Modelling Bi-lateral Forest Product Trade Flows: Experiencing Vertical and Horizontal Chain Optimization

This paper serves to document the REPA Forest Trade Model – a global model of forest trade that consists of ten products across two horizontal layers in a vertical chain. The model includes 20 regions: Five Canadian regions (Atlantic Canada, Central Canada, Alberta, BC Interior and BC Coast), three U.S. regions (South, North and West), China, Japan, Rest of Asia, Chile, Rest of Latin America, Australia, New Zealand, Finland, Sweden, Russia, Rest of Europe, and the Rest of the World. The underlying economic theory upon which the model is built is discussed in detail; we demonstrate that changes in region-level forest management policies (e.g., related to harvests) and/or trade policies have a larger impact on income transfers among regions and agents than they have on global welfare. The objective function and constraints to the quadratic programming implementation of the model are developed, and the method used to calibrate the model to existing bilateral trade flows via positive mathematical programming is discussed. Finally, the data sources and actual data are provided, as are the corrections to shipping and handling costs needed to calibrate the model.