Trade and Spatial Economics Reading Group - Heitor Pellegrina (Notre Dame)

Abstract:

We study deforestation in a dynamic world trade system. We first document that between 1990-2020: (i) global forest area has decreased by 7.1 percent, with large heterogeneity across countries, (ii) deforestation has been associated with expansions of agricultural land use, (iii) population growth leads to forest cover reductions, and (iv) forest carbon intensity differs substantially across the world. We build a model in which structural change and comparative advantage determine the extent, location, and timing of deforestation. We show analytically and quantitatively that, if agriculture is complementary in demand to other sectors, global reductions in trade costs reduce deforestation, even if such shocks increase deforestation when experienced only by an individual economy. In our calibrated model, a 30 percent reduction in global agricultural trade costs increases steady-state forest share for world area by 0.8 percentage points, taking decades to occur. In the cross-section, countries with a comparative advantage in agriculture, whose forest is carbon-intensive, deforest more, which costs the world in terms of emissions. Incorporating population growth eliminates the trade-off between trade liberalization and the environment.