Incorporating Data and Theory in Roundwood Supply and Demand Estimation

This paper examines the aggregate pulpwood market in Finland using the econometric approach advocated by Hendry, Neale, and Joba and Spanos, who propose a statistically consistent way to estimate simultaneous‐equations models. Private nonindustrial timber supply is estimated along with a three‐input demand function (capital, labor, and wood). Results indicate that short‐term supply reacts positively to an increase in stumpage price, while the long‐term (total) elasticity is negative and small in absolute terms. Capital is a complement while labor is a substitute for roundwood input. Dynamic adjustment process, substitution and cross‐price effects, and capital market imperfections implied by the present study differ from those obtained in previous research.