An Econometric Approach to Applied Microeconomic Theories: The Case of Natural Resource-Based Industries

Abstract

The forest products industry of Alabama has a dominant role in the state’s economy. The industry has experienced a general downturn in production, employment and number of operating establishments since the mid-1990s. In this study, the possible determinants of the decline in the forest products industry of Alabama are discussed. Moreover, economic impact analyses are used to investigate how the contribution of the industry to the economy of Alabama has changed since the mid-1990s. Additionally, econometric analyses are employed to estimate the relationship between the decline in the industry and changes in the factors behind the decline. Furthermore, additional econometric analyses are employed to estimate the relationship between economic well-being and forest sector dependence in the counties of Alabama. Results showed that the forest products industry of Alabama has lost many employees, production, mills, and contribution to the economy of the state between 1996 and 2012. There is statistically significant relationship between increases in cost of production and decreases in demand for the forest products and the downturn in the industry. Forest sector dependence is significantly associated with lower economic well-being in the counties of Alabama. The results will mainly contribute to the current knowledge gap concerning the determinants and the economic implications of the decline in the forest products industry. Analyzing trends in an industry overtime provides important information to policymakers seeking to establish better policies, and for industry leaders attempting to improve the industry’s competitiveness both in global and domestic markets.