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External and Internal Shocks and the Movement of Palm Oil Price: SVAR Evidence from Malaysia

Author

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  • Mohd Azlan Shah Zaidi

    (Center for Sustainable and Inclusive Development Studies, Faculty of Economics and Management, University Kebangsaan Malaysia (UKM), Bangi 43600, Malaysia)

  • Zulkefly Abdul Karim

    (Center for Sustainable and Inclusive Development Studies, Faculty of Economics and Management, University Kebangsaan Malaysia (UKM), Bangi 43600, Malaysia)

  • Noor Amirah Zaidon

    (Center for Sustainable and Inclusive Development Studies, Faculty of Economics and Management, University Kebangsaan Malaysia (UKM), Bangi 43600, Malaysia)

Abstract

Movements in palm oil price give important signals to various stakeholders of the palm oil industry in Malaysia. Thus, understanding external and internal factors that may affect the palm oil price is vital to the industry players for sustainability of their activities. This study investigates relative importance of external and internal shocks on the movement of palm oil price in Malaysia. Employing a structural vector autoregressive (SVAR) model on quarterly data from 1990 to 2019, the findings reveal that external shocks are more dominant in affecting the palm oil price. Shocks to the crude oil price, the prices of substitution goods (soybeans oil, rapeseed oil, and sunflower oil), the world palm oil price, and foreign income significantly affect the palm oil price in the short and medium run. The results also indicate that a shock to soybean oil price has a more profound effect on the palm oil price than a shock to rapeseed oil or sunflower oil prices, respectively. Likewise, shocks to incomes from India as well as from Netherlands create greater impacts on the palm oil price than a shock to income from the other trading partners, respectively. The study has shown the importance of external factors in affecting the palm oil industry.

Suggested Citation

  • Mohd Azlan Shah Zaidi & Zulkefly Abdul Karim & Noor Amirah Zaidon, 2021. "External and Internal Shocks and the Movement of Palm Oil Price: SVAR Evidence from Malaysia," Economies, MDPI, vol. 10(1), pages 1-17, December.
    • Handle: RePEc:gam:jecomi:v:10:y:2021:i:1:p:7-:d:711816
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    References listed on IDEAS

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    1. Mr. Ramana Ramaswamy & Mr. Torsten M Sloek, 1997. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Working Papers 1997/160, International Monetary Fund.
    2. Sanjay Sehgal & Namita Rajput & Florent Deisting, 2013. "Price Discovery and Volatility Spillover: Evidence from Indian Commodity Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 57-75.
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    Cited by:

    1. Mohd Syafiq Sabri & Norlin Khalid & Abdul Hafizh Mohd Azam & Tamat Sarmidi, 2022. "Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model," Mathematics, MDPI, vol. 10(23), pages 1-22, December.

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