The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon

Abstract In 2008, the Brazilian government made the concession of rural credit in the Amazon conditional upon stricter requirements as an attempt to curb forest clearings. This article studies the impact of this innovative policy on deforestation. Difference-in-differences estimations based on a panel of municipalities show that the policy change led to a substantial reduction in deforestation, mostly in municipalities where cattle ranching is the leading economic activity. The results suggest that the mechanism underlying these effects was a restriction in access to rural credit, one of the main support mechanisms for agricultural production in Brazil.