Economic and social impact of grape growing in Northeastern Brazil

The Northeastern viticultural industry has become a model for the whole Brazil and has been identified as a grape production district. Given the importance of agriculture in the economy of the region our study aims at analysing whether the grape producing activity affects some socio-economic indicators, namely the Theil index, the Human Development Index (HDI) and the unemployment rate over the period 2000-2010. The study is focused on the Northeastern states of Bahia and Pernambuco, two of the poorest and with the highest income inequality among Brazilian States and combines the Difference-in-Differences with the Propensity Score matching method at the municipality level. Results seem to indicate that grape growing plays an important role to guarantee a fairer income distribution. Indeed, the municipalities that grow grape experience a decrease in the level of Theil index by 11.7% compared to the level they would have if they had not participate in grape production. No effect has been found on the HDI and on the unemployment rate. Results are robust to the potential presence of an hidden bias according to the Rosenbaum sensitivity analysis