The impacts of palm oil expansion on deforestation and economic activity in the eastern Amazon

Brazil has implemented policies aimed at promoting palm oil production while restricting plantations to already degraded lands. As a result, oil palm cultivation has expanded rapidly in the eastern Amazon. Assessing the impact of these policies is complicated by two main challenges: (i) limited availability of high-resolution plantation data, and (ii) potential endogeneity in the relationship between oil palm expansion and deforestation. To address the first issue, we develop a novel map of oil palm plantations by combining Landsat-8 optical imagery and Sentinel-1 radar backscatter data using a random forest classification algorithm. To address endogeneity, we exploit spatial variation in agro-climatically attainable palm oil yields from the Global Agro-Ecological Zoning (GAEZ) database as an instrument for oil palm expansion between 2014 and 2020. Going beyond naïve correlations, we find that although some plantations replaced forested areas, the expansion of oil palm actually reduced the probability of deforestation. A candidate mechanism induced by the palm oil supply chain is economic spillovers with higher rewards to activities that do not depend on deforestation. We estimate an increase in nightlight intensity, an indicator of more urban and less land-intensive economic activities, near areas that were converted to oil palm plantations. Other likely mechanisms include formal production contracts that require legal title to land and the crowding out of other agricultural activities that put pressure on forests. Our findings challenge the common perception that oil palm is a primary driver of tropical deforestation. They also contribute to a more nuanced understanding of land-use dynamics in tropical frontier regions.