Ethanol Based Products Contribution to Brazil’s Economic Growth METHODOLOGY Ethanol Based Products Contribution To Brazil’s Economic Growth Fuel is one of the main factors that contribute either positively or negatively to the economy of a country. Brazil has come up with the invention of fuel from ethanol. This research seeks to find out whether the development and implementation of ethanol based products and technologies have been a contributing factor to Brazil's rapid economic growth in the past 10 years. It also seeks to establish if it has contributed, will it continue to provide economic growth in the future? Justification It is obvious that the world encounters an energy crisis. Ethanol, produced mainly from sugar cane or maize, constitutes 90 percent of biofuels produced in the world (the rest is biodiesel). According to Otaviano Canuto, the head of the World Bank Brazil, ethanol pollutes 60 percent less compared to oil (Foreign Policy No.118, July/August 2007). Sustainable bioenergy: a framework for decision makers, published by the United Nations in April 2007, argues that biofuels are the only short-term alternative to replace oil in transportation which is the main source of the emission of greenhouse gases. Brazil is one of the countries that risked replacing oil with ethanol. The awareness of renewable energies is a recent issue with few countries investing in research and development of more clean fuels. Brazil is one of the striking examples. Even though it is a third world country, it is trying hard in achieving its development through implementation of various elements in their economic development strategies. In the next 10 years, Brazil plans to triple the ethanol production area by increasing the arable land from three to nine million hectares. The Brazilian government has already signed an internal agreement with farmers and entrepreneurs for the expansion. This is because the plan does not intend to degrade the environment through the cutting down of forests, but rather make use of appropriate grassland and grow soybean crop. The aim of this research is to understand how the recent trade of renewable fuel will be viable and profitable in less than10 years. In addition, it is meant to help understand the mechanism and ways through which Brazil can survive in this oligopoly ethanol market. Besides regional change, this research will allow us to take a broad view and understanding of the effect of ethanol energy on the automotives whose change is in favor of biofuel, which in turn is jeopardizing the traditional automotive market. Objectives1) To determine how ethanol became an alternative fuel in Brazil. 2 To determine the relationship between investment in research and development and economic growth in Brazil. 3) To find out the contributions of ethanol production economically. 4) To determine the importance of biofuel market and Brazilian estimated contribution to automotive construction. Problem Sometimes t ...

1. Ethanol Based Products Contribution to Brazil’s Economic
Growth
METHODOLOGY
Ethanol Based Products Contribution To Brazil’s Economic
Growth
Fuel is one of the main factors that contribute either positively
or negatively to the economy of a country. Brazil has come up
with the invention of fuel from ethanol. This research seeks to
find out whether the development and implementation of
ethanol based products and technologies have been a
contributing factor to Brazil's rapid economic growth in the past
10 years. It also seeks to establish if it has contributed, will it
continue to provide economic growth in the future?
Justification
It is obvious that the world encounters an energy crisis.
Ethanol, produced mainly from sugar cane or maize, constitutes
90 percent of biofuels produced in the world (the rest is
biodiesel). According to Otaviano Canuto, the head of the
World Bank Brazil, ethanol pollutes 60 percent less compared to
oil (Foreign Policy No.118, July/August 2007). Sustainable
bioenergy: a framework for decision makers, published by the
United Nations in April 2007, argues that biofuels are the only
short-term alternative to replace oil in transportation which is
the main source of the emission of greenhouse gases.
Brazil is one of the countries that risked replacing oil with
ethanol. The awareness of renewable energies is a recent issue
with few countries investing in research and development of
more clean fuels. Brazil is one of the striking examples. Even
though it is a third world country, it is trying hard in achieving
its development through implementation of various elements in

2. their economic development strategies. In the next 10 years,
Brazil plans to triple the ethanol production area by increasing
the arable land from three to nine million hectares. The
Brazilian government has already signed an internal agreement
with farmers and entrepreneurs for the expansion. This is
because the plan does not intend to degrade the environment
through the cutting down of forests, but rather make use of
appropriate grassland and grow soybean crop.
The aim of this research is to understand how the recent trade of
renewable fuel will be viable and profitable in less than10
years. In addition, it is meant to help understand the mechanism
and ways through which Brazil can survive in this oligopoly
ethanol market. Besides regional change, this research will
allow us to take a broad view and understanding of the effect of
ethanol energy on the automotives whose change is in favor of
biofuel, which in turn is jeopardizing the traditional automotive
market.
Objectives1) To determine how ethanol became an alternative
fuel in Brazil.
2 To determine the relationship between investment in research
and development and economic growth in Brazil.
3) To find out the contributions of ethanol production
economically.
4) To determine the importance of biofuel market and Brazilian
estimated contribution to automotive construction.
Problem
Sometimes this year, Brazil was ranked number 8 in terms of
large and growing economies in the international market. The
nation's economic growth rate is rising faster than that of some
European countries like France and England. Brazil is excelling
in the economy even though it is difficult to tell how a country

3. with a poverty rate and low literacy as Brazil can be able to
maintain such encouraging rates of growth. Besides, ethanol is
considered a short term alternative to replace fossil fuels like
oil. However, it remains the best option for Brazil to facilitate
their growth and maintain the oligopoly.
The questions many beg to ask is whether ethanol production
has benefits to Brazil’s development. Again, does the
technology promote sustainable growth? Something else worth
finding out is whether the renewable energy sector makes
changes in the Brazilian economy in the long run. Another
question would be whether biofuels have the potential to take
the economy to a higher level.
HypothesisHypothesis # 1
Some of the factors that might have influenced or triggered the
financial growth of Brazil are the production of new fuel and
related technologies. The implementation and development of
the energy generation innovations began at the same period with
the growth and improvement of the economic structures of
Brazil.
Hypothesis # 2
The change in the government from Luiz Inacio Lula da Silva’s
to Dilma Rousseff‘s between 2003 and 2011 could also be a
factor that influenced Brazils economic structure and growth
rate. This is because it created diversified economy reformation
laws and agreements.
Hypothesis # 3
The development of ethanol as an alternative can be a short
term boost to the economy.
Theoretical Framework
To determine the relationship between ethanol and the economic
development of Brazil, this research will make use of several
sources. Even though the ethanol energy case is recent, there
have been several scholars and researchers who have studied the
issue before. Ethanol is a chemical compound derived from the
fermentation of sugars that can be used as fuel, either on its

4. own or as a mixture with gasoline in varying quantities. Their
use has spread mainly to replace petroleum consumption.
The end result of the ethanol and gasoline, or gasohol mixture is
known as gasohol. Two mixtures E10 and E85 are commonly
used with an ethanol content of 10% and 85%, respectively.
Ethanol is also highly used as an additive for standard gasoline
oxygenate, replacing methyl terta - butyl ether (MTBE ). The
latter is responsible for contamination of soil and groundwater.
It can also be used as fuel in fuel cells.
Due to the energy crisis and unstable oil prices, several
countries have tried to find alternative solutions which are
biofuel. Some of these countries include: United States, Mexico,
Colombia, Venezuela, Europe and Brazil. These countries
control the ethanol market. Brazil is one of the main
beneficiaries of the biofuels. Even though it is a third world
country, it has reported great improvement and economic
growth in less than 7 years.
Professor Schumpeter's theory of innovation states that
innovation is one of the factors that bring change in an
economy. This is because innovation allows one to be able to
come up with new products. He argues that technological
inventions create a temporary monopoly market that allows a
firm to make profit before competition starts. Schumpeter in the
growth theory based on destructive creativity states that it is not
possible to have economic growth without the use of
technology. The theory goes ahead to state that human capital
and creativity are also key factors to introducing innovative
production methods. The case of Brazil is one influenced by
technology and creativity.
Another important theory is the model of growth through
creative destruction by Philippe Aghion and Peter Hewitt. This
theory talks about the economic growth through vertical
innovation. This is through the combination of methods ideal
for the management of businesses.

5. In the influence of development theory in economic policies in
the 1950s and 1960s, there are the cases concerning Argentina
and Brazil. These cases talk about more economic development
theories that state that the key aspects of the leading theory on
economic development are: modernization, dependency, and
infrastructure and globalization system. These are the
justifications of the theory that help in understanding the efforts
countries make to improve the economy. This is particularly in
reference to countries facing high poverty rates. This aspect of
the theory helps to explain the model as well to give the
necessary recommendations to various countries.
A part of the four key aspects of the leading theory on economic
development, other theories that illustrate the reasons behind
Brazil’s has rapid growth is Dependency. The theory emerged
in the year 1950 as a result of a research by the Economic
Commission for Latin America and the Caribbean (ECLAC ).
One of the researchers Raul Prebish, known for his
contributions to the Singer-Prebisch model explains that to
create favorable economic conditions, one must apply the
following responsibilities: check the currency exchange rates,
promote government efficiency, national development issues,
creating investment platform, and allowing capital inflow to
strengthen industrialization particularly in developing countries
among others.
The theory of economic innovation is a principle of financial
growth and change that alters the traditional view. Modern
economic theories, and the center of these theories are
fundamentally built with knowledge, technology,
entrepreneurship and innovation. Compared to traditional
theories that are partly analyzed as independent elements,
modern theories include and count the items as a group
responsible for the economic impact of the rules applied. Joseph
Schumpeter was the first and most significant economist
analyzing economic innovations.

6. A part of the theories of thinkers will include references as
Flex-fuel vehicle adoption and dynamics of ethanol prices:
lessons from Brazil.
Miguel tries to focus on the dynamics of the prices of substitute
fuels in particular ethanol and gasoline, and how they impact
the production growth of a flex-fuel car. Through partially
modifying the model used, the results provide an argument
strong for the following scenarios: when given the choice
between different fuels, the price of ethanol stays more stable.
The dynamics of fuel prices are determined by the changes of
supply and demand including the price of sugarcane, ethanol,
and export demand for flex-fuel vehicles.
The other theoretical work is, Governing biofuels in Brazil: A
comparison of ethanol and biodiesel policies. Arthur explains
that during the past decade Brazil implemented an innovative
program, the National program of Production and Use of
Biodiesel (PNPB). The government wanted to avoid any kind of
geographical concentration and domineering agriculture. This
excluded families who own their own farms. The agreements of
bioethanol and biodiesel in Brazil were compared through
analyzing the contents of these agreements. However, this was
difficult for some politicians and institutions to accept. There
were disagreements between the government system and the
rules governing energy and agriculture because the two
agreements could not match.
Even though the ethanol energy innovation in Brazil has great
benefits, the 2008 crisis has been complex. Several factors have
been blamed as the cause of this sugarcane-ethanol crisis. Some
of the factors mentioned as the causes of the crisis include
policies, increase in fuel taxes, lower mandate, the act of
holding gasoline prices below the internationally recognized
prices among other factors. This is an economic model that tries
to explain the crisis. Brazil's policies governing ethanol and
sugarcane are each different and they have a different and
unique impact on the market and the prices. Some of the

7. policies affect the prices of gasoline. These policies are low
taxes and high levels of tax exemptions. These policies lower
the prices of gasoline in Brazil which may not be all that
healthy for the economy.
Methodology
The purpose of this research project is to better understand why
Brazil is the only third world country that is increasing its
wealth and power at such a rapid and firm rate. To expose this
phenomenon, this project will combine and employ both a
quantitative and qualitative data collection method, but is
rooted in a qualitative position that recognizes the importance
of locating the research within a particular economic, cultural,
and chronological context.
The research methodology involves analyzing significant and
relevant data from available documents, professionally
published observations, government and private economic
reports, as well as other related publications. I will need to get
data on the GDP of the country before the establishment of the
biofuel industry, and the changes up to date. I will pay key
attention to all segments of the economy that use biofuels
directly or indirectly and show how they have benefitted from
biofuel. I will also get data on the investment made by the
government and private players towards the industry. This will
be followed by compiling the statistical data in order to analyze
the material and arrive at a more complete and clear
understanding of historical reconstruction of Brazil’s economic
structure and rapid growth. I will also use three distinct theories
to guide my analysis of the data. The Schumpeter’s theory of
innovation, Aghion and Hewitt destructive creativity, and
influence of development theory in economic policies. These
theories will allow me to focus on the aspects of my research
data and allow me to acquire a definite conclusion.
Analysis of the factor played by research and development
towards the giant biofuel industry is necessary. To understand
this i need to come up with a timeframe of the development and
growth of the industry and the key players. The level of

8. scholar's research in the field must hold the key to the stable
industry. I will visit key government institutions to get the
inputs of research. I will also make use of published scholarly
reports that were done on the first years of the industry. More
information can be acquired from the universities and
laboratories that had key roles in the development of the
industry.
I will also make use of questionnaires to gather information and
public opinion on the use of biofuels. The questionnaires will be
aimed at getting specific answers to specific questions
regarding energy production in Brazil. I will issue the
questionnaires to the energy department, and to a target
population in Brazil especially consumers. This will help in
understanding what the consumers feel about the entire biofuel
as opposed to biodiesel. The government energy department will
also share some insights on the development and contribution of
biofuel to the economy. Questionnaires are a simpler way of
obtaining the desired data. [Sample of the questionnaire located
on page: 11]
There will be an intensive study of the economic trades as far as
ethanol based products are done. I will also look at the other
alternatives and carry out a hypothesis to determine the more
viable products. The sampling method will be systematic,
where the sample will first be picked randomly. The researcher
will select a representation sample of the target population and
carry out interviews to get some questions especially the open
ended ones. This will help to gather information that cannot
easily be captured in a questionnaire. It will also help to get the
emotions of the interviewees. Most of the interviews will be
conducted on the policy makers in the energy industry. This is
because policies were mentioned as one of the factors that
influenced the 2008 ethanol sugarcane crisis.
There will also be a bit of observation, whereby the researcher
will observe the trends of the customer’s consumption. There
will also be observation of the trends in the supply and demand
of the biofuels. This will be done by keeping tabs with the

9. reports provided by different bodies associated with the energy
industry. Observation will go hand in hand with monitoring of
the market trends over some time and comparing to previous
periods. This will help in understanding how the biofuels have
been fairing over a good period of time. This comparison will
help draw conclusions on the performance of the biofuels. It
will also make it easier to determine or foresee the future of the
fuels. This will help determine if Brazil can still depend on
biofuels as a contributor to economic growth in the long run.
Sample Questionnaire questions:
1. Can you give an overview of the contribution of the biofuel
industry to the Brazilian economy?
2. What factors informed Brazil to go the biofuel way?
3. Do you experience any drawbacks in the development of the
industry?
4. What are the major problems that have been solved by the
use of biofuel?
5. Do you feel that there are some aspects of the industry that
can be improved to grow the economy further?
6. Do you think overreliance on biofuels might have future
consequences?
7. What is the society's general feeling about the use of
biofuels?
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