Oil, Macroeconomics, and Forests: Assessing the Linkages

How does an oil boom affect the forest cover of tropical oil-exportingcountries? What macroeconomic linkages and policies are decisive?A comparison of research findings on long-run land-use changesin eight tropical developing economies reveals that the directphysical impacts of the oil industry on forests are unquestionablyless than its derived macroeconomic impact. In most cases oilwealth indirectly but significantly protects tropical forests.The core mechanism is that oil rents cause macroeconomic "Dutchdisease" decreasing the price competitiveness of agricultureand logging, strongly diminishing pressures for forest degradationand deforestation. But domestic policy responses to oil wealthare also vital determinants of the forest outcome. When governmentsuse oil wealth for urban spending sprees, this reinforces thecore effect by pulling more labor out of land-using and forest-degradingactivities. When oil revenues finance road construction or frontiercolonization, however, the core forest-protective effect canbe reversed. Repeated currency devaluation and import protectionof 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 oilwealth, either alleviating pressures on forests or aggravatingspecific forest-detrimental policies. These insights point toforest-friendly safeguards that can realistically be made inthe design of structural adjustment programs, considering theimportant tradeoffs between development and conservation objectives.