Brazil’s automobile regime in the 1970s and 1980s was the poster child for failed economic development policies.  In short, Brazil combined high tariffs on imported cars with lucrative investment incentives to attract foreign producers.  These foreign producers were required to use “local content” in the form of local suppliers and in some cases local managers.

Sound good?  As you might predict, auto producers came to Brazil because of the protected market, but they build small boutique production facilities that made crappy cars that were sold at high prices.  This was expensive for consumers and tax payers and did little to generate economic development.  Policies of “import substitution” largely fell out of favor.

BMW recently announced the opening of a new production facility in Brazil.  Why?

Brazil’s new auto regime sounds a lot like the failed economic development policies of the past.  Brazil introduced a new tax on imported cars (from 25% to 55%) although they are exempting producers with Brazilian factories from this tax.  Although it seems like this tax will be gradually reduced.  Right now, cars like the Toyota Corolla cost almost twice as much in Brazil than in the US.

Brazil also has complicated local content rules and they are enticing firms with large investment incentives.

Sounds a lot like the failed policies of the past.