1.2 How do economists approach the world? Questionbank

Brazil’s Economy in Transition

Brazil, the largest country in Latin America, has undergone significant economic and social transformations in recent years. In 2020, Brazil’s real GDP contracted by 4.1% due to disruptions in global trade and domestic demand. However, by 2022, real GDP had grown by 2.3%, supported by stronger exports of agricultural commodities and a gradual recovery in consumer confidence. Despite these improvements, inflation reached an annual average of 8.2% in 2022, prompting the central bank to raise the benchmark interest rate to 11% in an effort to stabilize prices.

Unemployment has remained a challenge. In mid-2021, the national jobless rate peaked above 14%. The government responded by expanding social assistance programs and introducing job-training initiatives for the growing youth population. In addition, it implemented a “fiscal responsibility law,” which sets constraints on budget deficits while allowing for targeted spending on infrastructure and social welfare. The rationale is to boost long-term growth without triggering unsustainable debt.

Brazil’s export profile is dominated by agricultural products and mineral commodities, including soybeans, coffee, iron ore, and crude oil. Over 40% of export revenue comes from China, followed by markets in the European Union and the United States. However, the reliance on commodities makes Brazil’s external trade vulnerable to fluctuations in global prices. The government aims to diversify by promoting higher-value manufactured exports and expanding service-sector trade, partly through new trade agreements under Mercosur.

Income inequality, measured by the Gini coefficient, has fallen slightly over the past decade but remains high by international standards. Government transfer programs and progressive taxation have played a role in reducing poverty, yet rural areas—especially in the north and northeast—continue to lag behind in access to education, healthcare, and formal employment opportunities. Moreover, the introduction of a “price floor” for select agricultural products (such as coffee and sugarcane) is intended to stabilize farmers’ incomes, but critics argue it may distort market signals and lead to inefficiencies.

Environmental concerns have gained urgency in recent years, particularly regarding deforestation in the Amazon region. Brazil’s “Green Growth Plan,” announced in 2022, sets ambitious targets to reduce emissions and protect biodiversity. The plan includes incentives for sustainable agriculture, reforestation projects, and stricter monitoring of illegal logging. However, balancing environmental protection with economic development poses ongoing political and economic challenges.

On the monetary front, the Central Bank of Brazil operates a managed float of the Brazilian real. While the exchange rate often reflects shifts in commodity prices, authorities occasionally intervene using foreign reserve assets to prevent excessive volatility. Foreign direct investment (FDI)—especially in agribusiness, infrastructure, and energy—has grown with support from the “plan”, although critics note that the benefits have not always trickled down to local communities.

To spur growth in the industrial sector, policymakers have launched new supply-side measures, emphasizing research and development (R&D) grants, technology partnerships, and incentives for small and medium-sized enterprises (SMEs). Proponents argue that these policies can diversify the economy beyond raw commodities, while skeptics worry about the fiscal costs and the slow pace of structural reforms.

Overall, Brazil stands at a crossroads. The government continues to grapple with persistent inflation, high unemployment, and unequal development. Yet, the country’s vast natural resources, large domestic market, and ongoing policy reforms offer potential for sustainable and inclusive growth. Whether the new Green Growth Plan and efforts to strengthen fiscal responsibility will translate into long-term stability remains a central question for Brazil’s future trajectory.

Table 1: Brazil’s Selected Macroeconomic Indicators (2020–2023)

Table 2: Development and Environmental Indicators

Economic Developments and Challenges in Ethiopia

Ethiopia, located in the Horn of Africa, has undergone rapid economic transformation in recent years. From 2015 to 2022, the country’s real GDP growth averaged approximately 7.5% per annum, largely driven by an expansion in the services sector and increased investment in infrastructure. Coffee remains Ethiopia’s largest export commodity, accounting for about 25% of total export earnings. Yet, recurring droughts, coupled with a high population growth rate of nearly 2.7% per year, have heightened concerns about food security and rural poverty.

Government programs, such as the Growth and Transformation Plans (GTP I and GTP II), have prioritized industrialization, infrastructure development, and agricultural modernization. Although these programs stimulated some growth in the manufacturing sector, limited foreign currency reserves and inflationary pressures have posed major challenges. Ethiopia’s inflation rate peaked at around 35% in 2021 due to a combination of supply shocks, global commodity price increases, and expansionary monetary policy. The National Bank of Ethiopia has since adopted tighter monetary measures to reduce inflation. However, small businesses complain that tighter credit availability hinders their operations.

Despite sustained growth, Ethiopia’s Human Development Index (HDI) remains relatively low, indicative of widespread poverty and inequality. An estimated 22% of the population lives below the national poverty line, while rural areas struggle with underemployment and limited access to clean water. The government has attempted to address these issues through rural electrification programs, improvements in primary education, and targeted social protection schemes. Nevertheless, inequality persists, and rising urban living costs make life difficult for low-skilled workers in cities. Furthermore, frequent currency devaluations have increased the cost of imported inputs for domestic industries, prompting calls for greater export diversification beyond coffee and traditional agricultural products.

Ethiopia has also sought to enhance its global economic integration by reducing tariffs on specific manufacturing inputs and negotiating free trade agreements within regional blocs. These efforts, officials argue, accelerate the country’s transition from a largely agrarian economy to a more diversified one, while attracting foreign direct investment (FDI) into industrial parks. However, bureaucratic bottlenecks and limited infrastructure in some regions—especially inadequate road and rail networks—remain obstacles to realizing Ethiopia’s transformative goals.

Table 1: Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty Indicators and Development Measures

Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons—mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan’s total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country’s capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan’s real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract investment in manufacturing and services. Improvements in transport connectivity—facilitated by ongoing infrastructure projects—have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019–2022)

Table 2: Trade and Social Indicators