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Deforestation and credit cycles in Latin American countries

Listed author(s):
  • Jean-Louis Combes

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

  • Pascale Combes Motel

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

  • Samuel Guérineau

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

This paper establishes a link between deforestation and credit cycles in Latin American countries. The latter exhibit rapid deforestation rates as well as macroeconomic instability that is often rooted in credit booms and crunches episodes: data available on the last years show a coincidence between higher macroeconomic instability and deforestation increases. This paper provides a theoretical explanation and econometric investigations of this phenomenon. A key ingredient of the model is the existence of two sectors: a modern agricultural sector and a subsistence one, which are hypothesised to catch the basic features of Latin American agricultural sectors. Agricultural production relies on three production factors: land, capital and labour. Agents clear forested areas in order to increase agricultural lands. Interest rates movements have an effect on agricultural decisions and thus on deforestation since they induce factor movements between the agricultural sectors. It is shown that deforestation occurs in response to interest rates increases or decreases primarily because of the irreversible character of forest conversion. Econometric tests are conducted on the 1948-2005 period on an exhaustive sample of Latin American countries. The database on deforestation is a compilation of FAO censuses and several measures of credit cycles are calculated as well. The main output of the paper is to evidence a link between credit cycles and deforestation. The results are robust to the introduction of usual control variables in deforestation equations.

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Paper provided by HAL in its series Post-Print with number hal-00288977.

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Date of creation: 09 Jun 2008
Publication status: Published in 2008 AFSE Thematic Meeting "Frontiers in Environmental Economics and Natural Resources Management", Jun 2008, Toulouse, France
Handle: RePEc:hal:journl:hal-00288977
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00288977
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. Arcand, Jean-Louis & Guillaumont, Patrick & Jeanneney, Sylviane Guillaumont, 2008. "Deforestation and the real exchange rate," Journal of Development Economics, Elsevier, vol. 86(2), pages 242-262, June.
  2. Henk Folmer & G. Cornelis van Kooten, 2006. "Deforestation," Working Papers 2006-06, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  3. Richard J. Culas, 2006. "Debt and Deforestation," Journal of Developing Societies, , vol. 22(4), pages 347-358, December.
  4. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 47-100, January.
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  10. Ricardo J. Caballero, 2000. "Macroeconomic Volatility in Latin America: A Conceptual Framework and Three Case Studies," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2000), pages 31-107, August.
  11. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  12. Boucher, Stephen R. & Barham, Bradford L. & Carter, Michael R., 2005. "The Impact of "Market-Friendly" Reforms on Credit and Land Markets in Honduras and Nicaragua," World Development, Elsevier, vol. 33(1), pages 107-128, January.
  13. Kahn, James R. & McDonald, Judith A., 1995. "Third-world debt and tropical deforestation," Ecological Economics, Elsevier, vol. 12(2), pages 107-123, February.
  14. G. C. van Kooten & Henk Folmer, 2004. "Land and Forest Economics," Books, Edward Elgar Publishing, number 3466.
  15. Southgate, Douglas & Runge, C. Ford, 1990. "The Institutional Origins Of Deforestation In Latin America," Staff Papers 13826, University of Minnesota, Department of Applied Economics.
  16. Angelsen, Arild, 1999. "Agricultural expansion and deforestation: modelling the impact of population, market forces and property rights," Journal of Development Economics, Elsevier, vol. 58(1), pages 185-218, February.
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