Projecting Supply and Demand for Land in the Long Run

The goal of this work is to investigate land-use change at the global scale over the long run - particularly in the context of analyzing the fundamental drivers behind land-use related GHG emissions. For this purpose, we identify the most important drivers of supply and demand for land. On the demand side, we begin with a dynamic general equilibrium (GE) model that predicts economic growth in each region of the world, based on exogenous projections of population, skilled and unskilled labor and technical change. Economy-wide growth is, in turn, translated into consumer demand for specific products using an econometrically estimated, international cross-section, demand system that permits us to predict the pattern of future consumer demands across the development spectrum. This is particularly important in the fast-growing, developing countries, where the composition of consumer demand is changing rapidly. These countries also account for an increasing share of global economic growth and greenhouse gas emissions. Consumer demand is translated into derived demands for land through a set of sectoral production functions that differentiate the demand for land by Agro-Ecological Zone (AEZ). The paper devotes considerable attention to modeling the supply of land to different land-using activities in the economy. In order to represent the competition for land among different sectors in the model, we disaggregated the land endowment in each region into Agro-Ecological Zones, drawing on the data base of Lee et al. (2005), to reflect the fact that land is heterogeneous endowment. To further restrict land mobility across uses, land supply within an AEZ is constrained via a nested Constant Elasticity of Transformation (CET) frontier. In the nested structure, land owner of particular type of land (AEZ) first decides on the allocation of land between agriculture and forestry to maximize the total returns from land. Then, based on the relative returns to land in crop and livestock production, the land owner decides on the allocation of land between these two broad types of agricultural activities. A soft link between our GE model and an intertemporal forestry model is included for better representation of forestry sector in GE model. To reflect the real world fact that deforestation represents an important source of land supply in the face of high demand, we also introduce the possibility of conversion of unmanaged forest land to land used in production. This is treated as an investment decision whereby new land is accessed only when present value of returns on land in a given region is high enough to cover the costs of accessing the new land. In equilibrium, the supply of land to each land-using activity adjusts to meet the derived demand for land. A set of projections for the long run supply and demand for land obtained with this model is a useful input to improving our understanding of land-related GHG emissions in the future.