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    • According to the tests of adequacy

    2018-11-07

    According to the tests of adequacy associated to unrestricted models in Table 5 we may not find further problems related to serial correlation as well as problems related to the validity of instruments. Again, SYS-GMM demonstrated being the preferable model given that the p-values of Diff-Sargan tests reveal that the flunixin meglumine of additional set of instruments is not rejected. In general, the addition of the variable of interaction do not change considerably the impacts of other variables especially the difference in elasticity between domestic labor productivity and exchange rate. Otherwise, the models estimated by data from Guilhoto and Sesso Filho (2010) tend to overestimate the coefficient of interaction as shown in columns 3 and 6 as well as to make the real wage coefficient insignificant in the former model. Nevertheless, the COMFAC test reveals that the imposed restriction is not valid for these models as well as for all models that consider exchange rate and foreign labor productivity as exogenous variables. On the other hand, COMFAC tests also reveal that imposed restriction is accepted for models that consider exchange rate and foreign labor productivity as endogenous and make use of input–output matrices database from Freitas et al. (2012) and Martinez (2015). It is interesting to note that the results are practically identical between the two models. That said, through the results of Table 5 it is possible to confirm our preliminary hypothesis that the reduced elasticity of exchange rate on import penetration is related to the participation of imported input on the total inputs used in the final production of the sector. As expected, the coefficient of the interaction between effective real exchange rate and input imported ratio by sector (β) is positive and significant for all models. This means that a higher level of imported inputs ratio in a specific sector ϕ implies that exchange rate is less sensitive to import penetration given that as ϕ increases β also increases reducing the general impact of exchange rate on import penetration β. For instance, the sectors of consumption goods, on average, has an imported input ratio of about 0.08 meaning that the elasticity of exchange rate is near to −0.21 considering models in column 4 and 5. On the other hand, the group of intermediate and capital good sectors has a ratio of 0.16. As a consequence, the elasticity of exchange rate is near zero, equal to −0.04, a much smaller value than the group of consumption goods. This finding is in line with the results of Table 4 where the elasticity of exchange rate is small and statistically non-significant. In fact, the level of imported inputs ratio matters for explaining the differential of elasticities. In accordance with the results of Table 3, the hypothesis that coefficient of labor productivity are equal to the exchange rate is also rejected for all regressions considering the sample mean value for ϕ. Note that these results do not necessarily contradict the predictions of our theoretical model. It simply shows that there could exists other factors that influence the sensitiveness of exchange rate on import penetration other than the participation of imported input in total input used in the final production. In any case, we confirm that the presence of imported inputs on production influence the impact of the exchange rate and most relevant in substantial way.
    Final considerations and policy analysis According to our empirical findings labor productivity has been more important than exchange rate for explaining import penetration in the recent years. This aspect confirms the view supported by Bonelli and Pessoa (2010) and Ferreira and Fragelli (2011) that the recent progress of imports on Brazilian domestic market is broadly related to the productivity. As we presented before, labor productivity elasticities are considerably superior to the elasticity of exchange rate. The effect of domestic labor productivity on import penetration is at least two times larger than the exchange rate, a huge difference. Foreign labor productivity, on the other hand, has the largest influence indicating that there are other aspects that helps to explain the presence of imported goods on domestic market that do not depend on national economic policies.