A Spatial Propensity Score Matching Evaluation of the Social Impacts of Sugarcane Growing on Municipalities in Brazil

The expansion of sugarcane growing in Brazil, spurred particularly by increased demand for ethanol, has triggered the need to evaluate the economic, social, and environmental impacts of this process, both on the country as a whole and on the growing regions. Even though the balance of costs and benefits is positive from an overall standpoint, this may not be so in specific producing regions, due to negative externalities. The objective of this paper is to estimate the effect of growing sugarcane on the human development index (HDI) and its sub-indices in cane producing regions. In the literature on matching effects, this is interpreted as the effect of the treatment on the treated. Location effects are controlled by spatial econometric techniques, giving rise to the spatial propensity score matching model. The authors analyze 424 minimum comparable areas (MCAs) in the treatment group, compared with 907 MCAs in the control group. The results suggest that the presence of sugarcane growing in these areas is not relevant to determine their social conditions, whether for better or worse. It is thus likely that public policies, especially those focused directly on improving education, health, and income generation/distribution, have much more noticeable effects on the municipal HDI.