Analysis of export demand for Ghana's timber products: A multivariate co-integration approach

This study analyzed the factors that affect the export demand for Ghana's timber products. Export demand functions and error correction models for sawnwood, plywood, and veneer using data from 1961 to 2006 were estimated. Six categories of explanatory variables were hypothesized to determine export demand: world price of wood products, income of importing countries, Ghana's external debt, exchange rates, time-related variables, and policy changes (log export ban, reduction in annual allowable cut and the imposition of export levy on air-dried sawnwood). All variables except external debt were determined from augmented Dickey-Fuller unit root tests to be integrated of order one. The Johansen multivariate cointegration test showed that there was only one cointegration relationship in each timber product data. Exchange rates and income were significant determinants of exported timber products and had the theoretically expected positive signs. The three policy initiatives significantly reduced the exports of sawnwood. but increased the exports of plywood and veneer. Price was moderately elastic for sawnwood and plywood and had the expected negative signs in both cases, while it was positive and inelastic for veneer. The error-correction coefficients show that 68% of shocks to veneer exported is corrected in the following year, while only approximately 20% and 19% of this are corrected for sawnwood and plywood, respectively. Sawnwood and plywood face stiff competition in the international market and this has revenue and tax policy implications for Ghana's forestry sector. Policies that encourage domestic processing and restrictions on both legal and illegal harvesting would work to ensure greater value-added benefits to, and sustainable forest management in, Ghana. (C) 2009 Elsevier GmbH. All rights reserved.