Deforestation and the Real Exchange Rate
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 (associated with higher income levels), stronger institutions, and increases in the relative price of timber 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 exacerbate the deleterious impact of depreciations in developing countries. These hypotheses are tested on an annual sample of 122 countries over the 1963-1994 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.
|Date of creation:||2003|
|Publication status:||Published in , 2002, pages|
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