Paving the Way to Deforestation? Roads, Institutions, and Spatial Spillovers in the Peruvian Amazon

We study how the interaction between the protective effect of local institutions and the amplifying effect of road infrastructure jointly shape deforestation in the Peruvian Amazon. Using data from 289 districts, we construct a local institutional index via principal components analysis and estimate a Spatial Durbin Model to capture both direct and indirect (spillover) effects on cumulative deforestation between 2001 and 2023. Our results show that stronger local institutions are associated with a 5.51 p.p. reduction in cumulative deforestation, 1 p.p. stemming from a district’s own institutions (direct effect) and 4.51 p.p. from those of neighboring districts (indirect effect). However, this protective role is entirely offset by proximity to paved roads, suggesting that road infrastructure significantly undermines institutional effectiveness. Our findings indicate that effective responses to deforestation cannot rely on isolated local actions. Because institutional spillovers extend across district borders, strengthening local governance requires coordination among municipalities. At the same time, road development—while important for connectivity and growth—can undermine institutional capacity to protect forests if not carefully managed. An integrated policy framework that combines institutional strengthening with strategic infrastructure planning is therefore essential to ensure that road investments reinforce, rather than weaken, collective efforts to curb forest loss.