Modeling Potential Economy-Wide Impacts of Increased Demand for Forest Products in Kentucky

Abstract

This study applies a static single-region computable general equilibrium model to provide a snapshot of the economy-wide impacts of anticipated increase in wood products demand in Kentucky. Two counterfactual scenarios of supply increase in the forest sector are simulated. Results show an increase in welfare of high-income households, whereas welfare of low-income households declines marginally due to increase in producer supply prices. Thus, complementary policies to improve welfare of low-income households are imperative as the forest sector expands. Overall, Kentucky’s economy is positively affected through increase in gross regional product. Findings provide valuable policy-relevant information for a sustainable Kentucky forest sector. Study Implications: This study provides insights into economic contributions and impacts associated with increase in demand for Kentucky sector products. Results suggest that expansion in the forest sector has an overall positive impact on the state’s economy. Findings reveal that increase in demand for forest products stimulates overall economic growth. Households experience income gains, but household income is affected disproportionately, with low-income households receiving the least income gains. Further, household income gains may not be enough to offset resultant producer price increases, especially those for low-income households. Findings from this study are useful from a policy perspective for evaluating the economic role of the forest sector in Kentucky’s economy, and they provide valuable information on why forestlands in Kentucky need to be sustainably managed to ensure a continuous supply of timber resources for the state’s forest sector.