Short and long-term relations of the industry in the Northeastern Region of Brazil

Abstract

This work analyzes the short and long-term relationships of the industry in the northeastern region of Brazil using monthly data from January 1995 to July 2013 and vector error correction models (VEC). The long-term elasticities indicate that increases of 1% in the industrial production of the state of Bahia reverberate positively in 1,56% and 1,75% on the states of Pernambuco and Ceará, respectively. Adding 1% to the industrial activity of the state of Ceará, a positive effect can be observed on Bahia, of 0,57%, and a negative effect of 0,89% in the state of Pernambuco. In the same circumstances, if the increase occurs in Pernambuco, there was a decrease of 1,12% in the industrial acticity of Ceará and an expansion of 0,64% in the industrial dynamics of Bahia. Therefore, the State of Bahia seems to produce greater effects of agglomeration for the Northeast region, while Ceará and Pernambuco seem to rival each other. In short, the Brazilian Northeast industrial policies should consider the evidence presented in this work in order to minimize the effects of rivalry and enhance the spreading of actions within the region, thus maximizing agglomeration gains and geographic location to mitigate the effects of existing regional inequalities in Brazil. Keywords: Industrial dynamics. Northeast Region.VEC.