Journal of Forest Economics > Vol 27 > Issue 1

Cointegration in China's log import demand: Price endogeneity and structural change

Han Zhang, College of Economics and Management, Northwest A&F University, China, Jari Kuuluvainen, Department of Forest Sciences, University of Helsinki, Finland, Ying Lin, School of Forestry and Wildlife Sciences, Auburn University, USA, Penghui Gao, Department of Agricultural Economics and Rural Sociology, Auburn University, USA, Hongqiang Yang, College of Economics and Management, Nanjing Forestry University, China, hongqiangyang32@gmail.com
 
Suggested Citation
Han Zhang, Jari Kuuluvainen, Ying Lin, Penghui Gao and Hongqiang Yang (2017), "Cointegration in China's log import demand: Price endogeneity and structural change", Journal of Forest Economics: Vol. 27: No. 1, pp 99-109. http://dx.doi.org/10.1016/j.jfe.2017.03.003

Published: 0/4/2017
© 0 2017 Han Zhang, Jari Kuuluvainen, Ying Lin, Penghui Gao, Hongqiang Yang
 
Subjects
 
Keywords
JEL Codes:C32F14Q21Q23
China's log importElasticityStructural breakEndogeneitySubset VECMCointegration
 

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In this article:
Introduction
Model specification
Methodology
Data sources and description
Empirical results
Discussion and projection
Conclusion

Abstract

The monthly data of China's log import from January 2000 to December 2013 are used to estimate the import demand elasticities, with the consideration of possible price endogeneity due to China's large share of the international log market, and structural break caused by global financial crisis in 2008. To address the possible structural break, cointegration tests allowing for a deterministic shift in the level of the variables are employed, and a two-stage estimation with top-down sequential elimination algorithm is performed on the restricted subset VECM. The results demonstrate that there exists a long-run cointegration relationship between China's log import and the explanatory variables. The import elasticities of macroeconomic development and import price are around 0.76 and −0.81, respectively. Other things being equal, the structural break would induce a 29.6% decline in China's log import. All the above parameters are significant at the 1% risk level. Furthermore, the contribution decomposition analysis suggests that China's macroeconomic development plays a dominant role in determining its log import, which implies that China's log import would not increase as quickly as before, given that its economy is shifting into the “New Normal State”. This conjecture is supported by our simulations, which indicate that, by 2020, the growth rate of China's log import will be lower than it has been in the past and the import volume would be approximately 1.1–1.6 times greater compared to imports in 2013.

DOI:10.1016/j.jfe.2017.03.003