority,
    received the greater share of funds
  • Firm size does not appear to have a significant
    overall effect on the amount of funding, although
    it remains clear that some very large firms
    received a large portion of total funding.

17
Average GDP Growth Rates
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