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Abstract
The business environment for sawnwood producers based in the traditional forest-industry
countries of the boreal zone has changed dramatically in the last decade. Among the greatest
changes is the establishment of the European Monetary Union (EMU). However, the effect of
the associated exchange rate changes on international forest-industry trade in European markets
has not previously been examined. The present study attempts to fill this gap by analyzing the
effects of currency movements on Finland’s and Sweden’s competitiveness in the international
sawnwood market. Johansen’s multivariate cointegration method was applied for formulation of
the separate partial equilibrium model systems for bilateral trade flows from Finland and
Sweden to analyze pricing of sawn softwood for the UK market in 1995–2008. Rather than
competitive markets, our findings indicate the existence of price discrimination and market
power on the part of exporting firms. The results show that Finnish exports have been greatly
affected by the currency movements between euros and British pounds in the UK market.
Furthermore, the estimated values for exchange-rate pass-through coefficients indicate that
Finnish exporters have passed on some of the exchange rate changes between these currencies
to the UK customers. This result is in line with similar estimations for the period before the
EMU. The present estimates show a slightly lesser degree of exchange-rate pass-through,
possibly suggesting transition towards a more competitive environment in the UK’s sawn
softwood market.