The model of demand for forest products in the smaller markets (countries in Group II of table 1) is similar to the "GDP elasticities" model described in ETTS IV. This model, developed in general terms by Houthakker (1965), has been widely used to estimate demand elasticities for commodities. Gregory (1966) and Hair (1967) were among the first to use this approach for forest products, and Buongiorno (1978) used this model in a multi-country context. Total (apparent) consumption is explained using price and GDP. For each of the eight product groups, the relationship modeled is:
| QT = fn (Pm, GDP, QT-1) | (7) |
where QT is apparent consumption, Pm is import price (unit value), GDP is gross domestic product, and QT-1 is consumption in the previous period.
Because the countries in Group II are small producers and net importers, the unit value of imports is used as the single price term, and a single price is assumed to adequately reflect market prices. Import unit values were converted to domestic currencies, deflated, and then converted to an index. Real GDP (in domestic currency), and the consumption quantity for each country also were converted to indexes to adjust for scale differences in currencies and levels of consumption. Countries were grouped by per capita income, as shown in table 1.
