Shifting cultivation, forest fallow, and externalities in ecosystem services: Evidence from the Eastern Amazon

This study examines the value of fallow ecosystem services in shifting cultivation, including hydrological externalities that may affect other farms. Using farm-level survey data from the Brazilian Amazon, I estimate a production function to assess the value of forest fallow and test whether it provides local externalities to agricultural production. Soil quality controls, instrumental variables, and spatial econometric approaches help address endogeneity issues. I use GIS data on external forest cover at the farm level and model the hydrological externality as an upstream-to-downstream process. The estimated parameters indicate that fallow contributes significantly to productivity both on farm and downstream. In addition, most farms allocate sufficient land to fallow, accounting for both the value of hydrological spillovers and the opportunity cost of land left out of cultivation. These results suggest that farming communities may have some self-interest in preserving forest cover locally—a finding that may bolster policy efforts aimed at conserving tropical forests for their global public goods.