Where the Trees Fall: Macroeconomic Forecasts for Forest-Reliant States

Abstract

Several key states in various regions of the U.S. have experienced recent sawtimber as well as pulp and paper mill closures, which raises an important policy question: how have and will key macroeconomic and industry specific indicators within the U.S. forest sector likely to change over time? This study provides empirical evidence to support forest-sector policy design by using a vector error correction (VEC) model to forecast economic trends in three major industries - forestry and logging, wood manufacturing, and paper manufacturing - across six of the most forest-dependent states found by the location quotient (LQ) measure: Alabama, Arkansas, Maine, Mississippi, Oregon, and Wisconsin. Overall, the results suggest a general decline in employment and the number of firms in the forestry and logging industry as well as the paper manufacturing industry, while wood manufacturing is projected to see modest employment gains. These results also offer key insights for regional policymakers, industry leaders, and local economic development officials: communities dependent on timber-based manufacturing may be more resilient than other forestry-based industries in the face of economic disruptions. Our findings can help prioritize targeted policy interventions and inform regional economic resilience strategies. We show distinct differences across forest-dependent industries and/or state sectors and geographies, highlighting that policies may have to be specific to each sector and/or geographical area. Finally, our VEC modeling framework is adaptable to other resource-dependent industries that serve as regional economic pillars such as mining, agriculture, and energy production offering a transferable tool for policy analysis in regions with similar economic structures.