Income and Price Elasticities in the World Demand for Paper and Paperboard

Abstract

Abstract Short-term and long-term income and price elasticities were estimated for the demand for newsprint, other printing and writing paper, and other paper and paperboard. Two hypotheses were developed on the form of the demand functions, a static model assuming an immediate response of demand to changes in income and price, and a dynamic model assuming a delayed response. All models were estimated from mixed time-series and cross-section data relating to 43 countries observed yearly from 1963 to 1973. Unit values of imports and exports were used as price indices for net importers and net exporters, respectively. The demand equations were estimated by ordinary least squares and by analysis of covariance allowing for individual country effects. Both types of estimation gave similar results for the static model but allowance for country effects was essential to avoid bias in estimating the dynamic demand equations. The dynamic models had better statistical characteristics than static models and they provided estimates of both long-term and short-term elasticities. The long-term elasticities obtained were always greater than short-term ones, thus supporting a priori arguments regarding the habitual nature of paper consumption. Except for newsprint, all long-term income elasticities were greater than or equal to one. Demand for all products appeared to be price inelastic. In high-income countries products prices played an important role in the demand for newsprint, with an own-price elasticity of -0.6, and a cross-price elasticity with other printing papers of +0.4. Demand for all paper and board products appeared to be systematically more sensitive to price changes in low-income countries, with own-price elasticities ranging from -0.7 to -0.8. Estimates of the velocity of demand adjustments showed that the demand for newsprint adjusts most rapidly to changes in income and prices, followed by demand for printing and writing paper and other paper and paperboard. For all three groups of products adjustments were slower in low-income than in high-income countries but the ultimate effects usually were more important in low-income countries. Forest Sci. 24:231-246.

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