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The Law of One Price in United Kingdom Soft Sawnwood Imports--A Cointegration Approach

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The law of one price states that prices of homogenous commodities, defined in a common currency, are equal throughout the world. It implies cointegration of prices. In the present study, the law was tested for imports of soft sawnwood to the United Kingdom from Finland, Sweden, Canada, and Russia using the concept of cointegration. The data are quarterly and cover the period 1978-1992. The study used the multivariate cointegration method of Johansen instead of the bivariate method commonly used in earlier studies. The existence of the law was tested simultaneously for all four import prices and separately for pairs of prices. The results do not support the "law" but instead indicate the existence of differences over the long run between different suppliers' sawnwood prices. This suggests that imperfect competition models should be used in explaining and forecasting UK sawnwood imports. The results also raise an important issue concerning testing for competition in forest products markets, which is not usually done in connection with the modeling of markets. For. Sci. 44(1):17-23.
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Keywords: Forest products; Johansen's method; international trade; unit root econometrics

Document Type: Journal Article

Affiliations: Researcher of Forest Economics, Forest Research Institute, Helsinki Research Centre, Unioninkatu 40 A, 00170 Helsinki, Finland. Phone: +358 9 85705746;, Fax: +358 9 85705717

Publication date: 1998-02-01

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    Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
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