A Spatial Equilibrium Analysis of Policy for the Forestry and Wood-Processing Industries in Northern Vietnam

Abstract

National objectives for forestry and wood-processing industries have not usually been achieved to the extent that the Government of Vietnam planned. A spatial equilibrium model with linear supply and demand functions for the forestry and wood-processing industries was developed to analyse policies for northern Vietnam. Four policy scenarios were established, in each of which optimal levels of prices, supply and demand quantities were estimated, and solutions were subjected to sensitivity analysis with respect to the elasticity estimates. The analysis indicates that government objectives cannot be achieved in the 2010-15 period because plans if implemented would force the main stakeholders to produce unprofitable quantities. For greater financial viability and sustainability, the number of planned new wood-processing factories should be reduced and the design production capacity of each new factory should be increased to achieve economies of size and international market competitiveness. Also, the area of planted production forest in northern Vietnam will increase in all four policy scenarios; however, the growth should be lower than the levels planned for 2015.