Macroeconomic Income Adjustment and Tropical Forest Conservation: A General Equilibrium Analysis of Malaysia

This article examines the loss in “metered” aggregate income that could occur if Malaysia surrendered the lumber value of its tropical forest resources to nonlumber uses. We estimate these losses under a variety of assumptions about what “business as usual” and “conservation” might entail. We also consider the sensitivity of income losses to variations in our model’s parameter values and to some of its maintained hypothesis. In a context where lumber’s initial contribution to aggregate income is around 2 percent, we estimate that a switch from lumber to nonlumber uses of tropical forests could cost up to 4 percent of baseline income. Of broader significance is the implication that the associated dynamic general equilibrium multipliers are consistently greater than unity, and often close to two in value. These large income multipliers are observed despite an assumed recovery of income through the reallocation of mobile factors initially employed in lumber activities, and an increase in returns to capital. In this study, a terms of trade deterioration, prompted by the loss of lumber foreign exchange revenue, accounts for about one-half of the total income losses we observe. For economies that rely to a greater extent than Malaysia on lumber foreign exchange revenue, these terms of trade-induced losses could be more important still. From a policy perspective, our results provide a benchmark against which the contingent valuations and other imputations of the monetary value of nonlumber use values of tropical forests may be gauged.  2000 Society for Policy Modeling. Published by Elsevier Science Inc.