The Economic Impacts Of Sugarcane Expansion In Brazil

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. While the increase in sugarcane production has led to income and employment opportunities in the sugar and ethanol sector, the benefits of sugarcane expansion could vary significantly by the region where sugarcane is cultivated. This dissertation consists of three studies that examine the economic impacts of the recent sugarcane expansion in Brazil. Whereas previous studies only show associations between sugarcane expansion and economic indicators, this research establishes a causal relationship using estimators based on the propensity score. The propensity score is defined in this research as the probability that a municipality expands sugarcane production, given a set of observable characteristics. One of these characteristics is the suitability of a municipality to grow sugarcane. Data on suitability of land were recently published at the national level. The first study analyzes whether municipalities in Sao Paulo state that expanded sugarcane production between 2002 and 2006 as a result experienced higher economic growth. The results indicate that there is no statistically significant impact of sugarcane expansion on GDP per capita growth. The second study examines the economic growth impacts of the increased sugarcane production in the different sugarcane producing regions in Brazil. The findings show that sugarcane expansion led to GDP per capita growth in three regions: in Brazil as a whole, in the North-Northeast and in the Center-South excluding Sao Paulo. In addition, it is demonstrated that this latter region could benefit from future sugarcane expansions. The final study investigates the underlying reasons for the findings in the first study. It examines the impact of sugarcane expansion in Sao Paulo state on growth in GDP per capita, in employment and in wages in the different sectors of the economy. The results suggest that sugarcane expansion has positive impacts on local economies in Sao Paulo state. Further research with updated data is needed to establish whether the positive influences at sector level affected total GDP data in lagged terms.