Reassessing forest products demand functions in Europe using a panel cointegration approach

In a panel of European countries, we analyze paper products, sawnwood and wood panels’ consumption data. With this object, we use a classical demand model where national consumption depends on real Gross Domestic Product and real prices. In contrast to previous panel estimations in the literature, we highlight non stationarity time series which can lead to spurious regressions. We explicitly take into account the issue by using recent panel cointegration techniques. Cointegration is present for printing paper and fibreboard, though less clear cut for other products. Then we estimate demand elasticities and find that GDP elasticities are significantly lower than estimates from the literature. Finally, we simulate the implications of modified demand elasticities by using a partial equilibrium model of the forest sector. For most products, changes in elasticities would lead to lower projected demand and lower prices over a 20 years time horizon. Lower solid wood and wood fibre demand would lead to fewer tensions with fuel wood and wood based chemical markets. In a context of rising interest for bio-based products, updated long term demand models contribute to the analysis of the forest sector's sustainability.