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

Commodities produced for regional use (XXD) are combined with available non-industrial
supplies (GS, “government sales”) to form total aggregate supply from regional sources (XD).
The aggregation occurs via a constant elasticity substitution (CES) function. The treatment of
government supplies as imperfect substitutes for private supplies in generating total regional
commodity supply illustrates the flexibility of the regional CGE framework. In constructing this
paper’s analysis, we imposed quantity restrictions on federal government supplies of logs.
Regional supply (XD) is, in turn, combined with competitive imports (M) via a CES aggregation
to form a composite absorption good (or service) for each class of commodity (Q). The role of
the nested CES functions is to allow partial substitution of private (and imported) sources of logs
for federal log supplies.⁶ Expenditure minimization at both stages of aggregation determines
substitution between XXD and GS, and between XD and M, respectively. The use of CET and
CES functions in the model accommodates the observed phenomenon of “crosshauling” in which
simultaneous imports and exports appear in highly aggregated commodity classifications.

To give these variables more content, consider the following figures for the private
logging sector in the baseline (1997) economy in which all estimates are in millions of dollars.
Regional output of the logging sector was $158.15 (X). Of this, $139.05 (E) was exported
outside the region and $19.10 (XXD) was used in the region. Logs produced and used regionally
$19.10 (XXD) were combined with logs from government sales of $93.51 (GS) to form total log
supply from regional sources of $112.61 (XD). Government sales were made up $20.67 (SS)
from state sources and $72.84 (FS) from federal sources. Regional log supply of $112.61 (XD)

⁶This treatment contrasts with a fixed-price analytical approach where the relative
proportions of inputs from public, private, and imported sources is assumed to be fixed.

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