Welfare Outcomes and the Advance of the Deforestation Frontier in the Brazilian Amazon

Frontier expansion in the Brazilian Amazon is often described as “boom-bust” development. We critically assess this characterization by mapping and estimating statistical models of welfare as a function of deforestation at the municipal level. After controlling for potential confounding variables and spatial autocorrelation, estimation results are consistent with a frontier “boom” generated by exploitation of natural resources, followed by a “bust” during which forests continue to fall but there is no compensating gain in welfare. However, average per capita welfare increases again with deforestation at very high levels. This second turning point in average welfare, along with the strong bivariate correlation between deforestation and municipal GDP/km2, may encourage local leaders to equate deforestation with development. This confirms the need for international incentive payments for global public goods, such as biodiversity and carbon sequestration, that are provided by the Amazon forest.