Industrializing Agriculture: Structural Transformation and Sugarcane in São Paulo

Francisco J M Costa, Francisco Luis Lima and Letícia Nunes
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Francisco J M Costa: FGV EPGE Brazilian School of Economics and Finance

No upxkb_v1, SocArXiv from Center for Open Science

Abstract: This paper studies the rapid adoption of mechanical harvesting in São Paulo’s sugarcane industry between 2000 and 2010, following a law banning pre-harvest burning. Using land slope as an instrument for mechanization, we find that mechanization triggered structural transformation --- reducing agricultural and increasing manufacturing employment. However, labor reallocation occurred only in agriculture-related industries, not broadly across sectors. A one-standard-deviation increase in mechanization raised employment in linked manufacturing by 3.5 percentage points, primarily among unskilled workers. This shift generated substantial local economic gains: household incomes rose 19 percent, and poverty fell 14 percent. These findings challenge the view of structural transformation as a shift from agriculture to diverse industries. Instead, technological gains in farming strengthen sectoral linkages, deepening the agro-industrial economy rather than diversifying it. Our results also highlight how environmental regulation can shape industrialization by driving sectoral labor reallocation.

Date: 2025-04-30
New Economics Papers: this item is included in nep-agr and nep-dev
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:upxkb_v1

DOI: 10.31219/osf.io/upxkb_v1

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