Structural change, National Innovation System and balance-of-payments contraint: a theoretical and empirical analysis of the Brazilian case

The paper explores the relationship between the income elasticities of demand for exports and for imports, economic growth, the technological content of local production, and the level of development of the National Innovation System (NIS). According to the literature, differences in long-run growth rates are associated with differences in the income elasticities of demand, which would in turn be determined by the maturity of the NIS. Mature NIS imply higher degrees of product diversification, leading to trade patterns which favour exports of goods with higher technological content (high income elasticity of demand), and imports of basic goods (low income elasticity). Hence, we test the relationship between the exports and imports of Brazilian high-tech products and the number of Brazilian patents registered in the USPTO, as a proxy for the level of development of the Brazilian NIS. The results of the analysis are corroborated by the investigation of innovations of the variables, through impulse response functions and forecast error decomposition, which confirm the theoretical hypothesis discussed.