Economic Transition and Demand Pattern: Evidence from China’s Paper and Paperboard Industry

The economic transition in China poses new questions in studying product demand. In this study, we investigate the demand pattern and structural changes during the economic transformation using annual data from the paper and paperboard industry in China. Instrumental variable estimations as well as cointegration analysis and error-correction models are applied to the analysis. Our results show that in the early stages of economic reform, the income elasticity of demand for domestically made paper and paperboard products is about 1; and the own-price elasticity and the cross price elasticity with respect to world market price are both statistically insignificant. After 1992, the own and cross price elasticity increases, respectively, to -0.69 (in absolute value) and .59. With respect to import demands, the estimated income elasticity is not statistically different from 1.0 and the cross-price elasticity with respect to the domestic price is statistically insignificant; the own-price elasticity, on the other hand, increases from -0.60 to -0.50 before and after 1992, respectively. The results indicate that imports are substitutes for domestically made paper and paperboard products, but the reverse is not true, and there was a considerable structural change in the demand during the course of China's economic transition. J.E.L code: O12, O53, L73