Comparative analysis of the production technologies of logging, sawmill, pulp and paper, and veneer and plywood industries in Ontario

Abstract

Technological growth in production and efficient utilization of input factors are the two biggest contributors to total factor productivity (TFP). TFP of the four major forest industries (logging, pulp and paper, sawmill, and veneer and plywood industries) of Ontario are compared by analyzing their production structures using duality theory in production and costs. The study uses annual data of output and four inputs — labour, capital, energy and materials — from 1967 to 2003. Different restrictions on the translog cost function are applied to each industry to determine the cost function that best describes each industry’s technology, which is further used to estimate Morishima elasticities of substitution, own-price and cross-price elasticities, rate of technological change, and TFP. The production structure of sawmill and veneer and plywood industries is found to be linear homogeneous and homothetic, and that of logging and pulp and paper industries is non-homothetic. Further, Hicks neutral technological change for all four industries is rejected, indicating that the production structure in all four industries is biased in favour of certain inputs and against others. This suggests that policies that improve the efficiency of each industry should focus on input-saving factors of that industry, thereby improving its competitive position.