ABSTRACT:
India is the world’s leading importer of edible oils and is likely to remain a prominent importer in the future. Her large population and steady economic growth are important contributing factors for her increasing consumption and imports. In the late 1980s and early 1990s, India pursued self-sufficiency in vegetable oil production. However, domestic production was then stagnant and unable to meet the growing demand. This caused the government to allow the import of edible oils under open general license (OGL), particularly of palm oil due to its price competitiveness. With the increasing demand for imported oils and fats, especially palm oil, a study on India’s palm oil demand is deemed important. This study aimed to determine factors influencing the demand for palm oil in India by using the Autoregressive Distributed Lag (ARDL) models over the period 1980- 2015. The result of the bound test indicates that there is a long-run relationship between the studied variables and palm oil demand. The empirical result reveals that population has a significant positive relationship with palm oil demand in India in the long-run. However, domestic income measured by gross domestic product (GDP) and the price discount of palm oil over soyabean oil was found to have a significant negative relationship with palm oil demand in India. The negative relationship between GDP and palm oil demand shows that palm oil is perceived by Indians to be an inferior goods. Meanwhile, the negative relationship between the difference between soyabean and palm oil prices and palm oil demand shows that not only are soyabean and palm oils close substitutes, but also that palm oil has the characteristic of a giffen goods.
Keywords: palm oil, demand, India, ARDL, bound test
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