Oil Palm Industry Economic Journal Vol. 16 (1) March 2016 p. 31-37

Examining the Long-term Relationships between the Prices of Palm Oil and Soyabean Oil, Palm Oil Production and Export: Cointegration and Causality

Ain Hassan* and N Balu*
Received:    Accepted:    Available Online:


The main objective of the article is to investigate whether there are long-run and short-run relationships among natural log of the prices of palm oil price (LPOP) and soyabean oil (LSOP), oil palm production (LPROD) and total export (LEXP). These time series data are annual data from 1988 to 2015. Augmented-Dickey Fuller (ADF) stationary test results show that the time series for LPOP, LSOP, LEXP, and LPROD are stationary at first difference. According to the Engle and Granger method, there is a cointegration relationship between the time series data. Further, the Johansen method shows at least two cointegration vectors between the variables. The Vector Error Correction Model (VECM) was used to test these two cointegration vectors for long-run cointegration relationships. The empirical evidence obtained from the study shows there is no longrun equilibrium between the variables. This is proven by the nonsignificant and positive values of the Error Correction Term (ECT) parameter. In other words, a change in oil palm price in the long-term is not influenced entirely by soyabean oil price. It may be affected by other important factors such as palm oil supply and extreme weather phenomena. However, the Granger short-run relationship test found that there is a one-way Granger causality relationship from LPROD to LPOP, and from LEXP to LPOP. Thus, it is shown that total export and production of palm oil are expected to influence palm oil price in the short-run.

Keywords: natural log of palm oil price, soyabean oil price, oil palm total export, oil palm total production

About Post Author


* Malaysian Palm Oil Board,
6 Persiaran Institusi,
Bandar Baru Bangi,
43000 Kajang, Selangor,

E-mail: nurain.hassan@mpob.gov.my