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This paper shows that the level of deforestation in Indonesia is positively related
to the degree of ethnic fractionalization at the district level. To identify a casual rela- tion we exploit the exogenous timing of variations 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 bring a new perspective on the political economy of defor- estation. They are consistent with the literature on (under) provision of public goods and social capital in ethnically diverse societies and suggest that when the underlying communities are ethnically fractionalized decentralisation can reduce deforestation by delegating powers to more homogeneous communities.
NBER WP 20504