ABSTRACT
This chapter presents a formal analytical framework for analysing the impact of processing incentives in a trade-focused, general equilibrium setting, which is used as the basis for interpreting the results of the larger, more complex computable models. It reviews the approaches to the issue of export restrictions and processing in the theoretical literature. The chapter explores the development and analysis of a small-scale, competitive general equilibrium trade model for the small country (price exogenous) case. The most natural direction from which to initially approach the issue of trade in forest products is the literature on trade in natural resources. Although an application of the literature on trade in natural resources seems initially appealing, it is difficult to justify the use of such models in the analysis of New Zealand forestry. The foreign country gains not only through the terms of trade effect, but also through the increased transfers.
