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The Economic Importance of the Maryland Forest Products Industry. Primary Authors: Duncan Hilchey, Cornell University David Kay, Cornell University. Prepared for and Property of the

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The Economic Importance of the Maryland Forest Products Industry


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    1. The Economic Importance of the Maryland Forest Products Industry Primary Authors: Duncan Hilchey, Cornell University David Kay, Cornell University Prepared for and Property of the Maryland Eastern Shore Resource Conservation & Development Council, Inc. and the Maryland Department of Natural Resources - Forest Service ____________________ Funded by: United States Department of Agriculture, Forest Service

    2. The Economic Importance of the Maryland Forest Products IndustrySummary • Maryland’s forestry and wood-products industry constituted over $2 billion in output value in 1996, and provided nearly 14,000 jobs. While secondary wood manufacturing (e.g., cardboard-box production) provides the most employment opportunities, the primary wood-manufacturing sectors (e.g., saw mills and paper mills) have higher employment multipliers. This indicates the primary wood manufacturers role between raw forest products and finished wood products. In fact, primary wood-manufacturing sectors are, on average, higher than other average multipliers of industries in the state. • Shock analysis (using IMPLAN) suggests that a 10% reduction or increase in the value of primary wood-manufacturing industry output would have a profound impact on the state’s economy. The Economic Importance of the Maryland Forest Products Industry

    3. Table of Contents • Summary 2 • List of Tables and Charts 4 • Forestry and Wood Products Industry • Definitions 5 • Maryland Region Definitions 6 • IMPLAN Model 7 • General Industry Data 8 • Output 9 • Employment 10 • Value-Added 11 • Multipliers 14 • Output 15 • Employment 21 • Value-Added 28 • Shock Analysis 33 • Output 34 • Employment 35 • Value-Added 36 • Statistical Summary 37 • Appendix: • About IMPLAN 38 • Subsector Source Data Files 42-52 • About the Authors 53 The Economic Importance of the Maryland Forest Products Industry

    4. List of Tables and Charts • Chart 10 Eastern Region 24 • Chart 11 Southern Region 25 • Chart 12 Western Region 26 • Chart 13 Mean Value Added Multipliers for Forestry and Wood • Products Industry and All Industries, Maryland 28 • Chart 14 Central Region 29 • Chart 15 Eastern Region 30 • Chart 16 Southern Region 31 • Chart 17 Western Region 32 • Table 4 Change in the Value of Industrial Output as a Result of • -10%, +10% and +20% Shifts in the Value of Output in the Primary Wood Manufacturing Sector 34 • Table 5 Change in the Number of Jobs as a Result of -10%, +10% and +20% Shifts in the Value of Output in the Primary Wood Manufacturing Sector 35 • Table 6 Change in Value-Added as a Result of -10%, +10% and +20% Shifts in the Value of Output in the Primary Wood Manufacturing Sector 36 • Chart 1 Maryland Statewide Forestry and Wood Products industry Output by Sector 9 • Table 1 Maryland Forestry and Wood Products Industry • Output by Sector and Region 10 • Chart 2 Maryland Forestry and Wood Products Output by • Region 11 • Table 2 Maryland Forestry and Wood Products • Employment by Sector 12 • Table 3 Maryland Forestry and Wood Products • Value Added by Sector 13 • Chart 3 Mean Output Multipliers for Forestry and Wood • Products Industry and All Industries, Maryland 16 • Chart 4 Central Region 17 • Chart 5 Eastern Region 18 • Chart 6 Southern Region 19 • Chart 7 Western Region 20 • Chart 8 Mean Employment Multipliers for Forestry and Wood • Products Industry and All Industries, Maryland 22 • Chart 9 Central Region 23 The Economic Importance of the Maryland Forest Products Industry

    5. Forestry and Wood Products Industry Definitions • Following the industry definition originally developed by the U.S. Forestry Service, this study divides the forestry industry into three major categories: • Timber Management and Harvesting • Operation of timber tracts, tree farms, forest nurseries • Reforestation services • Other forest products • Harvesting and transporting logs • Producing rough, round, hewn or riven primary forest or wood raw materials • Producing wood chips • Primary Wood Manufacturing • Processing of logs and related products into lumber, veneer and plywood, pulp and turpentine and other products • Secondary Wood Manufacturing • Remanufacture of lumber, plywood, paper and other timber products produced by the primary manufacturers into finished products, such as furniture, toys, containers, etc. The Economic Importance of the Maryland Forest Products Industry

    6. Maryland Region Definitions • The data analysis in this report defines four regions of Maryland, divided as follows: • Central: • Carroll, Baltimore, Harford, Cecil, Montgomery and Howard Counties • Eastern: • Kent, Queen Anne’s, Talbot, Caroline, Dorchester, Wicomico, Worcester and Somerset Counties • Southern: • Anne Arundel, Prince George’s, Calvert, Charles and St. Mary’s Counties • Western: • Garrett, Allegany, Washington and Frederick Counties The Economic Importance of the Maryland Forest Products Industry

    7. The IMPLAN Model • The data analysis in this report is conducted using the IMPLAN Model: • Model: • IMPLAN is a widely regarded, inter-industry Input-Output Model that was developed, in part, by the United States Department of Agriculture’s Forest Service. • IMPLAN is a “non-survey” Input-Output Model utilizing available data to estimate the flow of goods and services at national, state, and county levels. • Data: • IMPLAN analysis is based on highly credible data sources to include: The United States Population Census, County Business Patterns, Regional Economic Information System (REIS) data, and the annual BLS ES-202 wage and employment data. • The quality of data used by IMPLAN is one of its primary strengths. The Economic Importance of the Maryland Forest Products Industry

    8. General Industry Information • Output Value • Employment • Value-Added The Economic Importance of the Maryland Forest Products Industry

    9. Forestry and Wood Products Combined Are a $2 Billion Industry in Maryland The Economic Importance of the Maryland Forest Products Industry

    10. The Forestry and Wood-Manufacturing Sectors Tend to Concentrate by Region All regions in Maryland support some level of forestry and wood manufacturing. However, sectors tend to be regionally concentrated: Timber Management and Harvesting in the Eastern region; Primary Wood Manufacturing in the Western region; and Secondary Wood Manufacturing in the Central region. The Economic Importance of the Maryland Forest Products Industry

    11. Maryland’s Forestry and Wood-Products Industry is Important to All Regions of the State Maryland’s Central and Western regions account for over two-thirds of the state’s forestry and wood products annual output value. However, at one-quarter and one-third of a billion dollars, respectively, Southern and Eastern Maryland’s forestry and wood-products industry output is significant to the rural economy. The Economic Importance of the Maryland Forest Products Industry

    12. Maryland’s Forestry and Wood Products Industry Creates Almost 14,000 Jobs • Secondary Wood Manufacturing provides the most employment opportunities, with jobs in this sector being concentrated in the Central region of the state. Employment in Primary Wood Manufacturing is highly concentrated in the Western region of Maryland. This is principally due to the presence of paper mills and other types of wood products mills. Jobs in Timber Management and Harvesting sectors are somewhat concentrated in the Eastern region. The Economic Importance of the Maryland Forest Products Industry

    13. Forestry Industry Contributes $.75 Billion in Value-Added Economic Activity in Maryland • In addition to providing employment and income for many Maryland residents, the forestry and wood products industry generates income for business owners, property income, and indirect business taxes — all benefits to a vibrant state economy. The Economic Importance of the Maryland Forest Products Industry

    14. Forestry and Wood-Products Industry Multipliers • Output Multipliers • Employment Multipliers • Value-Added Multipliers The Economic Importance of the Maryland Forest Products Industry

    15. Output Multipliers The Economic Importance of the Maryland Forest Products Industry

    16. For Every Dollar of Forestry Output Value Generated, Another Dollar is Produced Elsewhere in the Maryland Economy The Economic Importance of the Maryland Forest Products Industry

    17. The Central Maryland Forestry and Wood-Products Industry Has A Higher Mean Output Multiplier Than All Other Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    18. The Eastern Maryland Forestry and Wood-Products Industry Has a Higher Mean Output Multiplier Than All Other Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    19. The Southern Maryland Forestry and Wood-Products Industry Has a Mean Output Multiplier Comparable to Other Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    20. The Western Maryland Forestry and Wood-Products Industry Has a Mean Output Multiplier Comparable to Other Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    21. Employment Multipliers The Economic Importance of the Maryland Forest Products Industry

    22. Primary Wood Manufacturing Has a Higher Mean Employment Multiplier Than the Average of All Other Maryland Industries • In contrast to timber management and harvesting, mean employment multipliers in primary wood manufacturing exceed the mean for all other industries in Maryland. These multipliers suggest that growth in primary wood manufacturing has a greater propensity to create employment than other sectors of the regional and statewide economy. Primary wood manufacturers such as saw mills, hardwood dimension and flooring and paper mills are an important market since they source local raw wood products, and in turn, prepare basic wood products for the secondary wood manufacturers further up the value-adding chain. Thus, they play a crucial role in the overall forestry and wood products industry. The Economic Importance of the Maryland Forest Products Industry

    23. Primary Wood Manufacturing in Central Maryland Has a Higher Mean Employment Multiplier Than the Average of All Other Maryland Industries The Economic Importance of the Maryland Forest Products Industry

    24. All Forestry and Wood Manufacturing Sectors Exceed the Mean Employment Multiplier of All Industries in the Eastern Region The Economic Importance of the Maryland Forest Products Industry

    25. Mean Primary Wood-Manufacturing Employment Multipliers Are Significantly Higher Than the Mean for All Industries in the Southern Region The Economic Importance of the Maryland Forest Products Industry

    26. Mean Primary Wood-Manufacturing Employment Multipliers Are Significantly Higher Than the Mean for All Industries in the Western Region The Economic Importance of the Maryland Forest Products Industry

    27. Value-Added Multipliers The Economic Importance of the Maryland Forest Products Industry

    28. Mean Value-Added Multipliers Are Significantly Higher Than the Mean for All Industries in the State The Economic Importance of the Maryland Forest Products Industry

    29. Mean Value-Added Multipliers for All of Central Maryland’s Forestry and Wood-Products Are Higher than Average for All Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    30. Mean Value-Added Multipliers for All of Eastern Maryland’s Forestry and Wood-Products Are Higher Than Average for All Industries in the Region The Economic Importance of the Maryland Forest Products Industry

    31. The Mean Value-Added Multiplier in Primary Wood Manufacturing Leads the Average of All Industries in Southern Maryland The Economic Importance of the Maryland Forest Products Industry

    32. Primary Wood Manufacturing’s Mean Value-Added Multiplier Leads the Average of Other Sectors in Western Maryland The Economic Importance of the Maryland Forest Products Industry

    33. Shock Analysis • 10% Decline in Primary Wood Manufacturing • 10% Growth in Primary Wood Manufacturing • 20% Growth in Primary Wood Manufacturing The Economic Importance of the Maryland Forest Products Industry

    34. Shock Analysis for OutputTABLE 4: Change in the value of industrial output as a result of -10%, +10% and +20% shifts in value of output in the primary wood manufacturing sector. A 10% “shock” in primary wood manufacturing ($72 million) would result in a $156 million shift in the value of all goods and services in the state. Western Maryland, in particular, would feel the greatest impact. The Economic Importance of the Maryland Forest Products Industry

    35. Shock Analysis for EmploymentTABLE 5: Change in the number of jobs as a result of -10%, +10% and +20% shifts in value of output in the primary wood manufacturing industry. A 10% decline or increase in the value of output in the primary wood manufacturing industry ($72 million) would have a profound impact on jobs. Western Maryland would be most affected. The Economic Importance of the Maryland Forest Products Industry

    36. Shock Analysis for Value-AddedTABLE 6: Change in value-added as a result of -10%, +10% and +20% shifts in value of output in the primary wood manufacturing industry. Wages, proprietor and property income and indirect taxes would be profoundly impacted by a 10% change in the value of primary wood manufacturing output ($72 million). The Economic Importance of the Maryland Forest Products Industry

    37. Statistical Summary • Forestry and Wood Products Industry: • Generates $2 billion in output value • Supports 14,000 jobs • Contributes $.75 billion in value-added economic activity • Has an output multiplier of 2.04 • Has an employment multiplier of 3.05 (3.83 for Primary Wood Manufacturing) • Has a value-added multiplier of 2.77 (3.24 for Primary Wood Manufacturing) • A 10% decline in Primary Wood Manufacturing Output would: • Result in a $156 million loss in value of goods and services in the state • Eliminate 1,392 jobs • Result in a $77 million loss in value-added economic activity The Economic Importance of the Maryland Forest Products Industry

    38. Appendix: About the IMPLAN Analyses • SUMMARY • IMPLAN is one of a small number of similar interindustry input-output models of local economies. IMPLAN was originally developed by the USDA Forest Service in cooperation with other federal agencies. In order to address the prohibitive cost of extensive primary data collection on local interindustry purchases, IMPLAN and other “nonsurvey” modeling systems combine available data about the national economy with state and county level data to estimate the flow of goods and services through a local economy. • One of IMPLAN’s strengths is the fact that it integrates many sources of data1 at different levels of aggregation into a comprehensive, internally consistent system that can be applied to any county or region in the United States. Although this integration requires numerous assumptions and estimations of data for specific industries in specific counties, great effort is made to make all estimates compatible with the most accurate available measured data. Unfortunately, the agricultural sectors are particularly difficult since there are no employment and earnings data collected on a • 1 Major data sources of importance include the population census, County Business Patterns, Regional Economic Information System (REIS) data, and especially the annual BLS ES-202 wage and employment data. • continued The Economic Importance of the Maryland Forest Products Industry

    39. commodity basis, even at the national level. IMPLAN uses specially developed procedures to estimate agricultural employment and income by commodity for all counties at the county level. For these estimates, the key anchoring data bases are the REIS data on total farm employment and income, National Agricultural Statistical Service estimates of value of output by commodity at the state level, and Census of Agriculture estimates of crop acreage by type and of the dollar value of livestock-related commodities. The IMPLAN vendor does offer the sensible caveat that “analysts with better [local] agricultural data are encouraged to use it.” (See the IMPLAN PRO Data Guide, Minnesota IMPLAN Group, Inc., 1996, for more information.) • The overall consistency that is achieved by IMPLAN’s data integration procedures enables a comprehensive analysis of the relationships between all sectors of the economy that is otherwise elusive. The maximum use of county-level data that is available throughout the United States helps makes this modeling approach significantly more defensible than similar estimates based on multipliers “borrowed” from another study or another economy. In particular, multiplier estimates based upon larger state or regional economies typically have multipliers that are too large because they implicitly overestimate local production capabilities. • Up to 528 industry sectors are tracked in the full national IMPLAN model, though local economies typically have only half of these or less present. • continued The Economic Importance of the Maryland Forest Products Industry

    40. MULTIPLIERS • Input-output models can be used to estimate the incremental contribution to a local economy that is attributable to an increase (or decrease) in the purchase and consumption of goods and services. To do this, specific multipliers are calculated for each industry. These multipliers summarize the effects of additional rounds of purchases that are stimulated by the initial increase (decrease) in the demand for the goods and services. The multipliers are then applied to the value of this initial “direct” spending to estimate additional impacts that are “indirect” or “induced.” Indirect impacts focus on the additional interindustry purchases of local production inputs that are stimulated by the initial purchases, i.e, as the industry initially impacted increases orders from its suppliers, who in turn do the same and so on. Indirect impacts do not account for associated local respending of increased returns to factors of production (e.g., workers’ spending of increased wages). Induced impacts, in contrast, are estimates of the additional economic activity stimulated by local respending of, for example, increased incomes. • There are a variety of kinds of multipliers that can be derived for any industry. The two that are often of greatest interest are employment multipliers and output multipliers. Employment multipliers represent the ratio between the total number of jobs that are stimulated economy-wide by an initial “direct” increase in demand for an industry’s product (i.e., including jobs created directly, plus those created through indirect plus induced effects) and only those jobs that are stimulated “directly” by the initial change in demand.2 Output multipliers represent the ratio between the total value of output that is simulated economy-wide and the directly simulated output only. An industry with a large multiplier is one, therefore, with strong linkages to other parts of the local economy. In other words, a large output multiplier indicates that a given increase in the demand for industry output stimulates a change in output that is large throughout the entire economy in relation to the change in output in the industry that is directly affected. • 2 By definition then, multipliers must be at least 1. The Economic Importance of the Maryland Forest Products Industry

    41. The most common types of multipliers are Type I, II, and SAM multipliers3. Both SAM and Type II multipliers incorporate impact effects that are more inclusive than are reflected in Type I multipliers.   Type I multipliers only reflect interindustry economic transactions.   Flows of funds to "institutions" - households, government, capital - are assumed to "leak" permanently from the local economy.IMPLAN Type II multipliers are based on inclusion of the household sector in the model.  Thus, these multipliers reflect the fact that as household incomes rise, some portion of this income is reinjected into the local economy as additional or "induced" spending  on local goods and services.Likewise, SAM multipliers typically include the effects of changes in household income and spending.   However, SAM multipliers may focus on the income and spending patterns of other "institutional" sectors such as government and owners of capital.   Multipliers that include the respending effects of the institutional sectors are logically larger than those that do not.  Both SAM and Type II multipliers will be larger than Type I multipliers.  SAM multipliers that incorporate all the institutional sectors are often 4 or larger.IMPLAN Type II multipliers and SAM multipliers that include only the effects of the household sector are mathematically and conceptually very similar.   IMPLAN's Type II multipliers typically refer to the SAM accounts to estimate  local resident-only disposable income, accounting for the removal of income taxes and allowing for household saving.   It is assumed that increased local household incomes are respent according to the spending patterns reflected in the Personal Consumption Expenditures column.  IMPLAN's Type SAM multipliers are very similar, but internalize all SAM information about inter-institutional transfers into the model, in this way for accounting for commuting patterns, social security taxes, household income taxes and savings.  Type SAM (household sector) multipliers are typically slightly smaller than Type II multipliers. • 3.This report utilizes SAM multipliers. The Economic Importance of the Maryland Forest Products Industry

    42. Subsector Source Data Files The Economic Importance of the Maryland Forest Products Industry

    43. The Economic Importance of the Maryland Forest Products Industry

    44. The Economic Importance of the Maryland Forest Products Industry

    45. The Economic Importance of the Maryland Forest Products Industry

    46. Source Data for Forestry Output Multipliers The Economic Importance of the Maryland Forest Products Industry

    47. The Economic Importance of the Maryland Forest Products Industry

    48. Source Data for Forestry Value-Added Multipliers The Economic Importance of the Maryland Forest Products Industry

    49. The Economic Importance of the Maryland Forest Products Industry

    50. The Economic Importance of the Maryland Forest Products Industry