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 1995).

The analysis of the linkages of trade effects is important

for the evaluation of possible new programs in Chile, and

particularly for other countries that have sought to emulate

Chilean policies. Both the indirect effect resulting from the

general tariff reduction, particularly importable industrial

goods from an average tariff above 100%, and the removal

of the export log ban contributed to increase land rents in

Mario E. Niklitschek, Instituto de Manejo Forestal, Universidad Austral de Chile and Centro de Investigaciones, Casilla #567, Valdivia, Chile—(Phone)

56-63-221639; Fax: 56-63-221489; mniklits@uach.cl.

Acknowledgments: The author acknowledges partial financial support from the project “Trade liberalization, rural poverty and the environment” sponsored

by the World Bank and WWF. The author thanks Rosa Maria Alzamora for providing a spreadsheet with timber volume projections and the parameters on

the production system which allowed estimating land rents under different scenarios. The author also thanks Gonzalo Paredes and two anonymous reviewers

for helpful comments and suggestions. The opinions expressed are the author’s alone and do not necessarily correspond to those of sponsored institutions

or those with which he is affiliated.

Manuscript received September 6, 2006, accepted December 20, 2006 Copyright © 2007 by the Society of American Foresters

Forest Science 53(3) 2007 385

forestry. The intervention policies on food imports, which

had fluctuated widely between a focus on the protection of

urban real wages and their effect on the consumer price

index (CPI) and the support of farm income and domestic

production, also need to be considered in the analysis of

land use changes. Wheat is the main food crop produced in

rainfed areas and it competes for land with forest

plantations.

This article examines, under a mostly partial equilibrium

framework, land rent changes under different counterfactual

policy scenarios, including trade distortions and afforestation

subsidies. The methodology is based on the influential

work on the measurement of the incentive changes caused

by agricultural price and trade policies in developing countries

(Krueger 1992, Sadoulet and de Janvry 1995). The

conceptual framework for the analysis of the effect of

relative prices on land use changes borrows from the literature

on land use modeling under heterogeneous land quality

(Stavins and Jaffe 1990, Hardie and Parks 1997).

An important question addressed is how land rent associated

with different uses has changed as a result of trade

liberalization and sector-specific policies. More specifically,

the effect of across-the-board cuts of import duties,

including those on industrial products, the removal of the

log export ban, and the implementation of a band price

system for land-competing agricultural commodities, are

analyzed.

This article is organized as follows. The second section

briefly discusses the main policy changes and land use

patterns experienced by Chile since the import substitution

policies of the 1960s. In the third section, a simple Ricardian

model of land use changes under heterogeneous land

quality illustrates the effects of trade policy reforms on land

allocation. The methodology to measure the effect of policy

changes on relative prices and land rents is presented in the

fourth section. The remaining two sections present the results

and the conclusions.

Trade and Forest Policies in Chile: A Brief

Overview

The Chilean forest sector has had a remarkable performance

since the mid-1970s. The added value of the sector

has grown six-fold during the 1970–96 period, which is

three times higher than that of the total Chilean industry.

The sector productivity and employment have also experienced

a higher growth rate than those for the whole industry

(Katz et al. 2000). This expansion resulted in the transformation

of a protected import substitution activity, particularly

paper production for a small domestic market, into the

second largest export sector of the country. In 2003, it

accounted for 3.2% of gross domestic product (GDP) and

12.0% of total exports (Niklitschek and Gayoso 2005).

Both general (trade and land tenure security) and sectorspecific

policies (plantation cost sharing) had a role in

...