Trade Liberalization And Land Use Changes: Explaining The Expansion Of Afforested Land In Chil

Trade Liberalization and Land Use Changes: Explaining the Expansion

of Afforested Land in Chile

Mario E. Niklitschek

Abstract: Trade policy reforms are expected to affect land use patterns in developing countries. Most of the

research has focused on explaining deforestation or the economic and environmental consequences of plantation

subsidies. This article examines the change in economic incentives resulting from trade reforms implemented in

Chile since the mid-1970s for land conversion to forest plantations. The removal of the log export ban and the

general import duties reduction affected forestry and land-competing agriculture both directly and indirectly

through the depreciation of the real exchange rate. Counterfactual roundwood relative prices were obtained by

estimating a generalized Leontief demand function for the domestic processing industry, and the “omega”

coefficient used in the analysis of agricultural trade reforms. The effects on the economic incentives for land

conversion were measured as the land rent changes under forestry and under competing agricultural use that

resulted from counterfactual policy scenarios. The results show the critical role of trade liberalization policies

in creating the necessary economic incentives for the private participation in the expansion of forest plantations

in Chile. The direct effect from the removal of the log export ban was estimated to be larger than the indirect

effect of the general import duty reductions. FOR. SCI. 53(3):385–394.

Keywords: log export ban, real exchange rate, roundwood relative prices, land rents, forest plantations

ECONOMY BROAD POLICIES, with effects on international

trade flows, property rights security, and the

general macroeconomic environment, have been

widely recognized to have a potentially important impact on

land use patterns in developing countries (Angelsen and

Kaimowitz 1999, Munasinghe 2001, Sedjo 2005). The concern

about tropical deforestation has led to an expansion of

research to model the conversion of forests to other land

uses (Kaimowitz et al. 1998). Significant attention has been

received by the possible environmental effects caused by

macroeconomic adjustment programs supported by international

lending institutions (Cruz and Repetto 1992, Sunderlin

et al. 2000). Establishing clear linkages among policy

instruments and forest cover losses has been elusive, however,

due to data limitations, particularly on land use

changes, requiring high levels of aggregation and few temporal

observations (Angelsen and Kaimowitz 1999) [1].

Despite the significant expansion of forest plantations in

a number of countries in the developed and developing

world, the policies behind this land use change have been

less scrutinized [2]. The general comparative advantages of

exotic plantations associated with a favorable location, resulting

from high biological productivity, accessibility to

markets, and terrain with low logging costs, can explain the

changes observed in the geographic distribution of the industry

and the composition of trade flows (Sedjo 1999). The

importance of trade policies among other general conditions,

including land tenure security, forest ownership, rural

finance, and the regulatory institutions, have been identified

as preconditions for the industry expansion (Laarman

1999). Since many of these effects are indirect and difficult

to trace, most of the quantitative analysis has focused on

sector-specific policies, particularly plantation cost sharing

incentives (Amacher et al. 1996, Hardie and Parks 1997,

Zhang and Flick 2001) [3].

Explaining the expansion of planted forests in Chile, an

area of more than 1.5 million hectares in a period of three

decades, offers an interesting analytical challenge. Disentangling

the different policy drivers, trade liberalization

versus sector policies, is difficult in the Chilean case because

the policy reforms were implemented almost simultaneously

in the mid-1970s. Many analysts have emphasized

the role of the 1974 Law Decree 701 (D.L. 701),

through which 75% of the afforestation expenses were

reimbursed to the landowner after certifying an adequate

rate of tree survival (Lara and Veblen 1991, Amacher et al.

1996, Toro and Gessel 1999). Even though other authors

have argued about the importance of trade policy reforms

and increasing property rights security, there has been no

attempt to estimate the contribution of the different factors

involved (Wisecarver 1988, Clapp

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