Policy Responses to Tropical Deforestation: Are Debt-for-Nature Swaps Appropriate?

Abstract

This paper examines passible causes for the acceleration of tropical deforestation and the role of a popular instrument to reverse this trend, debt-for-nature swamps (DNS). This instrument builds on the contention that the debt crisis of developing countries has created the need to exploit natural resources, such as tropical forest areas. Thus, DNS could potentially protect forests directly (through conservation projects) and indirectly (by reducing debt-induced pressure on the forests). First, an instrumental critique of DNS is given, followed by an empirical examination of the debt-deforestation link that stands behind the instrument of DNS. Neither this nor other plausible causes of the acceleration of deforestation can be identified as significant in a cross-country study. The paper concludes that appropriate policy instruments must be based on case-specific research.