MASTER’S PROGRAM IN URBAN MANAGEMENT AND DEVELOPMENT (October 2004 – September 2005) Transport Costs in Brazil under the Light of Geographical Economics Luiz Gustavo Packer Hintz Brazil Supervisor: Professor Charles G. M. van Marrewijk UMD 1 Report number: 292904lp Rotterdam, 24 October 2005 i 31 October 2005 Table of Contents Table of Contents.......................................................................................................... ii Summary....................................................................................................................... v 1. Introduction....................................................................................................... 7 1.1. The History of Land Occupation in Brazil ................................................... 7 Figure 1.1. Brazilian States and Macro-regions.......................................................................................................7 1.2. Recent Industrial Displacements in Brazil.................................................... 8 Figure 1.2. – The State of São Paulo and its Larger Municipalities ........................................................................9 1.3. Recent Agricultural Displacements in Brazil ............................................. 11 1.4. The Urbanization Process of the 80’s and 90’s .......................................... 13 Figure 1.3. Brazilian Urban Systems According to IPEA (2001)..........................................................................14 Figure 1.4. Brazilian Center-north Urban Systems According to IPEA (2001)....................................................15 Figure 1.5. Brazilian Northeast Urban Systems According to IPEA (2001).........................................................16 Figure 1.6. Brazilian Center-south Urban Systems According to IPEA (2001)....................................................17 2. Research Scope ............................................................................................... 18 2.1. Two Basic Differences................................................................................ 18 Figure 2.1. Agriculture Sector Absolute GDP (R$ Thousands of the year 2000) – 1960 to 2002........................19 Figure 2.2. Agriculture Sector GDP as Percentage of National Total ...................................................................19 Figure 2.3. Manufacturers Sector Absolute GDP (R$ Thousands of the year 2000) – 1960 to 2002...................22 Figure 2.4. Manufactures Sector GDP as Percentage of National Total................................................................22 Figure 2.5. Services Sector Absolute GDP (R$ Thousands of the year 2000) – 1960 to 2002.............................23 Figure 2.6. Services Sector GDP as Percentage of National Total........................................................................23 Figure 2.7. Absolute Total Population in Brazil per Urban System – 1970 to 2000.............................................25 Figure 2.8. Total Population in Brazil per Urban System as Percentage of National Total – 1970 to 2000 ........25 Figure 2.9. Absolute Urban Population in Brazil per Urban System – 1970 to 2000 ...........................................25 Figure 2.10. Urban Population in Brazil per Urban System as Percentage of National Total – 1970 to 2000.....26 Figure 2.11. Absolute Rural Population in Brazil per Urban System – 1970 to 2000 ..........................................27 Figure 2.12. Rural Population in Brazil per Urban System as Percentage of National Total – 1970 to 2000......27 Figure 2.13. Absolute Rural Workforce in Brazil per Urban System – 1970 to 1995 ..........................................28 Figure 2.14. Rural Workforce in Brazil per Urban System as Percentage of National Total – 1970 to 1995......28 2.2. One Fundamental Similarity....................................................................... 31 Figure 2.15. Brazilian Federal Roads System – North Macro-region ...................................................................35 Figure 2.16. Brazilian Federal Roads System – Center-west Macro-region .........................................................35 Figure 2.17. Brazilian Federal Roads System – Northeast Macro-region .............................................................36 Figure 2.18. Brazilian Federal Roads System – Southeast Macro-region .............................................................36 Figure 2.19. Brazilian Federal Roads System South Macro-region ......................................................................37 Figure 2.20. State and Federal Roads System of the State of São Paulo...............................................................37 Figure 2.21. State and Federal Roads System of the State of Paraná ....................................................................38 Table 2.1. Total Cargo: Transport Mode Distribution and Costs ..........................................................................40 Table 2.2. Total Cargo and Transport Costs: A Comparison Between Brazil and the USA.................................40 Table 2.3. Evolution7 of the Brazilian Ministry of Transport Expenses with Transport Investments..................43 Table 2.4. ABCR’s Financial Statement - 2004.....................................................................................................43 Table 2.5. Analysis of ABCR’s Financial Statement – 2004.................................................................................43 Figure 2.22. Privatized Roads in the State of Rio Grande do Sul..........................................................................46 Figure 2.23. Privatized Roads in the State of Paraná .............................................................................................46 Figure 2.24. Privatized Roads in the State of São Paulo........................................................................................47 Figure 2.25. Privatized Roads in the State of Rio de Janeiro.................................................................................47 Figure 2.26. Privatized Roads in the State of Minas Gerais ..................................................................................48 Figure 2.28. Privatized Roads in the State of Bahia...............................................................................................48 3. Theoretical Background.................................................................................. 49 3.1. Some Preliminary, Intuitive Insights .......................................................... 49 3.2. International Trade Theory ......................................................................... 49 3.3. The Core Model of Geographical Economics ............................................ 50 3.4. The Helpman–Hanson Model of Geographical Economics ....................... 55 3.5. Research Questions..................................................................................... 58 4. Research Outline............................................................................................. 59 4.1. Geographical, Economic Bounds................................................................ 59 ii 31 October 2005 4.2. Simulations ................................................................................................. 60 4.2.1. Transport Costs T........................................................................................ 61 4.2.2. Share of Income δ ....................................................................................... 68 4.2.3. Share of Mobile Workforce λ..................................................................... 69 4.2.4. Share of Immobile Workforce φ ................................................................. 70 4.2.5. Elasticity of Substitution ε.......................................................................... 71 4.2.6. Congestion τ................................................................................................ 71 4.2.7. Parameters σ and η ..................................................................................... 71 4.3. Figures and Tables ...................................................................................... 72 Figure 4.1. State of São Paulo: Research Urban Centers, Prime Cities, and Municipality Boundaries Figure 4.2. State of Paraná: Research Urban Centers, Prime Cities, and Municipality Boundaries........................................72 Table 4.1. Matrix of Distances Between Urban Centers........................................................................................73 Table 4.2. Matrix of Average Actual Transport Costs (Drs) – 1996 (considering full taxation)...........................73 Table 4.3. Matrix of ‘Unitary Iceberg Transport Costs’ (T(u)rs) – 1996 (considering full taxation)......................74 Table 4.4. Matrix of ‘Total Iceberg Transport Costs’ (T(t)rs) – 1996 (considering full taxation) ..........................74 Table 4.5. Matrix of Unitary Trs – 1996 (considering full taxation) ......................................................................75 Table 4.6. Matrix of Total Trs – 1996 (considering full taxation)..........................................................................75 Table 4.7. Matrix of Average Actual Transport Costs (Drs) – 2002 (considering a 100% reduction in both taxation and toll duties) ..........................................................................................................................................76