Itaipu Binational Dam: A Quantitative Analysis of the Economic and Social Impacts in Paraguay. Successful or not?

Abstract

The Itaipu Binational dam is a giant hydroelectric project situated on the Parana River, which began its construction in 1973 and was completed in 1983. It was undertaken by Brazil and Paraguay, two countries with enormous geopolitical and economic differences. With 14,000 MWh of installed power, it is the second largest hydroelectric dam in the world. Both countries are partners in this project, but the socioeconomic results have not been as expected. In this regard, although Paraguay’s GDP per capita, between 1983 and 2020, increased by 341%, Itaipu did not represent a true economic development engine for Paraguay. On the other hand, it had serious negative impacts especially on social, demographic, and environmental aspects. A structural equations model (SEM) was designed, in its Path Analysis modality, which includes 10 variables: 3 exogenous (Royalties from Itaipu, Electric power exports, and External debt) and 7 endogenous (GDP per capita, Proportion of agricultural sector in GDP, Proportion of service sector in GDP, Population with needs unsatisfied, Housing deficit, Changes of land use, and CO2 emissions). The model exposes an adequate simulation range, and the results show a high degree of goodness of fit, using different indices (CMIN, FMIN, CFI, and RMSEA). The corresponding tests upon the model validate the hypotheses raised. JEL Classification: O13, O54, H54, H60, F34, C18