NATURAL RESOURCE SUPPLY CONSTRAINTS AND REGIONAL ECONOMIC ANALYSIS: A COMPUTABLE GENERAL EQUILIBRIUM APPROACH



within the state. The magnitude of this impact will be greatest in the most natural resource
dependent regions of the state. In the five northeast Oregon counties which provide the focus for
this study (i.e., Baker, Grant, Umatilla, Union, and Wallowa Counties), natural resource related
industries provide about 15 percent of regional employment and employee compensation (Table
1). In 1997, of the nearly 60,000 jobs in this five county region, logging, lumber, and wood
products provided 4,100 jobs, and livestock, primarily grazed on public lands, another 5,300
jobs.

Study Purpose and Scope

The purpose of this study was to estimate the regional economic impact of alternative
Forest Service policies regarding access to public resources in Northeast Oregon. In the regional
economic impact analysis, estimates of total change in regional employment and income are
provided under varying assumptions about the nature and magnitude of the policy shift and length
of time over which adjustment to the policy occurs. Analysis is limited to examining the impact of
hypothetical resource supply constraints on timber harvest from federal lands. Instead of a
traditional analysis using a conventional demand-driven fixed-price model,3 this study presents
results obtained using a flexible-price, computable general equilibrium (CGE) model of the
regional economy. CGE models provide several advantages over more conventional regional
models in that they are more consistent with neoclassical economic theory and are flexible enough
to incorporate factor and commodity substitution into the structure of production and demand.

3For example, input-output (IO), economic base (EB), and social accounting matrix
(SAM) models. These types of models produce constant, marginal multipliers (i.e., invariant of
the size of the economic shock) by assuming that factor (labor and capital) supply constraints are
nonbinding; and that factor demand ratios, commodity supply proportions, and all prices are fixed.
Multipliers derived from fixed-price models can generally be described as providing an upper
bound on the amount of economic impact resulting from an exogenous demand shock.



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