Economic Parameters for Resource Policy Analysis in Developing Countries

The use of simulated supply schedules for analyzing alternative forest resource policies in developing countries has received considerable attention in the recent past. The theoretical basis for such a model is that equating long-run marginal cost of timber production and price will achieve an optimal allocation of forest land and other economic resources to timber growing. A fundamental issue is how much timber investment can the nation afford when the real economic benefits of the investment are compared with the economic benefits that could be obtained from possible alternative uses of the resources required by the investment. rlier work has emphasized ecological issues and biological assumptions. This paper focuses primarily on the treatment and valuation of labor, capital and other inputs in forest management. Bangladesh is used as a case study. Inflationary trends are excluded from the analysis, so that all values are dealt with in "real" terms. The opportunity cost of capital in the economy as a whole is an appropriate measure of the real interest rate. This was estimated to be approximately 4%, based on the real growth in productivity of the Bangladesh economy in the 1980s. rket prices of some inputs may be distorted by various influences, such as taxes and subsidies, minimum wage levels, tariffs and import quotas, price controls and so forth. To deal with this problem, opportunity costs (shadow prices) were used where appropriate. These shadow prices measure the value of a commodity or a service from the viewpoint of the economy as a whole. In the case of unskilled labor, the shadow price was set at 75% of the market wage rate. For skilled labor, the full market rate was used. vel of interest rates (opportunity costs of investment capital) plays an important role in the analysis because of the necessity of compounding costs to a target year. Variation on the basic model were run to demonstrate the effect of changing these interest rates on prices, and on levels of output, land allocations and employment. Increasing interest rates had substantial effects on prices, but only a minor effect on the other phenomena because of the inelasticity of the demand schedule.