Can economic development and forest conservation coexist? Revisiting growth and deforestation in the Brazilian Amazon

We examine the effect of municipal income on deforestation in the Brazilian Amazon over a period marked by relatively stable environmental protection institutions and a sharp decline in forest loss. While microeconometric studies yield valuable causal estimates linking development indicators and deforestation, they frequently neglect general equilibrium effects that are essential for effective policy design. To address this, we deploy a dynamic spatial-panel model applied to a large region and with a rich set of controls for drivers stemming from the recent microeconometric literature. We estimate a negative and statistically significant relationship between deforestation and GDP per capita, with effects concentrated in agricultural frontier municipalities and at middle-to-upper income levels. We attribute this relationship to less land-intensive activities in more urban settings, poverty reduction, increased agricultural productivity, and improved access to national markets. Extending the analysis to an environmental-health index that incorporates biodiversity loss and ecosystem services shows consistent complementarities with income growth. Our contribution lies in integrating causal micro-insights within a spatially aware framework allowing for general equilibrium effects, offering policy relevance by highlighting how income growth can align with sustainable forest management when system-wide interactions are considered.