When Green Policies Backfire: Deforestation and Sri Lanka's Fertilizer Ban

Economic regulations often generate unintended consequences beyond their intended scope. We exploit Sri Lanka's abrupt 2021 nationwide ban on chemical fertilizer imports as a quasi-natural experiment to identify how hard input constraints reshape land-use decisions. Comparing areas differentially exposed based on agronomic suitability for fertilizer-intensive crops, we find a 135% increase in deforestation in high-dependency areas, alongside declining rice yields, consistent with farmers substituting land expansion for lost productivity. Protected areas substantially attenuated this response, nearly fully offsetting the ban's cumulative effect in fully covered cells, suggesting conservation policy provides effective protection when external shocks sharply raise deforestation incentives.