The Value of Tropical Forests in Brazil's Amazon : A Growth Perspective on the Trade-off between Forest Conservation and Land Conversion

This study investigates whether disbursements from the Amazon Fund can affect municipal incomelevels in Brazil’s Legal Amazon. As the world’s largest Payment for Ecosystem Services project, the fund aims to promote tropical forest conservation as a means to mitigate climate change. However, thorough assessment of how it affects long-term growth and livelihoods in the Amazon are important to achieve permanent changes in the deforestation. Using Two-Stage Least Squares regressions to address endogeneity in both deforestation and funding allocation, the results show modest effects on GDP per capita. Furthermore, there are no significant impact on agricultural output or industry. However, the fund seem to support growth in the service sector. The findings suggest that the fund is unable to unlock investments and higher productivity to generate higher income as the augmented Solow-Swan model predicts. This leads to the conclusion that supporting only projects within environmental monitoring and enforcement is not enough to permanently shift behaviour in deforestation, as these activities do not offer alternative and more sustainable livelihoods. A stronger focus is needed on credit-constrained areas and alternative, higher productivity livelihoods to achieve a long-term reduction in deforestation.