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Deforestation and the Real Exchange Rate

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Author Info

  • Jean-Louis ARCAND

    ()
    (Institut des Hautes Etudes Internationales et du Développement)

  • Patrick GUILLAUMONT

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Sylviane GUILLAUMONT JEANNENEY

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

Abstract

Deforestation is a phenomenon that has largely been concentrated in the developing world. We construct a theoretical model of deforestation that focuses on the factors affecting the incentives to transform forested land into agricultural land. We show that: (i) lower discount rates and stronger institutions decrease deforestation; (ii) depreciations in the real exchange rate increase deforestation in developing countries whereas the opposite obtains in developed countries; (iii) paradoxically, better institutions may exacerbate the deleterious impact of depreciations in developing countries. These hypotheses are tested on an annual sample of 101 countries over the 1961-1988 period, and are not rejected by the data. Our results suggest that short-term macroeconomic policy, institutional factors, and the interaction between the two, are potentially important determinants of environmental outcomes.

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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200533.

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Length: 40
Date of creation: 2005
Date of revision:
Publication status: Published in , 2003, pages
Handle: RePEc:cdi:wpaper:762

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Keywords: deforestation; real effective exchange rate; institutions;

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  1. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
  2. Perz, Stephen G., 2004. "Are Agricultural Production and Forest Conservation Compatible? Agricultural Diversity, Agricultural Incomes and Primary Forest Cover Among Small Farm Colonists in the Amazon," World Development, Elsevier, vol. 32(6), pages 957-977, June.
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  13. Rock, Michael T., 1996. "The stork, the plow, rural social structure and tropical deforestation in poor countries?," Ecological Economics, Elsevier, vol. 18(2), pages 113-131, August.
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  15. Farzin, Y Hossein, 1984. "The Effect of the Discount Rate on Depletion of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 841-51, October.
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  17. Panayotou T, 1993. "Empirical tests and policy analysis of environmental degradation at different stages of economic development," ILO Working Papers 292778, International Labour Organization.
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