LAUSR

We examine the effect of forest cover change on agricultural productivity using household panel data and remote sensing data on forest change. The focus of the study is rural Indonesia, where deforestation is causing intensive biodiversity loss while agriculture is the main industry. We estimate an agricultural production function and find that farmers in rural Indonesia experienced a reduction in agricultural productivity of 45% between 2001 and 2014 or US$2.63 billion in 2014. In addition, we explore the mechanisms underlying the productivity loss and find that biological pest control is the most plausible explanation.