Corruption, trade and resource conversion

Recent evidence suggests that special interest groups significantly affect tropical deforestation through lobbying. We develop an open-economy model in which resource conversion is determined by a self-interested government that is susceptible to the influences of the political contributions it receives from the profit-maximizing economic agent responsible for land conversion. We investigate the effects of lobbying on the cumulative level of resource conversion and examine how trade policy influences the distortions created by political corruption. We derive testable predictions that are analyzed through a panel analysis of cumulative agricultural land expansion over 1960-99 for low and middle-income tropical countries. Our findings suggest that increased corruption and resource dependency directly promote land conversion, whereas rising terms of trade reduce conversion. (c) 2005 Elsevier Inc. All rights reserved.