Using newly-released and globally available high-resolution remote sensing data on forest loss, we update the assessment of the cross-country determinants of deforestation in developing countries.
We validate most of the major determinants found in the previous literature, generally based on earlier time-periods, except for the role of institutional quality. Agricultural trade, hitherto relatively neglected, is found to be one of the main factors causing deforestation. Focusing on the effect of international trade, we show that countries with different levels of relative forest cover react differently to a shock in agricultural exports’ value. We also emphasize that taking countries’ development into account may be critical in assessing global deforestation trends. The impact of trade is high in countries still endowed with a large proportion of forest cover while it is lower in countries with smaller remaining forest cover.
We finally estimate, through a simple calibration exercise, the requirements for a cost-effective REDD+ policy for compensating trade losses in an open economy exporting agricultural commodities and endowed with tropical forests. We conclude that, in a world with increasing global demand, it might be costly to compensate totally and thus to offer the right incentives for developing countries to limit deforestation.