Costs and Paradoxes of Market Creation: Evidence and Argument from Brazil

Abstract

In the early 1990s, the Brazilian car industry gradually began to be regarded, in both Brazil and abroad, as a “promising emerging market”. Heavy cross subsidy and subvention were involved in the attempt to realise what was perceived as a “market opportunity” for the Brazilian car industry. Massive income transfers occurred among consumers, producers, workers and government in Brazil, as well as between local actors and companies and, rentiers abroad. In short, the process of market creation involved heavy social costs. This paper maps several dimensions of the process of market creation as well as the social costs and the paradoxes involved. It raises issues of policy design for market creation, particularly in developing countries, and underlines the need to include market creation mechanisms in the research agenda of the automobile industry.