COMMOM ECONOMIC CYCLES IN BRAZIL’S NORTHEAST

Abstract

Most of the debate on promoting regional economic development in the Northeast of Brazil has been concentrated on the effects that national economic policies would have in the region. Little attention has been given, however, to the analysis of the effects that an individual state economy could have in other states within the region. The paper performs an empirical study on the economic interaction of the three largest economies of Brazilian Northeast: Bahia, Ceará, and Pernambuco. The empirical investigation is based on the estimation of a vector autoregression model (VAR) for the three states GSP (Gross State Product). The Information about the way that these three economies interact to each other can be obtained through the examination of the matrix of contemporaneous correlation of the residuals, Granger causality tests for blocks of equations, and examination of impulse response functions of the system.