Relationship between Openness to Trade and Deforestation: Empirical Evidence from the Brazilian Amazon

The main objective of this paper is to investigate how international trade has affected the dynamics of deforestation in the Brazilian Amazon at the level of the municipality. This analysis focuses on the expansion of crop and cattle activities, and other determinants of deforestation such as GDP, demographic density, and roads. We combine standard econometrics with spatial econometrics to capture the socio-economic interactions among the agents in their interrelated economic system. The data used in this study correspond to a balanced panel of 732 municipalities from 2000 to 2007. The main findings suggest that as openness to trade in the Amazon increases, deforestation also increases. We also find that it is the production of soybeans, sugarcane, cotton, and beef cattle that drives deforestation in the region. As expected, firewood and timber extraction also has a significant impact in deforestation. Moreover, as the GDP goes up, deforestation increases. On the other hand, as the square of GDP goes up, deforestation decreases a finding that supports the environmental Kuznets Curve hypothesis. The production of non-wood products has a negative impact on deforestation. Unexpected results included the findings that population density had a negative impact on deforestation, and that distance from state capitols had no impact.