A Computable General Equilibrium Model for Environmental Policy Analysis: The Case of Deforestation in the Philippines

Abstract

The deterioration of forest resources and poor economic performance in the Philippines calls for a serious rethinking in economic policies addressing both environmental and economic objectives. In order to protect the Philippine forests, the government implemented the Master Plan for Forestry Development covering a 25-year period (i.e. 1991-2015). However, after 16 years of implementation, the Philippine forestry industry has experienced a further reduction in production and in areas devoted to old-growth forests. The annual allowable cut remains excessive as it was prior to 1990. This proves to be an important forestry policy instrument as the findings in this book suggest that the volume of timber or the rate of deforestation is directly affected by the annual allowable cut rather than by population growth and poverty. The recent economic literature suggests the possibility of attaining both macroeconomic growth and sustainability in natural resource use. To examine the economy-wide effects of the Master Plan and the plausibility of attaining sustainable growth, a computable general equilibrium (CGE) model is developed with an appended forestry sub-model adopted from Dee (1991). The research found that given steady-state in forestry, the Dee model can serve as a simple representation of forest growth. However, in the context of positive environmental services and non-steady state growth in forestry, the Dee model might be inappropriate. Given the present land use arrangements in the Philippines, the book suggests that the country will meet both objectives of growth and conservation via a combination of a reduction in forestry discount rate and a uniform reduction in sectoral tariffs. Despite the positive effect of uniform tariff reduction on gross domestic product, employment in some sectors is negatively affected particularly that of farmers, fishers and foresters. This indicates the significance of reforestation as an employment generation tool, notwithstanding its benefits towards resource and soil conservation. In general, forest conservation can be achieved with minimal economic sacrifice. Therefore, depending on the capability of the Philippine government to enforce land use policies, a direct set-aside program (national parks) and the implementation of selective logging programs can assist in the regeneration and perpetuation of the Philippine forest. The aim of the book is to illustrate the application of computable general equilibrium (CGE) models in analysing environmental issues, specifically deforestation in countries with limited access to primary/secondary data. It is an outcome of a government funded research project on deforestation in developing economies. We hope that this book will appeal to policy makers, politicians, academics, government officials especially in developing countries, post-graduate students interested in applied general equilibrium research and the like. The book brings into light a state-of-the-art CGE model with empirical applications into forestry policies in a developing Asian economy. Hence the analytical methodology and the empirical policy analysis have a greater applicability to many countries in Asia and beyond where deforestation has become a critical dynamic issue. This book can also be used as a textbook, in advanced courses in economic modeling at graduate level in universities.