ABSTRACT:
Malaysian export earnings from the animal and vegetable oils and fats sector had been fluctuated in the past. The major component of this sector is obviously that of palm oil which is also highly volatile and in tandem with the total earnings from the animal and vegetable oils and fats sector. It is the aim of this article to assess the instability of the Malaysian palm oil export earnings by using one of the latest techniques in modeling called generalized autoregressive conditional heteroskedasticity (GARCH). The model shows that palm oil export earnings is really instable. Sources of the instability were then sought through literature and the key determinants of the instability are prices of crude palm oil (CPO) and soyabean oil, exchange rate, palm oil export volume and production, and gross domestic products (GDP) of Malaysia’s major trading partners. These key determinants were linked in a multivariate regression model with the export earnings. Results showed that the most significant factors are prices of CPO and soyabean oil. Thus, price of palm oil had played a major role in causing the instability of the Malaysian palm oil export earnings. To stabilise the earnings, one needs to stabilise first the price of palm oil in the market which is exposed to the vagaries of market forces of supply and demand.
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