Purpose: Natural rubber (NR) production has a long history and has been contributing as one of the most important economic sectors in Malaysia recently. In enhancing the Malaysian rubber economy, it is crucial to find a balance between supply-side and demand-side considerations in order to stabilize the NR price in the worldwide market. This has raised the motivation and objectives of this research is to investigate the critical factors affecting the NR price instability in the world market, and to estimate and predict the NR price instability and to examine the most related factors that influence the price model by using ex-post and ex-ante forecast analysis.
Methodology: Number of profound research methods Vector Error Correction Method (VECM) by Gujarati and Porter; cointegration rank test by Dwyer; and ex-post forecast method by Pindyck and Rubinfeld have been utilized in this study. The data used from 2008 January to 2016 December: monthly time series data.
Results: The results show that the explanatory variables of NR production, total NR consumption, crude oil price, and Shanghai NR price indicate a significant relationship with Malaysian NR price (SMR20), on the contrary, the exchange rate is not significant.
Implications: The outcome of the study is closely related to the current situation of the exchange rate appreciation in the late of 2017 that may benefit the decision-making process of economic planning for the NR production stability, and price in the worldwide NR market as well.
- Amadeo, K., 2017. What are exchange rates? The balance. Available from https://www.thebalance.com/what-are-exchange-rates-3306083 [Accessed August 14, 2017].
- Association of Natural Rubber Producing Countries, 2017. Natural rubber trends and statistics by association of natural rubber producing countries. Available from http://www.anrpc.org/html/default.aspx?ID=4&PID=5 [Accessed November 07, 2017].
- Burger, K., H. Smit and B. Vogelvang, 2002. Exchange rates and natural rubber prices, the effect of the Asian crisis. Zaragoza (Spain), 28: 31.
- Engle, R.F. and C.W.J. Granger, 1991. Long-run economic relationships: Readings in cointegration. Oxford: Oxford University Press.
- Gilbert, C.L., 1986. Professor Hendry’s econometric methodology. Oxford Bull Economic Statistic, 48: 283-307.
- Goldberg, L. and K. Charles, 2005. Foreign direct investment, exchange rate variability and demand uncertainty. International Economic Review, 36(4): 855-873.
- Goodwin, N., J.A. Nelson, F. Ackerman and T. Weisskopf, 2008. Consumption and the consumer society. Global Development and Environment Institute. pp: 1-26.
- Gujarati, D.N. and D.C. Porter, 2009. Basic econometrics. 5th Edn., USA: McGraw-Hill.
- Hendry, F.D. and N.R. Ericsson, 2001. Understanding economic forecasts. Cambridge, Massachusetts: MIT Press.
- Jacob, J., 2017. Global rubber market: What’s in store for 2017? Retrieved from Rubber Asia. Available from https://www.rubberasia.com/2017/01/23/global-rubber-market-whats-store-2017/.
- Kannan, M., 2013. The determinants of production and export of natural rubber in India. IOSR Journal of Economics and Finance, 1(5): 41-45.
- Khin, A.A., S. Thambiah and K.L.L. Teng, 2017. Short-term and long-term price forecasting models for the future exchange of Malaysian natural rubber market. International Journal of Agricultural Resources, Governance and Ecology, 13(1): 21-42.
- Khin, A.A., H.C. Wong and L.Y. Ung, 2016. Impact of exchange rate volatility on Malaysian natural rubber price. Paper Presented at the 3rd International Conference of Accounting Studies (ICAS 2016), Malaysia.
- Kumar, S.A. and N. Suresh, 2009. Operations management. New Age International.
- Malaysia Rubber Board, 2017. Natural rubber report. Malaysian Rubber Board, Malaysia. Available from http://www3.lgm.gov.my/mre/YearlyAvg.aspx.
- Malaysian Rubber Board, 2017. Towards sustaining the viability of the Malaysian rubber industry. (n.d.). Available from http://www.lgm.gov.my/ [Accessed November 04, 2017].
- Melba, Y. and K.M. Shivakumar, 2016. Price formation and supply response of natural rubber. Economic Affairs, 61(1): 173.
- Mustafa, G., I. Latif and H. Egwuma, 2016. An empirical analysis of supply response of rubber in Malaysia. American Journal of Agricultural and Biological Sciences, 12: 148-156.
- Nyantakyi, K.A., B.L. Peiris and L.H.P. Gunaratne, 2015. Quantile regression analysis of the effect of production of natural rubber by Asian countries on world rubber price, 4(5): 492-504.
- Pindyck, R.S. and D.L. Rubinfeld, 2005. Microeconomics. 6th Edn., New Jersey: Auflage.
- Qabazard, H.M., M. Fantini and M. Haderer, 2013. I need to know: An introduction to the oil industry & OPEC. 2nd Edn., Vienna: OPEC Secretariat, Public Relations & Information Department.
- Sadali, N.H., 2013. Determinant of volatility natural rubber price. Available from http://dx.doi.org/10.2139/ssrn.2276767.
- Schindler, R.M., 2012. Pricing strategies: A marketing approach. Thousand Oaks, California: Sage.
- Studenmund, A.H., 2014. Using econometrics: A practical guide. 6th Edn.: Pearson, Prentice Hall.
- Venkatachalam, P., N. Geetha, P. Sangeetha and A. Thulaseedharan, 2013. Natural rubber producing plants: An overview. African Journal of Biotechnology, 12(12).