Trade, productivity, and the spatial organization of agriculture: Evidence from Brazil

This paper studies how regional productivity shocks in agriculture propagate to the rest of the economy via trade and migration linkages, shaping their aggregate effects on GDP, welfare, and agricultural employment. Using comprehensive agricultural data from Brazil, I estimate a general equilibrium model with a rich spatial structure to evaluate the effects of a critical shock in modern agriculture: the adaptation of soybeans to tropical regions. Results show that this shock increased Brazil’s agricultural GDP by 4%–6%, with the bulk of this impact coming from international trade. Because soybeans are land-intensive relative to other agricultural sectors, agricultural employment fell in tropical regions to which soybeans expanded. In other parts of the economy, however, agricultural employment rose substantially. Additionally, I show that general equilibrium effects have important implications for the analysis of the returns to agricultural research and the evaluation of the reduced-form effects of productivity shocks on agricultural employment.