Elsevier

World Development

Volume 79, March 2016, Pages 82-96
World Development

Busting the Boom–Bust Pattern of Development in the Brazilian Amazon

https://doi.org/10.1016/j.worlddev.2015.10.040Get rights and content

Summary

Global ecosystem services are clearly threatened by deforestation associated with human occupation and economic development of the Brazilian Amazon. However, the prognosis for the socioeconomic wellbeing of inhabitants remains unclear. In an empirical regularity that has been termed the boom–bust pattern or the resource curse, the exploitation of natural resources is associated with short-run gains in welfare that dissipate over time. This “coupling hypothesis” asserts that deforestation and development are correlated such that deforestation leads to only short-term advances in economic welfare that are not sustained once natural forests (along with their mature timber and soil inputs) are exhausted. In contrast, the “decoupling hypothesis” asserts that deforestation and development need not be correlated over time. In this context, growth that is initially based on deforestation may be sustained and translated into prolonged welfare gains, even once the forest is exhausted. Using census and deforestation data from 1991, 2000 and 2010 for municipalities (i.e., counties) in the Amazon region we confirm that this boom–bust pattern appears in cross-sectional data. However, using panel data we show that socioeconomic welfare has become decoupled from environmental factors and is converging to rising national averages. Our findings contradict the conventional wisdom that the exploitation of tropical forests is required to promote Amazonian development.

Introduction

The colonization of the Brazilian Amazon has been a contentious topic of debate for over four decades with development objectives pitted against conservation concerns (Goodland & Irwin, 1975). This is not surprising given that the region contains unmatched levels of biodiversity (Gibson et al., 2011, Godoy et al., 2009) in vast terrestrial and aquatic ecosystems (Hess, Melack, Novo, Barbosa, & Gastil, 2003) supporting both the largest river system (by discharge) on earth and an enormous stock of carbon in the forest biomass (Brando et al., 2008, Nogueira et al., 2008). Continued land-use change has the potential to impact the global hydrological cycle via biogeophysical processes that affect the energy balance of the Earth’s surface (Feddema et al., 2005) and increase ecosystem vulnerability via anthropogenic (Brondizio and Moran, 2008, Uriarte et al., 2012) and non-anthropogenic feedback effects (Davidson et al., 2012).

The global, national, and local ecosystem services provided by the Amazon biome are clearly threatened by deforestation associated with human occupation and development (Laurance et al., 1999, Nepstad et al., 1999, Nobre, 2014). However, the prognosis for the long-term economic and social wellbeing of the inhabitants of the region remains unclear (Guedes et al., 2012, Guedes et al., 2014, Ioris, 2015). One prediction is that growth will ultimately slow in the Amazon because economic booms associated with exploiting old-growth forest are short-lived and dissipate once the forest is depleted (e.g. Rodrigues, Ewers, Parry, Souza, Verissimo, & Balmford, 2009). Such a boom–bust pattern could be caused by reliance on low-cost natural resource inputs that eventually increase in price as their relative scarcity increases. For example, if tropical soils are inherently poor, fertile agricultural land will only be available as an input to production for a short period following deforestation (Lu, Moran, & Mausel, 2002). Alternatively, the process of deforestation may directly affect the growth trajectory. For example, the resource curse literature suggests that high rents associated with deforestation may discourage investment in other sectors and increase corruption (Barbier, 2005). Both the “rising input costs” and the “political economy” explanations suggest that growth of income and welfare will initially rise, but will ultimately decline as deforestation progresses, potentially becoming negative.

However, it is also possible that growth rates achieved during periods of rapid deforestation will be sustained even after the forest resource is exhausted. In theory, if resource rents are reinvested in physical or human capital, and if there are sufficient possibilities for substitution between natural resources and other inputs, growth will not necessarily slow as resources become scarce (Solow, 1974, Stiglitz, 1979). In this case, growth initially based on deforestation will ultimately become decoupled from natural resources, and thus patterns of growth and development in the Brazilian Amazon could follow those of other regions in Brazil. Specifically, neoclassical growth theory predicts that long-term growth rates will depend on technical progress, and that countries and regions will converge with one another, conditional on their production technologies and institutions (Solow, 1956).

Understanding the relationship between development and deforestation in the Brazilian Amazon is increasingly relevant for policy at national and global levels. Under the 2004 National Plan to Prevent and Control Deforestation in the Brazilian Amazon (PPCDAm), the Brazilian government significantly expanded the protected area network; made progress toward clarifying land tenure; and employed the world’s largest and most advanced real-time deforestation monitoring system (DETER—Detection of Deforestation in Real Time) to strengthen enforcement of existing command and control policies in the Amazon (Assunção, Gandour, & Rocha, 2012). These efforts met with significant political resistance from agricultural and pro-development lobbies, which have sought to undermine environmental laws including the Brazilian Forest Code (May, Millikan, & Gebara, 2011). In Brazil, the political debate about measures to reduce deforestation often focuses on their expected negative implications for economic development.

Brazil has taken significant steps toward setting targets and developing strategies for REDD+ (Reducing Emissions from Deforestation and Degradation) under the United Nations Framework Convention on Climate Change. There are also numerous sub-national initiatives in the Brazilian Amazon ranging from state government programs to private projects to generate offset credits for the voluntary market (Duchelle et al., 2014, Lin et al., 2012, Sills et al., 2014). Persistent concerns have been raised about the potential impacts of REDD+ on local livelihoods and socioeconomic welfare (Chhatre et al., 2012, Ghazoul et al., 2010). While these impacts depend in part on the particular interventions used to achieve REDD+, they also depend on the general relationship between deforestation, growth and development.

Thus, evidence for the long-term impacts of deforestation on economic growth is needed to better inform national and global policy debates on reducing tropical deforestation. The relationship between protecting the valuable ecosystem services provided by intact tropical forest and improving the wellbeing of households in developing countries cannot be fully understood by studying incomes or standards of living in a single time period. In particular, rapid growth may be observed while deforestation is occurring, but it may or may not be sustained over time. Empirical regularities observed in cross-sectional data have led observers to expect one of two patterns to result from the dynamics of deforestation and development. First, the “coupling hypothesis” asserts that deforestation and development are correlated such that deforestation leads to only short-term advances in economic welfare that are not sustained once natural forests (along with their mature timber and soil inputs) are exhausted and no more deforestation is possible. Although the temporal relationship between deforestation and economic growth would differ, this hypothesis is consistent with both the boom–bust and the resource curse. In either case, the trade-offs between protection of ecosystem services and improvements in living standards are likely to be high in the short term, but low in the long term because growth based on deforestation is not likely to be sustained. Any negative economic impacts of policies to avoid deforestation are therefore lower than the immediate benefits from deforestation would suggest.

In contrast, what we term the “decoupling hypothesis” asserts that deforestation and development need not be correlated over time. In this context, growth that is initially based on deforestation may be sustained and translated into prolonged welfare gains, even once the forest is exhausted. This could mean that deforestation–growth tradeoffs are substantial, but also suggests that it may be possible to find ways other than deforestation to generate those sustained welfare gains, since they are not tied directly to deforestation. For example, if substantial REDD+ payments or any profits from deforestation were invested in human and physical capital, the result could be more sustained growth than that achieved with deforestation. If municipal economies become decoupled from the resource base as forests become scarce and/or the population becomes more urbanized, the immediate opportunity costs of limiting deforestation may dissipate over time.

We use Brazilian census and deforestation data from 1991, 2000 and 2010 for municipalities (i.e., counties) in the Amazon region to test these hypotheses and describe the trajectories of economic growth and development during periods of active deforestation. Our findings are consistent with the “decoupling hypothesis” and provide evidence of a neoclassical growth pattern of convergence (Barro & Sala-I-Martin, 1991) for the Amazon and across all municipalities in Brazil.

Section snippets

Deforestation–growth hypotheses

The use of natural resources such as tropical forests can profoundly impact the growth and development of an economy. While rapid growth is expected during the early stages of deforestation due to abundant low-cost inputs, the growth path of an economy once forests become scarce is ambiguous. Standard neoclassical models of economic growth do not directly address the role of natural resources as an input to production, or the potential implications of resource scarcity for the sustainability of

Study areas

Our first scope of analysis includes the municipalities in the Amazon Biome in Brazil, defined as municipalities that had at least 70% mature forest cover1 in 1960 before the region experienced large-scale

Amazon analysis (municipality observations)

Graphical analysis of the relationship between deforestation and development suggests that they were coupled before the decade of the 2000s. The highest rates of growth in HDI occurred in municipalities that were about 70% deforested, with slower growth in municipalities that had less deforestation and in those nearly fully deforested. However, HDI still increased in the most deforested municipalities (Figure 3A). In other words, rather than a bust, there was simply less boom, in what could be

Discussion

The study of boom–bust cycles dates to the late 1800s when this pattern was associated with boomtown industries in the American West (Graves, Weiler, & Tynon, 2009). The term was later associated with the economic business cycle, credit trends, and housing market changes linked to recessionary and expansionary periods of macroeconomic growth (Besomi, 2006, Schumpeter, 1954). Predictions of a similar fate for the Amazon were first put forward shortly after the development of “Operation

Conclusions

The possibility of sustained development in the Brazilian Amazon has long been questioned, accompanied by dire predictions of ecosystem and economic collapse (Hecht and Cockburn, 1990, Peres and Schneider, 2012). Our results show that to date, deforestation has not been followed by economic decline. Instead we find compelling evidence that development in the Amazon is being driven by a “catch-up” effect, reinforced by economic growth that has made Brazil the world’s 7th largest economy (World

Acknowledgment

This research was funded by the National Science Foundation, under grant SES-0752936.

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