Spillover effect of the oil palm boom on the growth of surrounding towns in the eastern Amazon

Abstract

Although oil palm production has been suggested as a driver of development in some countries, this relationship has yet to be established in Brazilian territory. In Brazil, 90% of oil palm production is concentrated in the eastern Amazon, where socioenvironmental costs associated with medium and large agro industries have already been demonstrated. However, there is still a lack of understanding of the contribution of this production to the economic growth of surrounding towns and of how this activity influences nonagricultural sectors. This study investigated the spillover effects of the value of oil palm fruit bunch production in the largest Brazilian producing region, located in the northeast of the state of Pará, and analysed the impact on economic growth, demographics and the labour market from 2002 to 2017. The results of an econometric analysis of fixed effects panel including dummy variables with individual, temporal and two-way effects show a relation between the oil palm fruit bunch production value and nonagricultural sectors (e.g., service sectors). This may have contributed to the formal nonagricultural labour market, population growth and tax generation of the surrounding towns and industrial dynamization, mainly since 2010, coinciding with the period of incentive policies. However, the growth of the economy and urban demography was concentrated in one microregion (Tomé-Açu). We argue that oil palm agribusiness may play an important role in urban growth by providing economic improvement, increasing the value added to services, contributing to urbanization, and promoting intersectoral links. On the other hand, towns dependent on the production of a commodity may be susceptible to market fluctuations with an impact on their economic growth. For greater benefits, socioenvironmental externalities also need to be monitored and controlled.