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16Financial Integration in the Americas,Changing Geopolitics and BrazilianForeign PolicyAREA: 2TYPE: TheoryIntegración financiera en América, cambios geopolíticos y política exterior brasileñaIntegração Financeira nas Américas, Mudança Geopolítica e Política Internacional do BrasilauthorsFinbarr Murphy 1Kemmy BusinessSchool, University ofLimerick, IrelandFinbarr.Murphy@ul.ieThis paper builds on previous work on the relationships that exist between the Brazilian stateand financial markets. On this occasion we seek to ascertain whether equity market participantshave come to see Brazil as exhibiting the characteristics of a developed nation and as having aposition of regional leadership. Financial markets are important in both the exercise of hegemonyand in signalling its existence. The data presented examines two periods, 1990-1995 and 2005-2010 and demonstrates that attitudes towards Brazil in the equity markets altered considerablyin the intervening period. Using a cointegration analysis we empirically demonstrate the ‘normalisation’of Brazil and an implicit acceptance of its leadership role.Martin MullisKemmy BusinessSchool, University ofLimerick, IrelandMartin.Mullins@ul.ie1. Correspondingauthor: Department ofAccounting & Finance;Kemmy Business School;University of Limerick;Limerick; IrelandEste documento parte de un trabajo anterior sobre las relaciones que existen entre el estado brasileño y los mercadosfinancieros. En esta ocasión, trataremos de determinar si los participantes de los mercados de valores han llegado a vercómo Brasil presenta las características típicas de un país desarrollado y ostenta una posición de liderazgo regional.Los mercados financieros son importantes tanto en el ejercicio de su hegemonía como a la hora de poner de manifiestosu existencia. Los datos presentados examinan dos períodos: 1990-1995 y 2005-2010, y demuestran que las actitudeshacia Brasil en los mercados de valores han variado considerablemente durante el período de intervención. Valiéndonosde un análisis de cointegración, demostraremos empíricamente la “normalización” de Brasil y una aceptación implícitade su papel de liderazgo.Este documento baseia-se em trabalhos anteriores sobre as relações entre o estado brasileiro e os mercados financeiros.Neste momento procuramos verificar se os intervenientes no mercado de capitais passaram a ver o Brasil como detentordas características de uma nação desenvolvida e como titular de uma posição de liderança regional. Os mercadosfinanceiros são importantes tanto para o exercício da hegemonia como para a sinalização da sua existência. Os dadosapresentados analisam dois períodos, 1990-1995 e 2005-2010, e demonstram que as atitudes para com o Brasil nosmercados de capitais se alteraram significativamente no período em apreço. Usando uma análise de cointegração demonstramosempiricamente a “normalização” do Brasil e uma aceitação implícita do seu papel de liderança.DOI10.3232/GCG.2011.V5.N3.01Received16.08.2011Accepted01.11.2011GCG GEORGETOWN UNIVERSITY - UNIVERSIA SEPTIEMBRE-DICIEMBRE 2011 VOL. 5 NUM. 3 ISSN: 1988-7116pp: 16-29
1. IntroductionThis paper builds upon previous work on Brazilian political economy which focused onthe interplay between the Brazilian state and global credit markets (reference removed byeditor to maintain anonymity). On this occasion we extend our analysis to include regionalpolitics and Brazil’s position in the Americas. More specifically, we seek to demonstratethat patterns of trade on equity markets are indicative of important changes in hemisphericpolitics in the Americas; namely Brazil’s growing integration into global financialmarkets and a perception evident amongst financial traders that the economic fortunesof its Southern Cone neighbours are closely tied to the health of the Brazilian economy.The changes we demonstrate are in some senses paradoxical, we see a greater alignmentbetween the stock markets of New York and Sao Paulo but at the same time weare witnessing a shift in the balance of power between Brazil and the United States. Thisvery alignment between markets is at the heart of changing relationships between Braziland the US and is pointing to profound changes in hemispheric relations. Our argumentis that Brazil is no longer perceived as peripheral by equity markets and is seen as being“inside the tent”. This compliments our previous work on debt markets which demonstratedthat a combination of new financial practices and Brazil’s economic orthodoxy hasmade the country more attractive to a wide variety of investors. Taken together, thesetwo phenomenon mean that a relationship characterized as one of dependence betweenBrazil and the US has dramatically changed. There is a second, more profound paradoxhere, more financial globalization can mean a dilution of US power in the Americas andthis, in turn, weakens the position of the United States as one of the great drivers of economicglobalization.It has been a long-standing ambition within the Brazilian political elite to establish Brazilas a regional power in South America and to secure Brazilian political leadership inthe region. The behavior of financial markets, over the last decade or so, shows thatthis important and influential community implicitly accept that a new political/economicdispensation is emerging in South America. This new dispensation has two importantcharacteristics; firstly, financial data indicates that Brazil and other Latin American countrieshave become much more integrated into the global economy. Secondly, within thisoverarching globalization process, our findings demonstrate that Brazil is gradually beingperceived as the predominant power in the region.In this paper we support our qualitative analysis with empirical results on the last twentyyears of stock market returns from the US, Europe and Latin America. Using a cointegrationanalysis1, we discern long term trends in the relationship between the performancesof the national indices. Our results clearly show that the Brazilian economy, as proxied bythe broad-based Bovespa index, is increasingly exhibiting developed world characteristics.These traits are also displayed by other Latin American countries sampled. Extendingthe cointegration analysis, we also utilized Impulse Response analysis to determinethe relative dominance of one index over another. By conducting these tests over differenttime periods, we can test the changing nature of equity trading patterns across theAmericas. Again, we empirically demonstrate the isolation of Latin American economies1. A cointegration analysis identifies pairs of data that exhibit long term trends. This technique is therefore more powerful than data producedby a linear correlation analysis. We discuss this approach in more detail later in this paper.17Key wordsFinancialIntegration, Brazil,geopolitics,cointegrationPalabras claveIntegraciónfinanciera, Brasil,Geopolítica,CointegraciónPalavras-chaveIntegraçãoFinanceira, Brasil,Geopolítica,CointegraçãoJEL CodesC10; E44; E 60GCG GEORGETOWN UNIVERSITY - UNIVERSIA SEPTIEMBRE-DICIEMBRE 2011 VOL. 5 NUM. 3 ISSN: 1988-7116pp: 16-29
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