Canadian Forest Service Publications
Canada-US Softwood Lumber Trade Revisited: Examining the Role of Substitution Bias in the Context of a Spatial Price Equilibrium Framework. 2006. Mogus, A.; Stennes, B.; van Kooten, G.C. Forest Science 52(4): 411-421.
Issued by: Pacific Forestry Centre
Catalog ID: 26660
Availability: PDF (request by e-mail)
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 this may be a misleading assumption because softwood lumber products vary. In this paper, 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 a larger share of the tariff burden is placed on U.S. consumers, with Canadian producers suffering less injury, compared with estimates based on the traditional assumption of a homogenous product. In addition, comparing the net impact associated with the alternative policy regimes wields a policy equivalence. Results suggest that the short-run impact of a trade restriction is largely independent of the policy regime incorporated, and that the collection of quota rents or tax revenues determining overall winners and losers.