Trade and Deforestation: Evidence from Peru

This study investigates the causal relationship between international trade and deforestation in Peru, utilizing a shift-share instrumental variables approach to address potential endogeneity. By leveraging district-level variations in export exposure and global demand shocks, the analysis reveals that export activity significantly influences deforestation rates and forest cover. The findings highlight heterogeneity across Peru’s regions, with the Amazonian Selva experiencing pronounced deforestation linked to agricultural expansion and resource extraction driven by trade. While exports contribute to economic growth, they exacerbate environmental degradation, particularly in districts lacking governance frameworks or conservation mechanisms. Sectoral analysis demonstrates that agricultural and mining exports are major drivers of forest loss, whereas manufacturing and other goods have more nuanced impacts. The study underscores the importance of integrating environmental considerations into trade policies, suggesting that conservation initiatives and sustainable practices are essential to mitigate the environmental costs of global trade. These insights are critical for policymakers balancing economic development with environmental sustainability, especially in trade-dependent economies with vulnerable ecosystems.