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Abstract

The national forest growth process and forest policy experienced in Finland in past 50 years are analyzed in terms of modern dynamic investment theory. Optimal forest investments and forest stock are derived in dynamic optimization framework. The private investments are subsidized by the government to stimulate forest growth. The optimal level of investments and growth effects depend on harvesting rate, on marginal productivity of forest stock, and on marginal benefits of investments. Under reasonable conditions government investment aid induces forest growth and supports less rigid adjustment path to higher optimal level of forest stock than without aid. Some regression results with Finnish regional data promote considered positive investment effects on forest stock.

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