Substitution in global wood imports in the 1990s

In this paper substitution between the main categories of imported wood and between imported and domestic wood raw material is studied empirically using a cost-function approach and a panel data set of the worldʹs 36 most important wood-importing countries in 1990-1997. A subcost function for the optimal mix of different timber inputs and estimable cost share functions are derived. The results suggest that as industrial consumption of wood continues to grow, international trade becomes an increasingly important source of wood for the worldʹs forest industries. Cross-price elasticities of derived demand based on maximum-likelihood estimation show that substitution between different categories of imported wood in world imports is fairly low. By contrast, substitution between imported wood and domestically produced wood is higher. Long-run own-price and cross-price elasticities are larger in absolute terms than short-run elasticities. Because of fairly strong substitutability between domestic and imported wood in the long run, the effects of national forest conservation may be transferred globally via international trade.