Evaluation of the Substitutability between U.S. and Canadian Softwood Lumber

Softwood lumber trade between the United States and Canada has worldwide attention due to its economic importance and for lengthy dispute. Most studies have focused on welfare effects of the dispute, while few studies have evaluated the question of likeness of product. This study evaluates the substitutability between U.S. and Canadian softwood lumber including other countries' softwood lumber. Price elasticities are derived from the linear approximation of the Almost Ideal Demand System. The results show that softwood lumber imports to the U.S. from various countries are indeed substitutes for U.S. softwood lumber. The Morishima elasticities of substitution indicate that other countries have a higher degree of substitutability than Canadian softwood lumber.