The main challenge for our research is that immigrants may have chosen to locate in municipalities where farm values were already on the rise. We addressed this challenge by studying how the rollout of Brazil’s rail network affected immigrants’ destinations. On average, a municipality that was linked to the railroad during a year of high immigration would later have a greater share of immigrants in its population than municipalities linked to the railroad shortly thereafter. We accounted for the fact that rail may have been built to target specific areas or may have directly affected the local economy. Additionally, our research finds no evidence that the timing of rail construction was related to the size of immigrant inflows.
Our research uses data from the 1920 Brazilian census and finds that municipalities with a higher population share of European immigrants in 1920 had greater farm values per hectare, suggesting greater development of the agricultural sector. Specifically, a one-standard-deviation increase in a municipality’s population share of European immigrants generated a 0.7‑standard-deviation increase in its farm values per hectare. This effect existed for total farm value and each of its three components—land, infrastructure, and tools and machines. The finding that immigration affected components of farm value besides land prices is crucial for two reasons. First, it alleviates the concern that our findings capture local characteristics other than agricultural development, which would have affected land values. Second, the value of infrastructure, tools, and machines is linked to the agricultural sector’s development and productivity, which is the focus of our research.
Our research also investigates why immigration affected farm values. The evidence suggests that the primary reason is changes in land use. A greater share of European immigrants in a municipality led to a higher proportion of its farmland being cultivated rather than left fallow or as forest. This intensification of cultivation accounts for about one-quarter of immigration’s impact on increasing farm values. This finding exemplifies the important role that immigrants’ incentives can play in shaping the effects of immigration—whether the incentives occur due to government policy or otherwise. We argue that the intensification of cultivation can be explained by the unique incentives offered to immigrants in the government-subsidized immigration program and the different incentives experienced by temporary migrants relative to natives and permanent immigrants. We investigated several other explanations, including immigrant arrivals increasing the demand for land and agricultural labor, an increase in the adoption of agricultural tools, and an increase in the cultivation of coffee, the primary export during this period. However, these explanations were unimportant relative to the land-use explanation.
Economists and historians have long debated whether developing a country’s agricultural sector slows or advances structural transformations that grow its economy. If agricultural development slows structural transformations, immigration to Brazil may have impeded the country’s economic growth. However, our research finds that immigration did not slow Brazil’s structural transformation—it may have accelerated it. Immigration reduced the agricultural share of Brazil’s labor force and increased the literacy of native and foreign-born individuals. Furthermore, our study finds evidence that immigration increased industrial employment but does not find any evidence that immigration reduced female labor force participation—an effect that would have been detrimental to industrialization. Our findings also reveal no evidence that immigration inflated the public sector or increased the number of rentiers—those who rely on investment income rather than labor income.
Our analysis clarifies the long-debated role of immigration in Brazil’s economic development. It confirms the assertions of historical research that immigrant labor was an important force in driving the growth of Brazil’s agricultural sector. However, contrary to this prior scholarship, our findings suggest this was not primarily because immigrants uniquely enabled the production of coffee or solved agricultural labor shortages created by abolishing slavery and expanding the agricultural frontier. Instead, immigrant labor cultivated land more intensely. Moreover, our research finds no evidence that immigration slowed growth in other sectors of the largest Latin American economy.
