Abstract

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.

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