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The Economic Growth Impacts of Sugarcane Expansion in Brazil: An Inter-regional Analysis

Authors

  • Annelies Deuss

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    • Annelies Deuss is a Visiting Assistant Professor of Economics, Department of Economics, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA, 15213, USA. E-mail: deuss@andrew.cmu.edu; anneliesdeuss@gmail.com for correspondence. This research was supported by grants from the Cornell University Department of Applied Economics and Management, the Mario Einaudi Center at Cornell University, the Cornell University Graduate School, and the Latin American Studies Program at Cornell University. The author would like to acknowledge valuable comments and suggestions from Steven Kyle, David Just, Antonio Bento, Heloisa Burnquist, Alceu Veiga Filho, Antonio Carlos Simões Florido, Carlos Edoardo Fredo, Antonio de Padua Rodrigues, Eduardo Leão de Sousa, Gerd Sparovek and Arnaldo César Walter. The author would also like to acknowledge the constructive and valuable comments of several anonymous reviewers. All errors remain the responsibility of the author.


Abstract

Since 2001, Brazil has experienced a sharp increase in sugarcane production due to the upsurge in demand for sugar and ethanol, two products derived from sugarcane. This study analyses the impacts of these sugarcane expansions on economic growth. The effects are examined at the municipality level in Brazil as a whole and in the main sugarcane producing regions, the North-Northeast (NE) and the Centre-South (CS). In this latter region, an additional distinction is made between the state of São Paulo (SP) and the Centre-South region excluding São Paulo (CSex) since the bulk of the recent expansion took place in SP while most of the future expansions are planned in CSex. Estimators based on the propensity score are used to construct two types of counterfactual scenarios. The estimations in the first scenario show that municipalities in NE and CSex that expanded sugarcane production experienced economic growth as a result. No significant effect was found in SP. The second scenario focuses on CSex and establishes that sugarcane non-expanding municipalities in this region would have had higher economic growth if they had increased sugarcane production. The results of this study suggest that future sugarcane plantations should indeed be located in CSex because they contribute to economic growth.

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