Mining, State Capture and Deforestation in Brazil

• In Event: The Political Economy of Deforestation

Abstract

How do economic interest groups affect environmental protection? In Brazil, the mining sector has strong incentives to capture government and influence enforcement of environmental rules which make it more expensive for them to operate. Using geo-referenced data on the location of all mines in Brazil, I analyze whether municipalities containing mines have higher levels of corruption, conditional on the type of mineral being extracted and (exogenous) international price fluctuations of the mineral. I find significant effects of mine presence and mineral prices on corruption. Additionally, I find that this has real world implications not only for the quality of governance, but also for environmental outcomes. I find a strong positive correlation between mining, corruption and deforestation in municipalities in the Legal Amazon. The main mechanism driving this effect is through campaign finance. A close elections RDD shows that closely electing a mayor linked to the mining industry through campaign finance leads to significantly higher rates of deforestation in municipalities in the Brazilian Amazon. In other words, extractive companies “buy” political favors from mayors by offering campaign donations, which in turn lead to lower monitoring and enforcement of environmental rules around the mines.

Author

• Kathryn Baragwanath