How does Economic Inequality Impact Deforestation?

Sammanfattning

Deforestation is a major issue due to the multitude of negative impacts it has on the environment, forests are for example important carbon sinks, and thus deforestation contributes to climate change. Additionally, inequality is on the rise, both within and between countries. A lot of deforestation occurs in countries with high levels of inequality, such as South American countries. It is therefore important to assess exactly what the connection between inequality and deforestation looks like. Inequality can theoretically be thought to both increase and decrease environmental degradation, and this divergence in effect can also been seen in the previous empirical research conducted on the link between inequality and deforestation. There are several issues with the methods used in previous studies. For example, most of them use cross sectional data, which increases the risk of endogeneity. Additionally, most studies have a regional or even local focus. Furthermore, to my knowledge, no previous study has successfully accounted for the fact that deforestation depends on the total amount of forested area in a country. In this thesis, I propose the use of an estimator that can account for the fact that deforestation needs to be considered as a fraction of the total forest area, namely the fractional logit estimator. I also use a panel dataset covering 72 countries over 19 years in order to improve on the generalisability of results, an important contribution to previous literature. Lastly, I use different measures of wealth inequality to test robustness. I find evidence of a non-linear relationship between wealth inequality and deforestation. My conclusion is that increasing the wealth of the poor leads to reduced deforestation.