Investment behaviour in the European pulp and paper industry

This study analysed the location of investments in the European pulp and paper industry. Three continuous investment models were estimated allowing for fixed as well as random effects using data for 10 European countries over the period 1978-1995, The results indicated that labour wages, market size and agglomeration effects were the most important determinants of investment levels. The impacts of raw material prices were somewhat ambiguous. However, in the long run wastepaper availability seems to matter in the sense of attracting investments. A comparison of the economic significance of changes in the costs of input factors with changes in the market size indicated that proximity to output markets had a larger impact on the decision to invest than proximity to abundant raw materials or cheap access to electricity and labour. Furthermore, the agglomeration coefficient indicated that the power of sunk costs is important.