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Industrializing Agriculture: Structural Transformation and Sugarcane in São Paulo

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  • Costa, Francisco J M

    (FGV EPGE Brazilian School of Economics and Finance)

  • Lima, Francisco Luis
  • Nunes, Letícia

Abstract

This paper studies the rapid adoption of mechanical harvesting in São Paulo’s sugarcane industry between 2000 and 2010, following a law banning pre-harvest burning. Using land slope as an instrument for mechanization, we find that mechanization triggered structural transformation --- reducing agricultural and increasing manufacturing employment. However, labor reallocation occurred only in agriculture-related industries, not broadly across sectors. A one-standard-deviation increase in mechanization raised employment in linked manufacturing by 3.5 percentage points, primarily among unskilled workers. This shift generated substantial local economic gains: household incomes rose 19 percent, and poverty fell 14 percent. These findings challenge the view of structural transformation as a shift from agriculture to diverse industries. Instead, technological gains in farming strengthen sectoral linkages, deepening the agro-industrial economy rather than diversifying it. Our results also highlight how environmental regulation can shape industrialization by driving sectoral labor reallocation.

Suggested Citation

  • Costa, Francisco J M & Lima, Francisco Luis & Nunes, Letícia, 2025. "Industrializing Agriculture: Structural Transformation and Sugarcane in São Paulo," SocArXiv upxkb_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:upxkb_v1
    DOI: 10.31219/osf.io/upxkb_v1
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