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The Effect of IMF Programs on Deforest



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The Effect of IMF Programs on Deforestation James Raymond Vreeland Robynn Kimberly Sturm Spencer William Durbin Yale University P O Box 208301 New Haven CT 06520 8301 Tel 203 432 6220 Fax 203 432 6196 May 29 2001 Abstract According to International Monetary Fund IMF officials The IMF is acutely aware that natural resource degradation that threatens growth cannot be ignored Fischer 1996 Critics of IMF programs however claim that Fund policies hurt the environment by encouraging budget cuts to environmental programs promoting primary product export oriented development and inducing economic contractions that lead to extensive migration to marginal lands As the first large n study of the effects of IMF programs on the environment using a methodology that controls for nonrandom selection our question is narrow What is the effect of IMF programs on rates of deforestation We use a dynamic version of the Heckman selection model to estimate the effect of the IMF with a data set of 2 258 observations from 112 countries from 1970 to 1990 We find that deforestation increases when governments participate in IMF programs even after controlling for nonrandom selection Key Words IMF deforestation environmental nonrandom selection international cross country 1 Introduction What is the effect of International Monetary Fund IMF programs on the environment Critics of the Fund claim that IMF structural adjustment programs hurt the environment by encouraging budget cuts to environmental programs promoting primary product export oriented development and inducing economic contractions that lead to extensive migration to marginal lands As a result IMF Structural Adjustment Programs may cause widespread environmental destruction squandering the country s natural resources environmental capital and economic future Hayter 1989 George 1992 1998 Cruz and Repetto 1992 Cruz and Munasinghe 1996 Owusu 1998 Yet IMF officials contend that their programs have beneficial effects on the environment They



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