Commodity prices and deforestation in the Amazon

• Grant number: 24/21835-8
• Support Opportunities: Scholarships in Brazil - Doctorate (Direct)
• Start date: March 01, 2025
• End date: November 30, 2027
• Field of knowledge: Applied Social Sciences - Economics - Growth, Fluctuations and Economic Planning
• Principal Investigator: Marco Antonio Cesar Bonomo
• Grantee: Heloísa de Paula
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated research grant: 24/13435-0 - Identification and Propagation of Shocks in the Brazilian Economy, AP.R

Abstract

The project investigates which of the main commodities frequently mentioned in public debates as drivers of deforestation in the Amazon (i.e., soybeans, corn, cattle, and gold) are actually responsible for this phenomenon and how anti-deforestation policies can be designed to mitigate these effects. To capture the interactions between commodity prices, deforestation, anti-deforestation policies, and economic activity, we use a Structural Vector Autoregression model (SVAR), in which the price shocks of the four commodities of interest are identified through instrumental variables based on the variation in futures contracts around narratively identified extreme weather events. Once the commodity price shocks and anti-deforestation policy shocks are identified, we apply the methodology proposed by MacKay and Wolf (2023) to study the effects of commodity price shocks under counterfactual anti-deforestation policy rules.