An Empirical Analysis of Supply Response of Rubber in Malaysia

Abstract

Supply response of rubber to changes in economic incentives is analysed using co-integration approach. Time series data is taken for the period 1990 to 2014 and the vector error correction model framework has been applied. The empirical results confirmed the existence of a unique long-run equilibrium relationship among planted acreage, the relative price of rubber and price of fertilizer. Further, the estimates suggested that rubber supply is significantly influenced by the relative price of rubber and the price of fertilizer. The estimated short-and long-run elasticities of acreage with respect to relative price are respectively 0.04 and 0.77, while the short-and long-run elasticities of acreage with respect to fertilizer price are-0.20 and-0.28 respectively. The study recommends the design of an appropriate economic incentive structure to stimulate output and hence the income of farmers.

Assessing the sustainable development and intensification potential of beef cattle production in Sumbawa, Indonesia, using a system dynamics approach

“…The authors also translated these estimates to the more commonly reported acreage elasticities of supply with respect to price values of 0.38 and 0.90 [ 14 ]. Other relevant studies have estimated values for this parameter, with respect to price, of 0.77 for rubber plantations in Malaysia [ 15 ], and of 0 to 1.55 for a range of crops in the US [ 16 ]. Based on this sample of estimates in the literature, our assumed AE value of 0.15 can be considered to be relatively conservative.…”

Determinants of clove exports in Zanzibar: Implications for policy

“…Cointegration methods offer a need for using the error correction model (ECM) for the same reason. Other studies that have used cointegration methods are Mustafa et al (2016) and Soontaranurak and Dawson (2015).…”

An Empirical Analysis of the Supply Response of Coconut by Vector Error Correction Approach: Cross Country Comparison

“…More recent studies have used co-integration and vector error correction approach since they provide more general dynamic structures and overcome the criticism of restrictive lag structure and spurious regression. Some of these studies include; Alias and Tang, (2005) to examine the supply of Palm oil in Malaysia; Mesike, et al, ( 2010) to examine rubber supply response in Nigeria; Darkwah and Verter, (2014) to examine cocoa bean supply in Ghana; Wani, et al, (2015) to analyze supply response of apples and pears in Jammu and Kashmir, India; Soontaranurak and Dawson, (2015) to analyze rubber acreage supply response in Thailand and Mustafa, et al, (2016) to examine the supply response of rubber in Malaysia. The general conclusion that has been drawn in all these studies is that cointegration and VECM approach as they exhibit more general dynamic structures than the Nerlovian models.…”

“…The farmers' responsiveness can be estimated for either total production (output)/yield or the planted acreage. On one hand, the planted acreage is preferred in many studies of perennial crop supply response as it measures intended supply and it is more subjected to the control of the farmers unlike the output which is subjected to more random variations than acreage due to uncontrollable yield determine factors (Akiyama and Trivedi, 1987;Samarappuli and Bogahawatta, 1993;Soontaranurak and Dawson, 2015;Mustafa, et al, 2016). On the other hand, one can argue that the appropriate measure would be the volume of output produced since the level of output can easily change without changes in acreage (Mesike, et al, 2010;Ebi and Ape, 2014;Wani, et al, 2015).…”

“…Hence, revisiting the success and effectiveness of the policies in the coconut sector and allocation of the farm resources is of crucial importance. This could best be examined by analyzing and quantifying output response to changes in input prices and other related variables (Nerlove and Bachman, 1960;Akiyama and Trivedi, 1987;Devadoss and Luckstead, 2010;Mustafa, et al, 2016). Therefore, Supply response analysis or analyzing the behaviour of the producers is one of the most commonly used tools to evaluate the success and effectiveness of pricing policies and it is critical to resource allocation as well.…”