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Abstract

This paper argues that the rapid agricultural expansion of the cerrado regions in Brazil is due to the low price of land in these regions, as compared with the other agricultural regions of Brazil and abroad. This low price of land is, in turn, attributed not only to the greater distance of these regions from the main markets, but also to the limitations of natural resources (the extremely harsh drought period, which limits agricultural activities to grains and livestock) and, above all, to technological innovations that “produced” an abundance of land of good quality. In order to show more clearly how this process has taken place, the paper develops a model of the land market that allows for “production of land,” and derives the implications of such a model for production functions and total factor productivity (TFP) analyses. The paper also seeks to explain why the agrarian structure of the cerrado is so concentrated. The explanation turns on the low price of land and the peculiar characteristics of the natural resources and technology, rather than the role of agricultural policies. In its conclusions, the paper derives some implications for environmental as well as agrarian reform policies.

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