Forest Loss and Economic Inequality in the Solomon Islands: Using Small-Area Estimation to Link Environmental Change to Welfare Outcomes

To study welfare effects of environmental change, data from household surveys may be linked to remote sensing data. Using spatial aggregation to link risks ecological fallacy, since surveys are usually representative for areas larger than the spatial scale of decision-making units. This paper uses survey-to-census imputation to estimate welfare indicators for small areas to study the effect of deforestation on subsequent inequality in the rural Solomon Islands. This country depends on logging for almost half of foreign exchange and one-sixth of government revenue, and most forested land remains under customary ownership. A sharp increase in log exports, to seven times the sustainable yield, and a major shift in export destinations as other countries withdrew from the tropical log trade represents an exogenous shock that helps to identify effects of deforestation on inequality rather than the reverse relationship. A standard deviation increase in the rate of forest loss over 2000 to 2012 raises the Gini index of inequality in 2013 by one-third of a standard deviation. Mean incomes and poverty rates are also higher, implying that deforestation makes some households richer while others become poorer. These precisely estimated effects would be obscured using more spatially aggregated data.