Analysis of the log import market and demand elasticity in China

Abstract

Using country-specific data from 1992 to 2012, we estimated the demand elasticity of the log import market using the source-differentiated Almost Ideal Demand System (AIDS) model, the Error Correction Model (ECM), and both models in combination (ECM-AIDS), considering imports from Australia, Canada, Indonesia, Malaysia, Myanmar, New Zealand, Russia, and the United States. Regardless of which model used, the expenditure elasticity values were mostly positive, indicating a positive correlation between import volume and total import expenditure. Self-compensated price elasticity was negative, indicating that logs from all countries except Malaysia are relatively more sensitive to price, while import volumes from these countries are less sensitive to price. Cross-price elasticity values calculated using the static AIDS model showed that logs imported from Malaysia, Myanmar, and Russia are mutually complementary with logs imported from the other countries. Logs from Australia, Malaysia, and Indonesia; Canada and Indonesia; the US and New Zealand; and, Myanmar and Indonesia are mutually replaceable. The dynamic AIDS model found the same pattern regarding supplementarity, but indicated that logs from Australia, Canada, and Indonesia; the US and New Zealand; New Zealand and Indonesia; and Myanmar and Indonesia are mutually replaceable.