The Law of One Price in global coniferous sawlog markets

Abstract

With progressing globalization of forest production, roundwood prices in different countries may follow similar trends. The Law of One Price (LOP) postulates that the price of a similar product should be the same in different markets when expressed in the same currency. The objectives of this research were (1) to test the LOP in selected coniferous sawlog markets, and (2) to analyze whether a common market – the European Union – leads to the existence of a single sawlog market. The analysis included Brazil, Chile, Finland, Germany, Norway, Poland, Russia Northwest, Sweden, the US South, the US Northwest, Canada East, and Canada West. The results suggest that some of the coniferous sawlog markets were cointegrated which means that they shared a long-term relationship even if in the short-term they do not necessarily adjust to each other. The LOP may hold between coniferous sawlog markets in Sweden and Norway from 1995 through 2012 when sawlog prices were expressed in USD, and in Norway and Finland for 2001–2012 for prices in EUR. Furthermore, the LOP may hold for North American markets in the West for 2004–2012.