A critical challenge facing policymakers globally are whether poverty alleviation efforts are hastening or mitigating environmental degradation. Environmental quality and natural resource stocks are critical to welfare of the world’s poor, but are being degraded at an alarming rate. On a local level, forests contribute to welfare by providing fuel, fodder, timber, watershed protection and wildlife habitat. On a global level, deforestation is estimated to account for approximately 20% of total carbon emissions on the planet and has been an important focus of recent international climate negotiations. Past studies show that the relationship between income generation and environmental degradation is complex and non-linear. Even when studies have been limited to the relationship between only income and deforestation, the results are ambiguous. This study contributes a clean identification of causal effects of income on deforestation by evaluating the impact of a particularly large and long-lasting cash transfer program.
Oportunidades is a large-scale conditional cash transfer program in Mexico that aims to increase school attendance and health care among poor families. The annual budget is approximately $2.6 billion, which represents about half of Mexico’s anti-poverty budget. The program treats some four million households, providing cash transfers conditional on health care provision and school attendance. On average, the transfers are about one-third of total income in these poor households, signifying a meaningful change in income. In order to rollout the program, the government first looked at the poverty levels of villages as a whole and then conducted surveys within select villages to determine who would receive payments.
The research team used a variety of approaches to determine the impact of Oportunidades on deforestation. First, they linked spatial data on deforestation in Mexico from the period 2000-2003 to the location and program eligibility for 105,749 villages in Mexico. The deforestation data was mapped over the entire country and the researchers created polygons of land around each village to look at the impact on the surrounding land of those villages that received cash transfers through the Oportunidades program. The researchers paid specific attention to the difference on deforestation patterns between those villages that were just poor enough to receive the program and those that were not, which enabled them to observe the impact of the program at the village level.
Second, the research team exploited the randomized variation created during the pilot phase of the program (called Progresa). Of the pool initially identified for participation in the program, 506 villages were randomly split into 320 “treatment” and 186 “control” groups. Within each village, households were eligible for the program depending on their poverty status. The research team then used survey data from the program to compare consumption of beef and milk products before and after receiving the cash transfer. They also looked at changes in the number of cattle owned, number of plots of land that households report using for livestock grazing for agricultural purposes, and total area of all plots among those households that received the cash transfer. To account for market-wide impacts of the program, the team also examined changes in production behavior by neighboring households that were in the same village but did not receive the cash transfer (households that might supply other people in the village with beef or milk).
Results and Policy Implications
Results imply roughly a doubling in the probability that any deforestation occurs in a locality. At the time of the study, the baseline for all villages was 4.9%, so any increase in deforestation was quite important to the environmental health of the village. Among those villages that were deforesting before the program, the rate increased from 15% to 33%.
The research team did not find an increase in the direct demand for timber products to build homes, but they did find significant increases in beef and milk consumption (29% and 23% respectively). These increases in beef and milk consumption were consistent across villages, but the corresponding production of those products was not. They found larger deforestation effects in villages that have poor road infrastructure and thus were more isolated from outside markets. This suggests that road density is very important in determining the location of the deforestation impacts of a cash transfer program. Villages with better roads are able to spread out the impact of their consumption habits across a larger area.
This study demonstrates that there can be significant environmental impacts of poverty alleviation, including an increase in deforestation as households shift demand from less land-intensive goods (like beans) to more land-intensive goods (like beef and milk), increasing their ecological footprint. Additionally, transportation infrastructure plays a critical role in determining the location of environmental impacts–i.e. where the ecological footprint lands.
These results indicate that policymakers should be cautious in interpreting the magnitude of impact estimates without taking into account how these are mediated through markets. Where local infrastructure is good, impact studies are unlikely to capture the full magnitude of the ecological footprint effect. In order to achieve increases in wealth simultaneously with improvements in environmental quality, this study suggests that policymakers must carefully design environmental management strategies to accompany poverty alleviation programs.
 MEA (2005), “Millennium ecosystem assessment, ecosystems and human well-being: Policy responses, findings of the responses working group.”
 IPCC (2007), “Fourth Assessment Report”. Intergovernmental Panel on Climate Change. http://www1.ipcc.ch/.
Photo Credit: Alejandra Rogel, J-PAL, Mexico 2009