Supply and Demand Model for the Malaysian Cocoa Market

Abdel Hameed, Amna Awad and Hasanov, Akram and Idris, Nurjihan and Abdullah, Amin Mahir and Mohamed Arshad, Fatimah and Shamsudin, Mad Nasir (2009): Supply and Demand Model for the Malaysian Cocoa Market.

Abstract

This paper investigates a system of supply, demand, and price equations for Malaysian cocoa using annual data over the period 1975-2008. Theoretically, in supply and demand models, the price variable is treated as endogenous. However, Hausman specification test result indicates that there is no simultaneity problem in the model. Thus, we estimate the system of equations utilizing the Seemingly Unrelated Regression (SUR) estimation technique which might be considered a more efficient estimator for supply and demand model of the Malaysian cocoa. The results suggest that the Malaysian cocoa production is mainly affected by the previous year production, price of cocoa beans at lag two as well as the harvested area. In the export demand equation, the real effective exchange rates is statistically significant determinant while the index of industrial production of advanced economies and the world price of cocoa are found to be insignificant. The results also suggest that both Malaysian industrial production index and domestic price of cocoa beans are key determinants of domestic demand for cocoa beans in Malaysia. Finally, the domestic price of cocoa beans is highly sensitive to its domestic consumption, lagged domestic price, and its world price.

• Item Type: MPRA Paper
• Language: English
• Keywords: Supply and Demand; Malaysian Cocoa; SUR technique
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products

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