Improving access to capital through credit and public spendings is an important steptoward development and poverty alleviation. At the same time, deforestation-relatedactivities, like agricultural expansion, can be seen as relying on natural capital, through thedepletion of forest resources and the use of land in an extensive way. It is then important tobetter understand how a better access to capital influences the use of land as a naturalcapital. This paper assesses the relationship between financial development, publicspendings and deforestation. Are they substitute or complement? Our econometric analysisshows that deforestation is positively correlated to access to credit and public spendings,which gives some evidence that natural capital is a complement to credit and publicspendings.
Public expenses, credit and natural capital: Substitution or complementarity?