JultikaUniversity of Oulu repository

Environmental limitations are about to cause increasing economic costs as human actions affect climatic conditions around the world. Those costs can be mitigated cost-efficiently within appropriate institutional framework. Deforestation in tropical rainforest regions can be a significant factor altering the climate in those particular regions. In Brazil it reduces rainfall, thus affecting hydrological conditions which are critical for hydropower generation. The country relies heavily on hydropower in its electricity production, and therefore this study considers a possibility of that hydroelectricity supply issues would negatively affect Brazil’s long-term economic growth. A literature review combines different aspects of development in Brazil in order to form a picture of how country’s institutional structure inflicts the transmission of issues in hydropower sector into the economy. The review is complemented by a sensitivity analysis to a growth projection which aptly reflects some characteristics of development in Brazil. Thereby the analysis demonstrates how more comprehensive evaluation of different aspects than what in general has been done so far could change the conception of country’s growth potential. If current state of institutional affairs persists, there is an obvious threat of that electricity supply side issues will have increasing economic costs. Historical factors and currently prevailing international political economy orientation may hamper realization of institutional change that is essential in mitigating these possible costs.