The United States, Bilateral Debt-for-Nature Swaps, and Forest Loss: A Cross-National Analysis

Abstract

We engage with the theoretical and empirical literature on the effectiveness of debt-for-nature swaps in promoting environmental protection. We present cross-national evidence that US bilateral debt-for-nature swaps are associated with less forest loss. Using a two-stage instrumental variable regression model to analyse a sample of 85 low-and middle-income countries from 2001 to 2014, we find that higher amounts of debt reduction and higher amounts of conservation funds generated as a result of such swaps are associated with lower rates of forest loss.

Power and Politics in the World-System

“…While it is difficult to ensure the models are not in violation of specification error, we have aimed to include a similar number of independent variables and specific factors based on recent research that uses similar modeling during the time period the data are available for (Hargrove et al 2019). Finally, endogeneity can be problematic when one of the independent variables is jointly determined with the dependent variable being explained (Sommer et al 2020;Wooldridge 2015). In this case, endogeneity may be biasing the estimates because environment-related taxes are not randomly assigned and may be linked to other factors external or internal to a country.…”

China can help solve the debt and environmental crises

“…As China develops debt swaps as part of its toolkit, it should be mindful to avoid pitfalls of such swaps in the past, such as inadequate provision of resources, misalignment with the debtor country's policies, and offering too little debt restructuring to sufficiently reduce debt stress (14). However, there is compelling evidence that debt-fornature swaps can lead to positive biodiversity outcomes if designed and implemented to avoid these pitfalls (15), and these successful examples can guide the design of debt-for-climate swaps and other emerging nature and climate performance-linked finance instruments that have yet to gain widespread adoption.…”

With a Little Help from My Friends: Debt Renegotiation and Climate Change

“…The most recent assessment of the possible impacts of swaps on nature is provided by Sommer et al (2020), who find that countries that have signed DFN swaps with the U.S. have seen reductions of forest loss when the amounts of debt reduction and funds for conservation have been larger.…”