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Deforestation and credit cycles in Latin American countries

  • Jean-Louis Combes

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

  • Samuel Guerineau

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

  • Pascale Combes Motel

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - 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 Working Papers with number halshs-00556809.

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Date of creation: 17 Jan 2011
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Handle: RePEc:hal:wpaper:halshs-00556809
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  1. Andrew W. Horowitz, 1996. "Wage-Homestead Tenancies: Technological Dualism and Tenant Household Size," Land Economics, University of Wisconsin Press, vol. 72(3), pages 370-380.
  2. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  3. Jean-Louis Arcand & Patrick Guillaumont & Sylviane Guillaumont Jeanneney, 2011. "Deforestation and the Real Exchange Rate," Working Papers halshs-00570477, HAL.
  4. Edward B. Barbier, 2004. "Explaining Agricultural Land Expansion and Deforestation in Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1347-1353.
  5. 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.
  6. Edward Barbier & Michael Rauscher, 1994. "Trade, tropical deforestation and policy interventions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(1), pages 75-90, February.
  7. Adolfo Barajas & Roberto Steiner, 2002. "Credit Stagnation in Latin America," IMF Working Papers 02/53, International Monetary Fund.
  8. Kahn, James R. & McDonald, Judith A., 1995. "Third-world debt and tropical deforestation," Ecological Economics, Elsevier, vol. 12(2), pages 107-123, February.
  9. Bulte, Erwin H. & Damania, Richard & Lopez, Ramon, 2007. "On the gains of committing to inefficiency: Corruption, deforestation and low land productivity in Latin America," Journal of Environmental Economics and Management, Elsevier, vol. 54(3), pages 277-295, November.
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