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Paper recovery and investment behaviour in the European pulp and paper industry

by Lundmark, Robert

Abstract (Summary)
This thesis consists of an introductory part followed by two self-contained papers both analysing the effect recovered paper has on the locational choice for investments in the European pulp and paper industry. In the first paper we develop a continuous Cobb-Douglas investment model with the purpose of finding and estimating the investment determinants for the European pulp and paper industry, with special focus on the impact of recovered paper. The analysis is carried out within a neo-classical locational framework in which firms minimise the production and transportation costs for both input factors and for output products. We use a panel of data consisting of ten European countries over the period 1978 to 1995. The results suggests that both short and long run aspects of wastepaper recovery tend not to be important determinants of investment activities in the pulp and paper industry, whereas the price of wood pulp and electricity together with existing capacity seem to be more important. In the second paper we employ a different approach to the same problem. In this paper we develop a conditional logit model and compile the number of investment projects that were scheduled to be finished in 16 European countries between 1985 and 1995. In contrast to the first paper, which used continuous data, this model employs discrete data for the dependent variable. A discrete variable counts the actual number of times a certain event has taken place, i.e., the number of investment projects. The same set of determinants as in the first paper is used to ease comparing the two papers. We further break down the investment projects into four paper grades, which allow us to analyse the effects of wastepaper in greater detail. The results suggest that factor input prices in general and the price for wastepaper in particular are neither statistically nor economically significant location determinants for a paper manufacturer. Furthermore, the results suggest that market size and agglomeration effects are more important than the price of raw materials for location. On the basis of the results from the two papers, we can conclude that the price of wastepaper is not an important determinant for the European pulp and paper industry when choosing investment sites. Price driven policies aimed at stimulating paper recovery may therefore fail to achieve increased investments in the industry. At the same time, both papers suggests that agglomeration effects, i.e., existing productive capacity, is an important determinant. The economic significance of the agglomeration coefficients suggests that the power of sunk costs is important. Investments are largely diverted to existing capacity and the ability to attract new establishments is limited.
Bibliographical Information:

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School:Luleå tekniska universitet

School Location:Sweden

Source Type:Master's Thesis

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Date of Publication:01/01/2000

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