Mining, land-use and regional income in Brazil: Economic and environmental perspectives on resource-dependent development

Luckeneder, S. (2021). Mining, land-use and regional income in Brazil: Economic and environmental perspectives on resource-dependent development. IIASA YSSP Report. IIASA

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Abstract

The question if natural resource abundance translates into higher incomes in the regions where and close to where the extraction takes place is an empirical one. This paper examines the local economic effects of mining and land use change for Brazil, where the government is currently on the verge of opening indigenous and protected land for industrial mining, in particular in the Amazon region, arguing that economic stimulus from extractive industries would outweigh environmental and social concerns. In order to challenge this claim, we employ a panel-structure spatial growth model at the level of municipalities for the years 2005-2013. Identi�cation of effects is attained exploiting granular geographical data on land cover and the locations of mines, as well as socio-economic determinants of economic growth for 5,249 Brazilian municipalities. Our empirical framework further considers spatial autocorrelation and allows for the assessment of spillover effects between municipalities. Results indicate that the local economic effects of mining activities are ambivalent, depending also on external global factors such as demand for commodities and their prices. For the period previous to 2010, we find positive effects on GDP growth, directly and via spatial spillovers to neighbouring municipalities. After 2010, the direct effect fades and the spillover eggects become negative. Economic growth is also induced by the transformation of land for agricultural use. Clearing natural forest for agriculture or pasture, however, implies negative GDP growth spillovers. We also investigate potential negative environmental downturns, adapting our model to explaining forest loss. Our findings show that mining needs to be associated with accelerating deforestation, also via substantial spatial spillovers. We concludethat, even under conditions where extractive industries stimulate local economies, there is a clear trade-off between economic and environmental spheres of natural resource extraction.

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