When deforestation laws are difficult to enforce, increased agricultural productivity and intensification are used as an indirect policy tools to reduce the pressure to clear forests for new land, a strategy known as the Borlaug hypothesis.
Increasing productivity can have ambiguous effects on forest protection in theory: it can expand the scope of farming, which is detrimental to the forest, but it can also induce farmers facing factor-market constraints to shift away from land-intensive cattle grazing toward less-harmful crop cultivation.
This study examines these predictions using five waves of the Brazil Agricultural census, 1970-2006. It identifies productivity shocks using the expansion of rural electrification in Brazil during 1960-2000. The analysis shows that electrification increased crop productivity, and farmers subsequently both expand farming through frontier land conversion, but also shift away from cattle ranching and into crop cultivation.
The latter allows farmers to retain more native vegetation within rural settlements. Overall, electrification causes a net decrease in deforestation. The study also shows that Brazilian farmers are credit constrained and invest more in capital following electrification.