Journal of Forest Economics > Vol 36 > Issue 4

A Gravity Model of Softwood Lumber Trade: An Application to the Canada-U.S. Trade Dispute

Xintong Li, Department of Economics, University of Victoria, Canada, xintongl@uvic.ca , Fatemeh Mokhtarzadeh, Department of Economics, University of Victoria, Canada, fatemehm@uvic.ca , G. Cornelis van Kooten, Department of Economics, University of Victoria, Canada, kooten@uvic.ca
 
Suggested Citation
Xintong Li, Fatemeh Mokhtarzadeh and G. Cornelis van Kooten (2021), "A Gravity Model of Softwood Lumber Trade: An Application to the Canada-U.S. Trade Dispute", Journal of Forest Economics: Vol. 36: No. 4, pp 351-381. http://dx.doi.org/10.1561/112.00000534

Publication Date: 11 Oct 2021
© 2021 Xintong Li, Fatemeh Mokhtarzadeh and G. Cornelis van Kooten
 
Subjects
 
Keywords
JEL Codes: C13, C51, F13, F42, Q23, Q27
Trade restrictionsChina and Japan lumber marketstrade policiesgravity model
 

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In this article:
1. Introduction 
2. A Gravity Trade Model 
3. Estimation Results 
4. Discussion and Conclusions 
Appendix 
References 

Abstract

A gravity model of softwood lumber (SWL) trade is developed and used to determine the effect that U.S. tariffs have on SWL exports from Canada to the U.S. The gravity model employs quarterly data for seven Canadian and three U.S. regions over the period 2007–2019; it is expanded to include Japan and China as separate regions, and then as a combined China-Japan region. The effect of a Canadian export tax or U.S. import tariff is examined using information on the Softwood Lumber Agreement (effective from 2006 to 2015), which included a trigger mechanism that varied the tax/tariff. The gravity model was estimated for trade quantity and value using OLS and a Poisson Pseudo-Maximum-Likelihood estimation method for different configurations of the China-Japan export regions. Our findings indicate that (1) the imposition of a countervail and/or anti-dumping duty usually has a negative effect on Canada’s physical exports, but not in all cases; (2) the value of softwood lumber trade decreases by 0.054% on average with each 1% increase of tax/tariff; (3) the tax/tariff has a significant impact on Canadian exports when China and Japan are included; and, not surprisingly, (4) duties affect the value of lumber exports to a much greater extent than quantity.

DOI:10.1561/112.00000534