A Macroeconomic Perspective of Structural Deforestation in Brazil's Legal Amazon

Despite policy efforts in recent decades, deforestation remains a pervasive phenomenon inBrazil. Yet deforestation is not only affected by forest governance. It is also driven by global demand forcommodities and the relative competitiveness of agriculture, which in turn depends on macroeconomic factors impactingproduct and factor prices. These macroeconomic mechanisms remain largely unexplored. This paper explores the role ofeconomic productivity in shaping deforestation. It uses an economic model with an empirically founded land useextension to study the macro-structural drivers of land use patterns in Brazil’s Legal Amazon. It demonstrates thatproductivity gains in the Legal Amazon’s agriculture sector increase deforestation, while such gains in non-landintensive sectors (such as manufacturing) reduce deforestation by attenuating the relative competitiveness ofagriculture. Higher productivity in other parts of Brazil also reduces incentives for forest conversion in the LegalAmazon. The paper points to the economic forces that forest protection efforts need to counter, while calling forcomplementary structural reforms to overcome “Brazilian disease” in the longer-term: addressing the legacy of importsubstitution industrialization and moving up the value chain will shift economic drivers beyond commodities, thus alsoreconciling development with standing forests.