Linking Natural Resources to the CGE framework: the case of Land Use Changes in the EPPA Model

Incorporating natural resources in large-scale models has been an increasing area of theoretical and empirical development in the CGE literature. The explicit representation of land use and land use conversion in global models has been one of the most recent and challenging examples of such development. We contribute to this literature describing in details one approach to include the natural resource land in a global CGE model and representing its connection to the broader economy through agriculture and forestry production. We apply the model to project future land use trajectories. The simulations highlight the important linkages between environmental services and economic development and the differences in the patterns of land use trajectories among developed and developing countries. The introduction of environmental resources in the model results in some changes in its original microeconomic and macroeconomic results, but does not alter the main response of the model. Finally, we show that parameters defining agricultural yields and population growth are important in projecting future services from land use, but alternative rates of GDP growth have less effect on the main trends in land use trajectories.