Determinants of demand for wood products in the US construction sector: an econometric analysis of a system of demand equations

Abstract

A system of conditional demand equations for wood products in the US construction sector is derived from the relevant end-use cost functions by taking advantage of the duality between the production function and the cost functions. Seven different inputs, including five wood products, labor, and capital, and three different end uses (new housing construction, repair and remodeling, and nonresidential construction) are analyzed. A seemingly unrelated regression estimation procedure is employed using a detailed annual time series database that spans the period from 1950 to 2009. Results suggest large variability in own-price long-term demand elasticity among wood inputs and across end uses. Softwood lumber, for example, is highly inelastic for new housing construction, inelastic for repair and remodeling, and nearly unitary elastic for nonresidential construction. Softwood plywood, on the other hand, is elastic for new housing construction and highly inelastic for nonresidential construction. In addition, we find that dynamic adjustments to long-term conditional intensity factor demand are prevalent across all inputs and among all three end-use categories.