Price integration for domestic and imported sawlogs and pulpwood in Finland: an update

This paper provides an analysis on the integration of prices for imported coniferous pulpwood and sawlogs, and respective domestic stumpage prices in the Finnish wood market. Eight real price series were investigated during 2002-2014 using monthly observations. The bounds testing approach by Pesaran et al. [(2001) Bounds testing approaches to the analysis of level relationships. J Appl Econom. 16: 289-326. doi:10.1002/jae.616], indicates there are long-run relationships between prices of domestic and imported wood. For more detailed information, the vector error correction model (VECM) approach was used. Estimation of a system with all eight prices with interpretable results did not succeed; therefore, we estimated models for prices of sawlogs and for pulpwood separately. For sawlogs, two co-integrating vectors, one for pine and one for spruce, were found. For pulpwood prices, one co-integrating vector was identified. The estimated VECMs confirm the results of bounds testing approach, suggesting that causation in the Finnish wood market runs from domestic prices to prices of imported wood. We conclude that prices of domestic and imported coniferous logs and pulpwood are closely connected. The question of full integration remains open, as border prices and stumpage prices by definition differ, at least, by logging and transportation costs.