The effect of globalization on the environment and natural resource use in developing countries is hotly debated. We contribute to this debate through the analysis of primary data collected with small contract farmers in Madagascar that produce vegetables for export to Europe. Strong spillover effects of these trade opportunities on land use exist. Using a matched plot sampling design, the productivity of rice - the main domestically consumed staple - is shown to be two thirds higher on those fields that were contracted during the off-season for the production of vegetables. This increase in yields is linked to an increase of soil fertility due to the application of fertilizer and compost which farmers would not use prior to the contracts. While agricultural output goes up significantly, labor productivity stays the same, suggesting that there is greater labor absorption on existing land and the diffusion of this type of technology contract farming at a larger scale throughout Madagascar would be expected to substantially decrease incentives to deforest by increasing wages and boosting productivity of existing lands relative to newly deforested ones.
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