Tropical deforestation: debt-for-nature versus debt-for-development swaps

Abstract

In this paper I analyze the forest and debt dynamics in a less developed country (LDC), where the former is a renewable resource and the latter's increase results from the interests to be paid on the current debt minus the balance of trade surplus. Agricultural and industrial goods are produced, and whereas the former requires the converted forest as an input, the latter does not. It transpires that the stock of debt is likely to increase infinitely without repudiation, whereas the stock of forest is likely to oscillate around an equilibrium level. Within this framework, I compare the effectiveness and enforceability of the debt-for-nature and the debt-for-development swaps with respect to tropical deforestation and debt burden issues. Some empirical evidence confirming the theoretical results is provided.