Do exporters of Canadian forest products price to market?
Main Article Content
Keywords
forestry, imperfect competition, international trade, pricing-to-market
Abstract
Forest products in Canada contribute significantly to the Canadian trade balance. Canadian producers depend heavily on export markets raising the question: how do exchange rate fluctuations impact Canada’s competitiveness in foreign markets? The paper applies a fixed-effects model with individual slopes to investigate this question. Twenty years of monthly data are employed to study the pricing-to-market (PTM) behaviour of Canadian softwood log, lumber and pulp exports as the exchange rate changes. We find a great degree of incomplete exchange rate pass-through, with PTM being apparent for Canadian exporters, particularly in major markets. The export price adjustment tends to mitigate the effect of exchange rate fluctuations on foreign currency prices of Canadian products in most cases. This pricing behaviour reflects exporters’ desire to stabilize their share of the destination market.
References
Agricultural Economics 79 (3): 975-986. https://doi.org/10.2307/1244437
Assaf A. 2006. Nonlinear trend stationarity in real exchange rates: Evidence from nonlinear ADF tests. Annals of Economics & Finance, 7(2).
Bolkesjø TF, Buongiorno J. 2006. Short- and long-run exchange rate effects on forest product trade: evidence from panel data. Journal of Forest Economics 11 (4): 205-221. https://doi.org/10.1016/j.jfe.2005.09.002
Buongiorno J, Chavas JP, Uusivuori J. 1988. Exchange rates, Canadian lumber imports, and United States prices: a time-series análisis. Canadian Journal of Forest Research 18 (12), 1587-1594. https://doi.org/10.1139/x88-242
Buongiorno JS, Zhu S, Zhang D, Turner J, Tomberlin D. 2003. The Global Forest Products Model: structure, estimation, and applications. Academic Press: San Diego, CA. https://doi.org/10.1016/B978-012141362-0/50003-0
Carew R. 2000. Pricing to market behavior: evidence from selected Canadian and U.S. Agri-Food Exports. Journal of Agricultural and Resource Economics 25(2): 578-595.
Choi I. 2001. Unit root tests for panel data. Journal of International Money and Finance 20(2): 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6
Gil-Pareja S. 2002. Export price discrimination in Europe and exchange rates. Review of International Economics 10 (2): 299-312. https://doi.org/10.1111/1467-9396.00333
Glauben T, Loy JP. 2002 Pricing-to-market versus residual demand elasticity analysis of imperfect competition in food exports: evidence from Germany. Journal of Agricultural & Food Industrial Organization 1 (1): 1-21. https://doi.org/10.2202/1542-0485.1004
Guo J, Johnston CMT. 2021. Do protectionist trade policies integrate domestic markets? Evidence from the Canada-U.S. softwood lumber dispute. Forest Policy and Economics 130 (September 2021): 102525. https://doi.org/10.1016/j.forpol.2021.102525
Hanninen R, Toppinen A. 1999. Long-Run Price Effects of Exchange Rate Changes in Finnish Pulp and Paper Exports. Applied Economics 31 (8): 947-56. https://doi.org/10.1080/000368499323661
Jee K, Yu W. 2001. Canadian newsprint in the United States: a multivariate cointegration análisis. Journal of Forest Economics 7 (2): 169-183.
Jennings S, Adamowicz W, Constantino L. 1991. The Canadian lumber industry and the macroeconomy: a vector autoregression análisis. Canadian Journal of Forest Research 21 (3): 288-299. https://doi.org/10.1139/x91-036
Johnston C, Parajuli R. 2017. What's next in the US-Canada softwood lumber dispute? An economic analysis of restrictive trade policy measures. For. Policy Econ. 1, 85:135-146. https://doi.org/10.1016/j.forpol.2017.09.011
Kallio M, Dykstra DP, Binkley CS. 1987. The global forest sector: an analytical perspective. Chichester, UK: John Wiley & Sons.
Kanas A. 2009. Real exchange rate, stationarity, and economic fundamentals. Journal of Economics and Finance, 33(4), 393. https://doi.org/10.1007/s12197-008-9041-7
Knetter MM. 1989. Price discrimination by US and German exporters. American Economic Review 79 (1), 198-210.
Knetter MM. 1992. Exchange Rates and Corporate Pricing Strategies. National Bureau of Economic Research Working Paper No. 4151. https://doi.org/10.3386/w4151
Knetter MM. 1995. Pricing to market in response to unobservable and observable shocks. International Economic Journal, 9(2), pp.1-25. https://doi.org/10.1080/10168739500080009
Krugman PR. 1986. Pricing to market when the exchange rate changes. National Bureau of Economic Research. https://doi.org/10.3386/w1926
Lavoie, N. and Q. Liu. 2007. Pricing-to-market: price discrimination or product differentiation? American Journal of Agricultural Economics 89 (3): 571-581. https://doi.org/10.1111/j.1467-8276.2006.01000.x
Liew VKS, Baharumshah AZ, Chong TTL. 2004. Are Asian real exchange rates stationary? Economics Letters, 83(3), 313-316. https://doi.org/10.1016/j.econlet.2003.10.021
Niquidet K, Tang J. 2013. Elasticity of demand for Canadian logs and lumber in China and Japan. Canadian Journal of Forest Research. 43(12): 1196-1202. https://doi.org/10.1139/cjfr-2013-0337
Parajuli R, Chang SJ, Hill RC. 2015. How effective is the United States-Canada softwood lumber agreement 2006? An Econometric Study. Forest Science 59(6): 1041- 1049. https://doi.org/10.5849/forsci.15-014
Perez-Garcia JM. 1996. Meeting the needs of policymakers: Experiences with a global forest sector model in the policy arena, in Proc. Project group P. 6.11 FORESEA meeting at the 20th IUFRO World Congress, Tampere, Finland. CINTRAFOR, Seattle, WA.
Solberg, B., Moiseyev, A., Kallio AMI. 2003. Economic impacts of accelerating forest growth in Europe. Forest Policy and Economics, 5(2), 157-171. https://doi.org/10.1016/S1389-9341(03)00022-4
Sun C, Zhuo N. 2014. Timber restrictions, financial crisis, and price transmission in North American softwood lumber markets. Land. Econ, 90(2), 306-323. https://doi.org/10.3368/le.90.2.306
Uusivuori J, Buongiorno J. 1991. Pass-through of exchange rates on prices of forest product exports from the United States to Europe and Japan. Forest Science 37 (3): 931-948. https://doi.org/10.1093/forestscience/37.3.931
van Kooten GC. 2002. Economic analysis of the Canada-United States softwood lumber dispute: playing the quota game. For. Sci. 48 (4), 712-721. https://doi.org/10.1093/forestscience/48.4.712
Wisdom HW, Granskog JE. 2003. The effect of exchange rates on southern pine exports. Forest Products Journal 53 (10): 19-23.
Yin R, Baek J. 2005. Is there a single national lumber market in the United States? For. Sci. 51(2), 155-164. https://doi.org/10.1093/forestscience/51.2.155
Cheung YW. 1993. Long memory in foreign-exchange rates, Journal of Business & Economic Statistics, 11:1, 93-101. https://doi.org/10.1080/07350015.1993.10509935
Zhang D, Sun C. 2001. US-Canada softwood lumber trade disputes and lumber price volatility. 2 For. Prod. J. 51: 21-27.
Zhang D, Parajuli R. 2016. Policy impact estimates are sensitive to data selection in empirical analysis: evidence from the United States-Canada softwood lumber trade dispute. Can. J. 22 For. Res. 46, 1343-1347. https://doi.org/10.1139/cjfr-2016-0168
Article Sidebar
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal the right of first publication with the work simultaneously licenced under a Creative Commons Attribution 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in the journal. The journal retains no copyright.
