Governance and Timber Harvests

Resource economics theory implies that risks associated with weak governance have an ambiguous impact on extraction, with the net impact depending on the relative strengths of depletion and investment effects. Previous empirical studies have found that improved governance tends to reduce deforestation but to raise oil production. Here, we present evidence that the marginal impact of improved governance on timber harvests in developing countries during 1984-2006 was nonmonotonic. It tended to raise harvests in countries with weaker governance but to reduce harvests in countries with stronger governance. This nonmonotonic impact occurred for both an index of governmental integrity (corruption, bureaucracy quality, law and order) and an index of governmental stability. A simulation of hypothetical increases in these governance indices to the maximum 2006 values observed in the sample predicted that improved governance would reduce harvests in most countries but could raise harvests in some, with large increases occurring in countries with the weakest governance.