Economic complexity and deforestation in the Brazilian Amazon

Abstract

As the Amazon rainforest faces ever-increasing deforestation, finding a balance between conservation and economic progress becomes imperative. This study investigates the relationship between regional economic complexity (ECI-R) and deforestation in municipalities within the Brazilian Amazon between 2006 and 2021. Employing different econometric techniques, we untangle the multifaceted factors determining land use choices while considering variables associated with agriculture, extraction, and livestock activities. Rigorous testing confirms the validity of our findings. The results suggest an “environmental Kuznets curve” at play in the Amazon. This means that a slight increase in regional economic complexity (0.1 unit) initially leads to a significant rise in deforestation (28 %) but is followed by a decrease (8.4 %) in the following year. Interestingly, environmental fines appear to be a powerful tool for controlling deforestation. Further analysis using Probit regressions reinforces the key roles of economic complexity and environmental enforcement. Municipalities with higher regional complexity were 20 % more likely to experience low deforestation and high employment growth between 2006 and 2011. However, this trend reversed in later periods. Ultimately, the results indicate a complex relationship between economic complexity and deforestation. These findings highlight governments’ critical role in promoting sustainable development in the Amazon. There are limits to such an approach but supporting “green” industries and curbing deforestation-related activities can steer the region towards a more prosperous and environmentally responsible future.