Investing in local capacity to respond to a federal environmental mandate: Forest & economic impacts of the Green Municipality Program in the Brazilian Amazon

• Published in: World development 2020-05, Vol.129, p.104891, Article 104891
• Main Authors: Sills, Erin, Pfaff, Alexander, Andrade, Luiza, Kirkpatrick, Justin, Dickson, Rebecca
• Format: Article
• Language: English
• Subjects: Brazilian Amazon; Decentralization; Deforestation; Economic aspects; Environmental aspects; Environmental protection; Forest conservation; Green design; Impact evaluation; Local government
• ISSN: 0305-750X; 1873-5991
• DOI: 10.1016/j.worlddev.2020.104891

•The Green Municipality Program was designed to increase the environmental governance capacity of local governments in a federal system.•Perhaps not surprisingly, we find little evidence that the program reduced municipal deforestation beyond what federal policies achieved.•Participation in the PMV did have a significant positive effect on economic activity given tight federal restrictions on deforestation.•The economic benefits could make it politically sustainable to maintain restrictions on deforestation, which are necessary for conservation. Over the past decade, the Brazilian federal government has offered a negative collective incentive to reduce deforestation by ‘blacklisting’ the municipalities in the Amazon with the highest deforestation rates. As for any unfunded mandate, the responses to blacklisting depend on both local incentives and local capacities. We evaluate a state program − Programa Municípios Verdes (PMV) or the Green Municipality Program – to increase the capacity of municipal governments in the state of Pará to respond to this federal incentive. The PMV is voluntary, as municipal governments choose whether to participate. To control for differences due to self-selection into the program, we employ quasi-experimental methods: two-way, fixed-effects regressions in matched samples of municipalities; and the synthetic control method that compares outcomes in a participating municipality to outcomes in a weighted blend of control municipalities. Neither approach suggests that the PMV reduced deforestation beyond the effect of the blacklist. We hypothesize that municipalities joined the PMV to ameliorate the costs of complying with blacklist requirements, including the costs of exiting the blacklist. We show that the PMV increased total value added – with substantial heterogeneity - in participating blacklisted municipalities, and that these gains likely are not due to agricultural intensification. They may result from reductions in compliance risk and cost that make economic investments in a municipality more appealing. In the long run, this could make forest conservation more socially and politically sustainable.