The Impact of the Three-North Shelter Forest Program on Rural Income – Evidence from Inner Mongolia in China

EfD Discussion Paper
1 February 2022

Afforestation, that is planting forests increase employment and investments and is beneficial for the environment. But it's important to choose the right type of forest.

Cong Xie, Lunyu Xie, Jintao Xu, Yuanyuan Yi

This paper studies the direct and spillover effects of the Three-North Shelter Forest Program (TNSFP) on rural income. Using a spatial Durbin model on a panel dataset from 101 counties in Inner Mongolia from 1993 to 2015, we show that the TNSFP had a significantly positive effect on rural income and that different afforestation methods and forest types affect rural income in different ways. The main channels include investment, income, health, and so on. The effects of the main channels include increased employment and investment due to afforestation, as well as benefits due to environmental improvement. We further show that plantation forests have a positive spatial spillover effect on rural income in the same area and that the estimation of the income effect of afforestation is likely to be biased if the spillover effect is not taken into account. Our contribution includes demonstrating the use of spatial econometrics to identify such effects. We also call attention to the importance of choosing a forest type that is suitable to local conditions and an afforestation method that can contribute to local income growth.

Keywords: Three-North Shelter Forest Program, rural income, afforestation, spatial econometrics, spillover effect 

Publication reference
MS 1264 DP 22-02
Publication | 1 March 2022