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Canada–U.S. Softwood Lumber Trade Revisited: Substitution Bias in the Context of a Spatial Price Equilibrium Framework

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Abstract:

Softwood lumber trade between Canada and the United States has been characterized by various trade restrictions. Many studies have attempted to quantify the effects of such sanctions, modeling softwood lumber as a single, homogenous commodity, although recent research suggests that this may be a misleading assumption because softwood lumber products vary. In this article, we address the problem of “substitution bias” in estimates of the effects of trade restricting policies. A spatial price equilibrium model is used to examine the effects of import duties on Canadian lumber, comparing these with the effects of an export tax and quota. By controlling for substitution bias, our estimates indicate that a larger share of the tariff burden is placed on U.S. consumers, with Canadian producers suffering less injury compared to estimates based on the traditional assumption of a homogenous product. In addition, by comparing the net impact associated with the alternative policy regimes, a policy equivalence is found. Results suggest that the short-run impact of a trade restriction is largely independent of the policy regime incorporated, with the collection of quota rents or tax revenues determining overall winners and losers.

Keywords: Spatial price equilibrium; trade modeling

Document Type: Research Article

Publication date: 2006-08-01

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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.
    Forest Science is published bimonthly in February, April, June, August, October, and December.

    2015 Impact Factor: 1.702
    Ranking: 16 of 66 in forestry

    Also published by SAF:
    Journal of Forestry
    Other SAF Publications
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