Does Free Trade Increase Deforestation? The Effects of Regional Trade Agreements

This paper provides new, global evidence on the relationship between trade liberalization and deforestation. Using event studies around the enactment of regional trade agreements (RTAs) on a panel of 189 countries from 2001 to 2012, we find a large and statistically significant increase in deforestation over the 3 years following the enactment of an RTA, which coincides with an increase in agricultural land conversion. The findings are robust to a variety of controls and fixed effects. The results on deforestation and agricultural land expansion are driven by developing countries in the tropics, suggesting that trade liberalization not only increases net deforestation but may also shift deforestation into ecologically sensitive locations. We find no evidence that these effects are driven by increases in timber harvest. Our results suggest that trade liberalization efforts should be accompanied by policies to direct agricultural land expansion away from forests and sensitive habitat regions.