Estimating Price and Income Elasticities of Demand for Imports of Forest Products from Panel Data

Abstract

Static and dynamic models of the derived demand for forest product imports were estimated for each of 10 major forest products covering industrial roundwood, wood-based panels, pulp, and paper and paperboard. The models were estimated with panel data from 64 countries for 1970–1987, by pooled ordinary least squares, first differencing, fixed effects, random effects and the Arellano–Bond approach. The predictive accuracy of the demand equations was tested with postsample data from 1988–1997. Based on multiple criteria, the best results were obtained with the dynamic model estimated by the Arellano–Bond method. For most products the demand for imports was found to be inelastic with respect to price. For all products the demand for imports was elastic with respect to income.

Keywords:

• Econometrics
• elasticities
• forest products
• import demand
• international trade

Acknowledgments

The research leading to this paper was supported in parts by the USDA CSREES NRI (grants 98-35400-6110 and 2003-35400-13816), McIntire-Stennis (grant 4456) and the School of Natural Resources, University of Wisconsin–Madison. We thank Adrian Whiteman for providing the data on country gross domestic product. Ken West, Edward Frees and an anonymous referee provided very useful comments on previous drafts of this paper. Any remaining errors are our sole responsibility.