Trade Policies, Economic Growth, and the Direct Causes of Deforestation

Abstract

This paper combines elasticities from microstudies with estimates from a cross-country analysis to identify structural relationships explaining deforestation in Brazil, Indonesia, Malaysia, and the Philippines. Economy-wide factors such as trade openness and economic growth explain an important portion of the variation in three key factors of deforestation: poverty, agricultural expansion, and road building. Trade increases forest cover in Brazil and in the Philippines, but has no significant effect in Indonesia and Malaysia. An important channel through which trade policy affects forests in all four countries is agricultural expansion. Economic growth has a negative and relatively large impact on forest cover. (JEL Q23, F43)