Economic Impact Evaluation of Uruguay Forest Sector Development Policy

Since the 1960s, the government of Uruguay has been encouraging forestry as an alternative use for marginal agricultural lands in an effort to promote economic development, diversification, and environmental services. The Forestry Law of 1987 (Parliament of Uruguay 1988) introduced subsidies and tax exonerations for the development of forest plantations and wood manufacturing industries. Consequently, the new forest sector has been growing rapidly, attracting foreign investment. This study evaluates the impact of Uruguay forest sector development policy on the country's economy by conducting a cost-benefit analysis. The results indicate a positive net impact when compared with livestock production. The NPV associated with the forest sector development was USS615.4 million, and the internal rate of return was 32.4%. The successful implementation of the forest policy has allocated land to more productive uses while attracting foreign investment, generating income and employment, and providing environmental benefits.