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Oil, Macroeconomics, and Forests: Assessing the Linkages

Oil, Macroeconomics, and Forests: Assessing the Linkages How does an oil boom affect the forest cover of tropical oil-exporting countries? What macroeconomic linkages and policies are decisive? A comparison of research findings on long-run land-use changes in eight tropical developing economies reveals that the direct physical impacts of the oil industry on forests are unquestionably less than its derived macroeconomic impact. In most cases oil wealth indirectly but significantly protects tropical forests. The core mechanism is that oil rents cause macroeconomic “Dutch disease” decreasing the price competitiveness of agriculture and logging, strongly diminishing pressures for forest degradation and deforestation. But domestic policy responses to oil wealth are also vital determinants of the forest outcome. When governments use oil wealth for urban spending sprees, this reinforces the core effect by pulling more labor out of land-using and forest-degrading activities. When oil revenues finance road construction or frontier colonization, however, the core forest-protective effect can be reversed. Repeated currency devaluation and import protection of land-using domestic sectors also increase pressures on forests. Other international capital transfers, like bilateral credits, aid, or debt relief, can have impacts similar to those of oil wealth, either alleviating pressures on forests or aggravating specific forest-detrimental policies. These insights point to forest-friendly safeguards that can realistically be made in the design of structural adjustment programs, considering the important tradeoffs between development and conservation objectives. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The World Bank Research Observer Oxford University Press

Oil, Macroeconomics, and Forests: Assessing the Linkages

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References (40)

Publisher
Oxford University Press
Copyright
The World Bank Research Observer, vol. 19, no. 2,
 © The International Bank for Reconstruction and Development / THE WORLD BANK 2004; all rights reserved.
ISSN
0257-3032
eISSN
1564-6971
DOI
10.1093/wbro/lkh018
Publisher site
See Article on Publisher Site

Abstract

How does an oil boom affect the forest cover of tropical oil-exporting countries? What macroeconomic linkages and policies are decisive? A comparison of research findings on long-run land-use changes in eight tropical developing economies reveals that the direct physical impacts of the oil industry on forests are unquestionably less than its derived macroeconomic impact. In most cases oil wealth indirectly but significantly protects tropical forests. The core mechanism is that oil rents cause macroeconomic “Dutch disease” decreasing the price competitiveness of agriculture and logging, strongly diminishing pressures for forest degradation and deforestation. But domestic policy responses to oil wealth are also vital determinants of the forest outcome. When governments use oil wealth for urban spending sprees, this reinforces the core effect by pulling more labor out of land-using and forest-degrading activities. When oil revenues finance road construction or frontier colonization, however, the core forest-protective effect can be reversed. Repeated currency devaluation and import protection of land-using domestic sectors also increase pressures on forests. Other international capital transfers, like bilateral credits, aid, or debt relief, can have impacts similar to those of oil wealth, either alleviating pressures on forests or aggravating specific forest-detrimental policies. These insights point to forest-friendly safeguards that can realistically be made in the design of structural adjustment programs, considering the important tradeoffs between development and conservation objectives.

Journal

The World Bank Research Observer – Oxford University Press

Published: Sep 1, 2004

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