THE DEMAND FOR DOMESTICALLY PRODUCED SAWN TIMBER: AN APPLICATION OF THE DIEWERT COST FUNCTION

The Australian demand for domestically-produced sawn timber is investigated by considering its major use - as an input into residential construction. Using a cost function approach, a system of equations is derived expressing quantities demanded in terms of relative prices. Cross-price elasticities are estimated and the falling input-output ratio of timber in residential construction is analysed by decomposing the change in this ratio into price, outputs and taste/technology effects. A major finding is that, while substitution of timber for other inputs has been encouraged through relative price movements, this effect has been more than offset by taste and technology trends away from timber usage.