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Deforestation and the Real Exchange Rate

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  • Jean-Louis Arcand

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

  • Patrick Guillaumont

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

  • Sylviane Guillaumont Jeanneney

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

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 HAL in its series Working Papers with number halshs-00570477.

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Date of creation: 28 Feb 2011
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Handle: RePEc:hal:wpaper:halshs-00570477

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Keywords: deforestation; real effective exchange rate; institutions;

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