sensitive product. The studies by
FA0
(1977a) and Suhonen (1984). where the same deflation method but different time periods were used, pro- duced results of largely the same magnitude. Wibe's (1984) study prices resulted in the most negative price elasticities.5.4 Cross-Price Elasticities
The results from the few paper consumption studies which include substitute prices as an explanatory variable a r e not very encouraging.
In FAO's (1977a) study even the sign of the cross-price elasticity was, against t h e a priori expectation. negative in most equations. Newsprint accounts for t h e best results; for industrial grades, there is only one international study known to the author t h a t deals with substitute prices. The results from three studies a r e presented in Table 9. The prices of substitutes used in all three studies were printing and writing paper price for newsprint and vice versa, and
LDPE
price for packaging paper a n d board in t h e study by Suhonen (1984).The poor results a r e partly explained by t h e choice of substitute variables. As discussed earlier in this paper, prices of different materials a s such m a y not be decisive factors for buying or consumption decisions for paper and board; there are many intervening variables such as labor intensity and costs, flexibility of use, or product performance, which together determine the ranks between different alternatives.
I t
is a question of s y s t e m s u b s t i t u h n rather than product o r price s u b s f i t u - tion. For this reason, the traditional price theory may not be able t o explain paper and board consumption.The effects of real substitutes for paper and board, such a s new elec- tronic information media or plastic-based packaging systems, a r e extremely difficult to quantify and include a s explanatory variables in consumption models. There a r e hardly any statistics which could meas- ure these relationships. Even t h e national input-output statistics nor- mally have too rough a classification of products and industries for paper and board substitution analysis. The best applicable method might be a market research approach; it would require product by product a thorough analysis of the most important end-use sectors to understand their decision-making patterns and buying practices. This would not be possible without extensive field work based on interviews and deep dis- cussions with people in the relevant branches.
TABLE 9. Comparison of cross-price elasticities measured in different p a p e r con- sumption s t u b e s .
Cross-price elasticity Explanatory
Study/lncome variables Time News- Printing and Other paper a n d Group included in period print writing papers boerd/packaging
t h e model paper and board
FA0 (1 Dna)
5
n P t 1963-73 GNP per capite PIt,> USt3000 literacy r a t e +O. 1 -0.6
. .
USL 150&3000 -0.0 -0.3
. .
USL 75&1500 +0.3 -0.6
. .
< USS750
+o.
1 -0.0. .
Baongiorno (1878)
5 , ct ,,
, 1963-73GDP per capite Pt ,PIt
Average
+o.
1+
0.3. .
> USS 2600
+o.o +
0.2. .
c ~ ~ $ 2 6 0 0 +0.4
+
0.3. .
J'P/Suhonen (IDB4)
5 ,
Ct 1965-80 GDP per capita Pt ,PIt (culturalAverage papers) + O . 1 -0.1
+o.o
> USt4750 1970-80 +O.O -0.2 +O. 1
USS 1600-4750 (other +0.0 +0.1 -0.3
c USS 1600 grades) +O.1 -0.2
. .
6. CONCLUSIONS
The basic aim of this paper was to compile some practical results from income and price elasticity measurement. The following conclu- sions can be drawn:
-
The numerical values of income and price elasticities are sensi- tive t o tbe explanatory variables included, deflation methods and exchange r a t e t r e a t m e n t used for converting income and price variables into constant prices and a common currency, a s well a s t h e t i m e period for observations in international models. So far. too little attention bas been paid t o these data manipulations before undertaking t h e numerical estimation.-
Short-term and long-term elasticities should be distinguised;the consumption of many paper and board grades is habitual increasing supply of commodities and tightening competition i n a society.
-
The use of country-specific dummy variables in pooled cross- sectional a n d time-series models is essential; otherwise t h e measured price and income elasticities may absorb some of t h e variations caused by other variables omitted from t h e regres- passed their saturation level (e.g.. sack paper in industrialized countries). The numerical values of income elasticities vary on both sides of unity; when using the three-grade classification the lowest values a r e for newsprint and t h e highest for printing and writing papers (industrialized countries) o r for industrial paper and board (developing countries).-
With increasing income, t h e r e is a tendency for t h e income elasticities of newsprint a n d industrial grades t o fall. In t h e case of printing a n d writing papers, the highest income elastici- ties seem to bein
t h e medium income class; t h e elasticities for the high income group also exceed unity in m o s t countries.-
Onn-price elasticities measured vary a lot depending on t h e t i m e period, model type, and price variable used for observa- tions. Of t h e different paper grades studied h e r e , sack paper and newsprint were t h e most price-sensitive and printing and writing papers t h e least price-sensitive products. This is an indrcation of decreasing importance of price when t h e u n i t value of products grows; the bulkier t h e product, t h e m o r e price-sensitive i t seems t o be.I t
is also evident t h a t price becomes all t h e more important a variable a s t h e level of disaggregation of products grows. Net importing countries seem also t o be m o r e price-sensitive than self-sufficient coun- tries.-
Price elasticities seem t o decrease over time and with increas- ing income. The inelasticity of consumption of some grades is likely t o be t h e result of t h e lack of cheap substitutes for paper products. The high price elasticities measured for developing countries may, a t least partly, be caused by insufficient supply restricting consumption r a t h e r than the price level a s such.-
The results of t h e use of substitute prices for paper products are not very encouraging.I t
is extremely difficult t o h d appropriate substitutes for paper products which could be measured in quantitative terms. It is also questionable a s t o whether t h e conventional consumer price theory c a n be used t o explair, system substitution where many o t h e r non-price fac- tors may be m o r e decisive t h a n material prices alone for con- sumption choices.-
Substitution of forest products f o r other commodities will be t h e Achilles' heel in t h e demand analysis for GTM ofFSP.
The f u t u r e of m a t u r e industries, a s t h e forest industries a r e , may depend more on t h e ability to compete successfully with o t h e r commodities t h a n changes in external economic conditions.Therefore, t h e emphasis of t h e demand forecasting for GTM should be in substitution analysis, because t h e c u r r e n t knowledge substitution mechanisms for forest products is too limited. Any a t t e m p t using hfferent approaches t o substitution would be welcome.
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29- APPENDIX
price, German defiator (0.321)*** (0.099)*** (0.057)***4. Static model. constant 5.266 0.813 -0.176 0.927 1.608 0.049 coe5cient of determination, D-H the computed Durbin-Watson statistic and SE the standard error of t h e regression