Determinants of illegal logging in Indonesia: An empirical analysis for the period 1996–2010

ABSTRACT

Illegal logging is a significant problem in Indonesia, which is one of the few countries with a large forest area. In this study, we investigate the factors that affect harvesting and supply of illegal timber from Indonesia to China and Japan. Moreover, we investigate the factors that lead to the demand of Indonesian illegal timber from China and Japan. A simultaneous-equation econometric model of illegally logged timber demand and supply is developed and tested using the annual data over the period 1996–2010. We find that corruption and decentralization in Indonesia have significant and positive impacts on the illegally logged timber supply while excess demand in Japanese construction and furniture industries as well as Japan’s housing starts are the significant factors that affect the illegal logging in Indonesia. The law enforcement or policies aimed at reducing illegal harvesting in Indonesia are found to be more effective than the policies targeting the import of illegally logged timber into Japan and China.

KEYWORDS:

• Deforestation
• illegal logging in Indonesia
• illegal timber demand
• Illegal timber trade
• simultaneous-equation model

Notes

¹ Approximately 498,000 ha, according to FAO (2010).

² For example, in Brack et al. (2002), “Illegal logging takes place when timber is harvested, transported, bought or sold in violation of national laws. The harvesting procedure itself may be illegal, including corrupt means to gain access to forests, extraction without permission or from a protected area, cutting of protected species or extraction of timber in excess of agreed limits. Illegalities may also occur during transport including illegal processing and export, mis-declaration to customs, and avoidance of taxes and other charges”.

³ For instance, the President Director of Surya Dumai Group, Marthias, was charged with corruption in the forestry sector, while the Governor of East Kalimantan, Suwarna Abdul Fattah, was charged with receiving bribes from Marthias (Luttrell et al., 2011) (Court decision No. 21/PID.B/TPK/2006/PN.JKT.PST on Marthias. Court decision No. 380.K/Pid. Sus/2007 on Suwarna). They were sentenced to 18 months and 4 yr in prison separately (Luttrell et al., 2011). For details of the cases, the reader is referred to the following links: http://www.cifor.org/ilea/_pf/1/_ref/indicators/cases/decision/Martias.htm, http://www.cifor.org/ilea/_ref/indicators/cases/decision/suwarna_AF.htm.

⁴ The impact of these policies is, however, not captured in our dataset; see the limitation section for further details.

⁵ VPA is an essential component of the EU bilateral trade agreements between the EU and its timber exporting partner countries (Obidzinski et al., 2014).

⁶ The timber trading records include trading of log, swan timer, veneer and plywood. These wood products were converted to the log equivalent by index of logs 1:1, swan timber 1:1.43, veneer 1:1.9, plywood 1:2 (Hou & Song, 2011).

⁷ Other primary timber importing countries of Indonesia are the United Kingdom and the United States. Approximately 20% of Indonesian plywood was exported to these two countries (ITTO, 1997–2012). However, they were not selected as the primary illegal timber importers as their estimated amount of illegal timber imports are not significant. Appendix B presents discrepancies in the trading records between the United States and Indonesia, and the United Kingdom and Indonesia between 1996 and 2010.

⁸ Details related to Gretl Software can be found at the website: http://gretl.sourceforge.net/.

⁹ Source: World Bank Commodities Price Data.

¹⁰ Source: World Bank Commodities Price Data.

¹¹ Source: United States Department of Agriculture https://pecad.fas.usda.gov/highlights/2015/12/Indonesia/Index.htm.