A gravity model analysis of China’s pulp and paper products trade

We used a gravity model to investigate determinants of China’s pulp and paper products trade from 1995 to 2005. The results show that an importing country’s economy size, forest endowment, distance to China, exchange rate, and membership in Asia Pacific Economic Cooperation (APEC), plus China’s accession to the World Trade Organization (WTO) and its forest products policy change implemented in 1998, all significantly affect China’s pulp and paper products exports. On the other hand, China’s pulp and paper products imports are affected by exporting countries’ economic size, forest and capital endowment, APEC membership, China’s accession to the WTO, and tariff reductions on forest products. Application: The factors discussed in this report influence China’s pulp and paper products trade. The results can be used to estimate the effects of economic and policy change on China’s pulp and paper products trade. peer-reviewed 28 TAPPI JOURNAL | september 2008 1. Value of China’s pulp and paper products imports and exports, in 1995 U.S. dollars. brous cellulose material grew almost 20% annually during the study period. The imports of wood pulp and other fibrous cellulose material were valued at US $845 million in 1995. By 2005, the imports increased to US $5.1 billion (in 1995 dollars). According to Sun et al. [5], this is mainly because China was moving away from straw-based pulp toward greater use of wood-based fiber. Meanwhile, imports of paper and paperboard grew moderately, with an annual growth rate of less than 5%. China exports mainly paper and paperboard, with wood pulp accounting for an insignificant percentage of total pulp and paper exports. Although the number of source countries and regions exporting pulp and paper products to China increased from 76 to 106 during the study period, some remained as the major sources. Figure 3 shows China’s paper and pulp products imports by major trading partners. The United States has long been the top country from which China imported some 20% of pulp and paper products. Japan, Canada, and Indonesia are in the second tier of the largest source countries, each accounting for about 10% of the imports. The shares of China’s pulp and paper products imported from South Korea, Taiwan, and Hong Kong declined from around 10% in 1995 to less than 5% in 2005. Pulp and paper products imports from Brazil and Russia have gradually increased since the late 1990s, accounting for about 5% of China’s pulp and paper imports in 2005. Figure 4 shows the major destinations for China’s pulp and paper products exports. Hong Kong, the United States, and Japan have been the leading importers. On average, these three accounted for about 62% of China’s annual pulp and paper products exports during 1995-2005. The UK, South Korea, Taiwan, and Australia each accounted for about 2% of China’s pulp and paper products exports. A sizeable share of forest products imported to Hong Kong were re-exported to the United States, Japan, and the UK. MODEL SPECIFICATION AND DATA Following Zhang and Li [4], this study models China’s pulp and paper trade as a function of factors that might create trade resistance or promote such trade between China and other countries. We apply the gravity model separately to the imports and exports. Trade flow is modeled as: