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The effects of extractive industries rent on deforestation in developing countries

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  • Kinda, Harouna
  • Thiombiano, Noel

Abstract

The extractive industries (oil, gas, and mining) play a dominant economic, social, and political role in the lives of approximately 3.5 billion people living in 81 countries across the world. However, the benefits of extractive industries come at a cost that is no longer limited to the “natural resource curse” but also includes greenhouse gas emissions, pollution, and biodiversity losses. This paper revisits the links between man-made and natural capital in developing countries, focusing on forest cover loss1. Considering a theoretical model of income maximization, we assess through empirical observation the impact of extractive industries on forest cover loss. Based on a panel of 52 resource-rich developing countries over the period 2001–2017, we adopt a dynamic specification with the two-step Generalized Method of Moments (GMM) system to address the inherent bias. Our main results show a detrimental effect of the total rent from the extractive industries on the forest cover but suggest non-homogenous impacts according to the type of rent. More specifically, mineral and gas rents contribute to accelerating forest cover loss. In contrast, oil rents and resource tax revenues contribute to reducing forest cover loss. Our results can be interpreted as in a “polluter pays” situation, where a fair share of the profits is earmarked obligatorily to compensate for the environmental damage caused by the exploitation of extractive industries. To promote corporate environmental management, stakeholders must overcome regulatory inefficiencies in exploration and exploitation contracts so that environmental compensation is at least equal to the marginal damage caused by the extractive industries.

Suggested Citation

  • Kinda, Harouna & Thiombiano, Noel, 2021. "The effects of extractive industries rent on deforestation in developing countries," Resources Policy, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jrpoli:v:73:y:2021:i:c:s0301420721002178
    DOI: 10.1016/j.resourpol.2021.102203
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    More about this item

    Keywords

    Extractive industries (oil; mineral; and gas); Resource taxation; Deforestation;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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