Institutional constraints and the forest transition in tropical countries

The forest transition describes a reversal or turnaround in long-run land-use trends for a country or region from a period of net forest area loss to net gain. Such forest recovery has occurred in high-income economies, and more recently, in a number of tropical developing countries (Keenan et al. 2015). Following North (1990), this paper hypothesizes that effective institutions may impose additional costs on a representative economic agent converting forests to agriculture in a tropical developing country.

A probit specification model is developed to show that if institutions raise the costs of land conversion, then the equilibrium level of land cleared will differ under conditions of poor institutional constraints as opposed to conditions where effective institutions exist to control land conversion. Both the probit coefficients and the the marginal effects calculated for the mean of all observations will be reported. The regressions are tested with and without the inclusion of institutional variables. That is, because institutions raise the cost of land clearing, less land should be converted when more effective institutions are present. The result suggests that the quality of institutions in a country will impact the switch from net tropical forest loss to net gain. To test this hypothesis, we examine the probability of a forest transition for deforestation occurring for these countries over a specific time period, 1990 to 2015, utilizing country data from the Global Forest Resource Assessment (Keenan et al. 2015) and a variety of country-wide institutional data sets. For example, the World Bank’s Worldwide Governance Indicators for political stability, regulatory quality, control of corruption, and rule of law are present for all 132 developing countries of our sample. We also test for the significance of forest-specific governance variables reported by the United Nations Food and Agricultural Organization, such as share of public forest ownership and management, forest policy legal framework, etc.

The results from the econometric analysis are expected to reject or confirm the testable hypothesis that more (less) effective institutions increase (decrease) the likelihood of a forest transition in tropical developing countries. Moreover, robustness checks will determine which type of institutions (e.g. control of corruption, rule or law or political stability) are likely to have a greater impact on the likelihood of a forest transition. The outcome is important, as it will confirm, as specified in the theoretical model, whether more effective institutions will accelerate the onset of the transition away from persistent deforestation.