Input Substitution in the Indian Paper Industry : A Variable Cost Function Approach

The trend towards trade liberalisation in developing countries is likely to increase the flow of recyclable waste paper from industrialised countries, raising concerns about the impact on local sources. Central to an analysis of the impact of international trade is the substitutability between imported and domestic waste paper by the paper industry as the main user of these inputs. It is particularly important in view of the uncertainty regarding future prices and availability of domestic forest raw materials and imported pulp. This paper presents the results of a survey which was undertaken among paper mills in Gujarat and Maharashtra, in India. The aim of the survey was to collect a cross section of data for firms in India which use waste paper as the primary material input to calculate not only an estimation of elasticities of substitution between imported and domestic waste paper but also the price and cross elasticities of raw materials, labour and energy. The results suggest that the substitution possibilities between the three specified inputs, are limited. The same conclusion is drawn for the substitution between imported and domestic waste paper, given the total material cost