Disequilibrium Adjustment and the Rate of Tropical Deforestation

Abstract

Tropical deforestation has been one of the most significant global environmental changes of recent decades and has spurned a substantial academic literature. Despite this, the most basic theoretical predictions — such as the role of income and population growth in driving forest changes — fail to be consistently confirmed in the empirical literature. We argue that part of this failure lies with the implicit assumption of instantaneous adjustment of forest cover to changes in determining variables; and we use dynamic panel data analysis to provide evidence that the agreement between theory and empirics can be substantially improved by paying more attention to disequilibrium adjustment processes. Additionally, our results suggest an important role for ethnic fractionalization in deterring deforestation but no evidence of an effect of corruption.