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An Econometric Analysis of Export demand for and supply of Malaysian Cocoa
Dissertation Abstract:
This study presents a dynamic, simultaneous-equations model of price and quantity adjustments for Malaysian cocoa exports from 1961 to 1990. Price determination is explicitly modeled. A review of the recent development in Malaysian cocoa in relation to world trade was included.
Cocoa is a commodity produced exclusively in tropical developing countries and consumed mostly in industrial countries. Malaysia's cocoa production in 1989-90 accounted for I 0.5 percent of the world output.Of the total production, 82.4 percent was exported in the form of dry beans. The rest was exported in semi-processed forms.
The empirical estimates of real price and income elasticities of demand for Malaysian cocoa exports were greater than unity. World cocoa stock level exerted a negative effect on export demand. The estimated price elasticity of export supply from the equilibrium model was low (0.30). Non-price determinants play a relatively significant role in influencing export supply. The domestic productive capacity exerted a direct impact on export supply. There appeared to be a negative relationship between domestic demand pressure and export supply, implying that opportunity costs were involved in exporting. In the disequilibrium model, the domestic supply shock was positive and significant, confirming the hypothesis that domestic production above trend is export-biased. The time trend coefficient was positive and significant in the supply equations of both models. Real commodity price of Malaysian cocoa exports was significantly influenced by the demandside rather than the supply-side factors, implying that Malaysia is a price-taker.
The general prospects for Malaysian cocoa exports can be viewed in short- and long-run perspectives. In the short-run, there is indication of supply-side constraints. In the long-run, Malaysia faces a range of policy options. These include exploiting the domestic market to provide a cushion against world cocoa market vicissitudes, increasing cocoa-related downstream economic activities through vertical integration, and ensuring higher productivity and quality of beans to enhance price competitiveness in relation to world cocoa trade. Future prospects also largely depend on the Iiberalization of trade restrictions in the importing countries.