COMPARATIVE DYNAMICS OF FOREST RESOURCE EXTRACTION BY LOCAL COMMUNITIES By Herath

Much of the world’s gene pool is located in tropical rainforests, which are being destroyed at an alarming rate. Proper management of protected forests is crucial to avoid further loss of biodiversity. Resource extraction by local communities can be a major obstacle in the management of protected forests. This paper develops a two sector dynamic model for agriculture and forest resource extraction. Comparative dynamic results show that higher prices for agricultural output, lower input prices, better knowledge on agricultural production techniques and a lower rate of individual time preferences result in higher equilibrium stock of forest resources. Tobit analysis with data collected from the Sinharaja forest in Sri Lanka provides supportive empirical evidence. The results suggest that agricultural development in the periphery of protected forests may be an effective strategy for biodiversity protection.