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Economics of Deforestation

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AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 24 Aug 2020

In this video we look at some of the main drivers of increasing rates of deforestation in countries such as Brazil and Indonesia.

Deforestation causes significant economic and social/human costs and this is now one of the most critical environmental issues of the age. We will briefly touch on some of the policy options open to addressing the challenging current rates of deforestation and mention the work of the Economics Nobel-Winning economist, the late Elinor Ostrom.

Economics of Deforestation

Key causes / drivers of deforestation:

  • Expansion of industrial cattle / soy / palm oil farming especially in countries such as Brazil
  • Expansion of (often illegal) gold mining
  • Expansion of hydro-electric dams requiring land clearance
  • Urban development / urban sprawl
  • Illegal logging / land grabbing alongside weak legal / institutional protections

Economic and social costs of deforestation:

  • Threat to livelihoods of millions in indigenous populations
  • Environmental impact – loss of a vital carbon store
  • Threat to eco-systems – permanent loss of natural capital
  • Consequences for water supplies in other countries and continents
  • Huge threat to potential for a country to achieve sustainable development

What policies / government interventions might successfully reduce rates of deforestation?

  1. Increase in overseas aid programmes e.g. husbandry payments to local farmers
  2. Investment to make farming more sustainable (requires appropriate capital inputs)
  3. Linking trade agreements to improved environmental and farming policies
  4. Using satellite technology to monitor and track rates of deforestation
  5. Investment in reforestation via government spending.


In some countries, reforestation has become an important part of government economic policy. From 2000 to 2019, a total of 27 million hectares of forest area has been restored around the globe. However, the annual State of the World's Forests report found that an estimated 10 million hectares were lost each year between 2015 and 2020 due to deforestation.

Incentives matter!

The key to controlling deforestation in the long run is to show that the conservation of land can be both economically profitable and environmentally valuable to the communities most closely connected to the land.

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