Access to markets and technology adoption in the agricultural sector: Evidence from Brazil

This paper studies how improved market access through infrastructure influences agricultural modernization. We focus on Brazil’s federal highway expansion from 1950 to 2000 and its impact on the adoption of new agricultural technologies. To address endogeneity, we exploit the construction of Brasília and the plan to connect it with all state capitals as a natural experiment. Using least-cost paths between Brasília and each capital, we build a predicted highway network to instrument for market access. The results show that increased market access led to greater use of modern inputs-such as fertilizers and pesticides-and higher agricultural productivity and wages. However, these gains are uneven: municipalities in the Northeast benefited less, and in some cases, not at all. To explain this heterogeneity, we develop a stylized model in which high input costs in certain regions dampen the incentives to upgrade technology, even with better market access. Historical evidence from Brazil’s import-substitution industrialization period supports this mechanism. These findings suggest that while infrastructure can boost development, its effectiveness depends on complementary regional conditions.