Forest ecosystem services and rural development: The Grain for Green program in China

As an alternative to command-and-control policies to regulate forests, incentive mechanisms designed to generate the ecosystem services that forests provide (e.g., regulating hydrologic flows and providing wildlife habitat) are gaining increased attention, particularly in developing countries. To date, few studies have provided a conceptual understanding and empirical evidence demonstrating how these incentive mechanisms achieve their conservation and rural development objectives. This study examines the environmental and development impacts of the largest of such incentive programs in the developing world---China's Grain for Green program. The lessons and implications generated by this research extend beyond the context of China to other developing countries that seek to conserve forest ecosystem services in rural settings where poverty is an additional concern.; The study first addresses the cost-effectiveness and sustainability of the Grain for Green program. Using data from unique household surveys, the study finds that the program can improve cost-effectiveness by better targeting cultivated land that is more susceptible to soil erosion and have lower opportunity costs of retiring. The study then evaluates the impact of Grain for Green on poverty alleviation in rural China. Through a conceptual model, I examine how the program can induce changes in the households' income-generating activities and factor allocation decisions. Using panel data from household surveys, I employ program evaluation methods to analyze the program impact on household income, assets and labor allocation. The results indicate that the program has decreased crop income but has also increased the values of household assets such as livestock and housing. I also find that the program has increased the off-farm labor supply and that this impact was greater for households that were more liquidity-constrained but had more human capital prior to program implementation. Overall, the study suggests that Grain for Green has been modestly successful in achieving its conservation and poverty alleviation goals but has the potential to (1) be more cost-effective by exploiting inter-regional heterogeneities in the costs and benefits of retiring cultivated land and use more spatially-differentiated incentives and (2) alleviate poverty more by providing additional support such as job training to farmers who lack human capital.