Global pulpwood markets and the Law of One Price

Abstract

Many models of international trade assume that perfect competition exists and externalities do not distort market behavior. The Law of One Price (LOP) is said to hold when the price of a similar product is the same in different markets when expressed in the same currency. Considering pulpwood markets, it has been suggested that long-term relationships exist among various markets but the LOP does not necessarily hold. Most of this research has been performed for the most developed forest sectors in the world such as the United States and Scandinavia. With the progressing globalization of forest production, we expected that pulpwood prices in different countries would follow similar trends. The objective of this research was to study the global pulpwood market and the relationships among the most important producers. Using Johansen cointegration method, the LOP was tested for pulpwood prices in the United States, Canada, Germany, Sweden, Finland, Norway, France, Spain, Chile, Brazil, New Zealand, and Australia from 1988 to  2012. The results suggested that while several long-term price relationships have been discovered, the LOP generally did not hold. The exception were Germany and Norway, where the LOP was close to holding for coniferous prices.