The political economy of deforestation in the tropics

Logging of tropical forests accounts for almost one-fifth of greenhouse gas emissions worldwide and threatens some of the worlds most diverse ecosystems. This paper demonstrates that local-level political economy substantially affects the rate of tropical deforestation in Indonesia. Using a novel MODIS satellite-based dataset that tracks annual changes in forest cover over an 8-year period, we find three main results. First, we show that increasing numbers of political jurisdictions leads to increased deforestation. This effect, particularly for illegal logging, is consistent with a model of Cournot competition between jurisdictions determining how much wood to extract from their forests. Second, we demonstrate the existence of political logging cycles," where illegal logging increases dramatically in the years leading up to local elections. Third, we show that, for local government o¢ cials, logging and other sources of rents are short-run substitutes, but that this affect disappears over time as the political equilibrium shifts. The results document how local political economy forces lead to substantial deviations from optimal logging practices and demonstrate how the economics of corruption can drive natural resource extraction.