Elasticity of import demand for wood pellets by the European Union

Abstract

Import demand for wood pellets by the European Union (EU) was investigated using a source-differentiated non-linear Almost Ideal Demand System (AIDS) model with monthly data from 2009 to 2015. Our research provides the first complete set of expenditure, price and cross-price elasticities for this rapidly expanding forest product market. Expenditure elasticities reveal that wood pellets from the United States have the most to gain from an expansion in EU expenditures, followed by Canada, while Russia has the least to gain. We attribute this result to differences in the quality, reliability and sustainability of wood pellet supply between the countries. The degree of substitution among the major suppliers was also assessed through cross-price elasticities.