Public Goods and Ethnic Diversity: Evidence from Deforestation in Indonesia

Abstract

This paper shows that the level of deforestation in Indonesia is positively related to the degree of ethnic fractionalization. To identify a causal relation, we exploit the exogenous timing of variation in the level of ethnic heterogeneity due to the creation of new jurisdictions. We provide evidence consistent with a lower control of politicians, through electoral punishment, in more ethnically fragmented districts. Our results are consistent with the literature on (under)provision of public goods in ethnically diverse societies.

Palm Oil and the Politics of Deforestation in Indonesia

“…Edwards et al (2020) confirms the effect of district splitting on fires at the village level. On the other hand, Alesina et al (2019) also show that district splitting has reduced ethnic heterogeneity and lead to declines in deforestation, arguing that forest governance improved due to increasing ethnic homogeneity.…”

“…Incentives to split districts differed across mother and child districts: whereas mother districts face a loss of economic and natural resources, the newly formed child districts gain autonomy over resources, but face initial administrative set-up costs. Finally, both units potentially gain from an increase in ethnic and political homogeneity (Alesina et al, 2019;Bazzi and Gudgeon, 2016). District splits were administratively halted twice, from 2004 to 2006 and from 2009 to 2012.…”

“…Although aimed at increasing electoral accountability, the newly introduced direct mayoral elections did not yield an increased political accountability and resulted in even more deforestation (Burgess et al, 2012), possibly by changing the structure of political rent extraction, with fewer candidates running for office and larger governing coalitions exerting their influence. On the positive side, districts that ended up with less ethnic fractionalization after splitting have experienced lower deforestation rates and a less strong pre-election cycle in deforestation (Alesina et al, 2019).…”

“…Among further controls, we allow for differential trends in selected initial conditionsinitial suitability for growing oil palm and initial forest area-and control for the district proliferation process. Administrative district splits are motivated by competition over resource use (Burgess et al, 2012), but are also aimed at reducing ethnic heterogeneity within the administrative units, which could have improved governance outcomes (Alesina et al, 2019). We control for this district splitting process descriptively by using a set of yearly indicators to identify parent and newly formed child districts from two years before until two years after the split.…”

“…Additionally, the process has been accompanied by recent political reforms through democratization and the decentralization of fiscal and environmental responsibilities. Existing empirical evidence highlights the link between local political incentives and deforestation; while decentralization has increased the competition for natural resources (Burgess et al, 2012), it has also decreased ethnic heterogeneity and subsequently potentially improved forest governance (Alesina et al, 2019). Local experts have emphasized the role of corruption of local administrations for the excessive expansion of oil palm plantations (Kartodihardjo, 2018) and resulting increases in deforestation.…”