Sugarcane industry's socioeconomic impact in São Paulo, Brazil: A spatial dynamic panel approach

- A dynamic spatial panel model is estimated to assess socioeconomic impacts.
- Sugarcane processing plants bring a positive socioeconomic effect.
- Sugarcane cultivation in isolation has a small negative direct effect.
- Socioeconomic impacts are extending beyond the borders of the municipality.
- Sugarcane industry provides local and regional economic dynamism.

This study assesses the socioeconomic development impacts of the recent sugarcane industry expansion on municipalities in the Brazilian state of São Paulo over seven years, from 2005 through 2011. It was used as socioeconomic development indicator the Index of Municipal Development (IFDM), provided by the Federation of the State of Rio de Janeiro Industries (FIRJAN). A dynamic spatial panel model was built using the System Generalized Method of Moments (GMM-SYS) to assess the impacts of the sugarcane industry, caused by the expansion of both the cultivated area and the presence of ethanol and sugar processing plants. We found that the presence of a processing plant has a positive effect in the socioeconomic development of the municipality where the plant is located and in neighboring municipalities. Besides, we found a small negative relationship between increases in the amount of area devoted to sugarcane cultivation in a municipality and the IFDM value for that municipality, which can be explained by job losses in the farming sector, most likely by the recent mechanization process of sugarcane harvesting.