Maine's Forestry and Logging Industry: Building a Model for Forecasting

Abstract

From 2000 to 2017, 64% of Maine's pulp and paper processing mills shut down; these closures resulted in harmful effects to communities in Maine and beyond. One question this research asks is how will key macroeconomic and related variables for Maine's forestry and logging industry change in the future? To answer this, we forecast key macroeconomic and related variables with a vector error correction (VEC model) to assess past and predict future economic contributions from Maine's forestry and logging industry. The forecasting results imply that although the contribution of the industry in Maine would likely remain stable due to level prices and a slight increase in output, local Maine communities could be worse off due to decreases in employment and firms. We then incorporated these forecasts into a 3-stage modeling process to analyze how a negative shock to exchange rates from an increase in tariffs could affect Maine's employment and output. Our results suggest that increased tariffs will reduce output and increase employment volatility in Maine. Rising uncertainty and costs of business operations suggest care should be taken when changing tariffs and trade restrictions, especially when changes to business operations can harm markets and communities.