Environmental Foundations of Human Capital: Deforestation’s Impact on Early Childhood Health

The environment underpins human well-being, yet its degradation increasingly threatens recent development gains, particularly in human health. This paper examines how forest loss affects early childhood health through the hydrological services that forests provide—an important but understudied mechanism. By linking high-resolution forest cover loss data with health outcomes for 0.7 million children across 46 countries, we exploit spatial and temporal variation in upstream forest cover loss measured at different points in time to assess downstream health impacts on rural households. Our findings show that upstream forest loss significantly increases the incidence of diarrheal disease among children under five, underscoring the critical role forests play in maintaining water quality through natural filtration. The health effects are not only immediate but also persistent: upstream forest cover loss leads to higher stunting rates, a key indicator of long-term productivity and human health. Furthermore, we find that the type of land cover transitions matters. Forest degradation and conversion to grassland are particularly harmful, while conversion to urban land may mitigate health impacts—likely due to improved infrastructure and access to services. These findings highlight the essential role of upstream forest ecosystems in supporting human capital and emphasize the need to preserve and restore natural capital to improve long-term health and development outcomes.