Application of a dynamic investment scheduling model to import substitution of softwood lumber in Jamaica

This study describes a methodology for analyzing intertemporal land use for a multi-product, multi-region economy. The methodology is tested in Jamaica by examining time paths of commodity and land-use equilibria for: (1) pine plantations for lumber; (2) coffee plantations for export; and (3) agricultural crops. Empirical results emphasize the effects of government policies on imports and domestic production of pine lumber.; The methodology comprises two linear programs for analyzing supply: (1) a long-run equilibrium (LRE) model to calculate steady-state equilibria of commodities and land uses; and (2) a dynamic investment scheduling (DIS) model to calculate time paths of equilibria toward the steady-state. The DIS model uses dynamic linear programming to calculate time paths for lumber imports, domestic timber production, timber processing capacity, and land-use patterns.; The objective function in each model is maximization of discounted land rents. Demand functions are estimated and used to compute endogenous commodity prices of outputs. Network analysis concepts are used to determine input/output coefficients for various production stages. Crop management, harvesting, transport, and processing coefficients vary with the initial state characteristics of land areas and the harvest age control variable.; Results from the LRE model indicate pine lumber self-sufficiency with a 5% interest rate and free trade. However, self-sufficiency is not achieved with either a 9% interest rate or no increases in import prices. Results are sensitive to wood by-product demand, coffee expansion plans, and land-use policy.; In the DIS model equilibria paths are generated separately for market prices and economic shadow prices. The dynamic effects of tariffs and domestic protection are evaluated using monopolistic pricing theory. Sensitivity to interest rate and import prices is also tested. In all cases, the DIS model results are consistent with optimal control principles in resource economics.; The methodology can be used for supply analysis or for testing econometric functional forms for perennial crops. The methodology is also useful for strategic planning at the firm, industry, or inter-industry level.