Oil Palm Industry Economic Journal Vol. 6 (2) September 2006 p. 1-6

The Elasticity of Foreign Demand for Malaysian Palm Oil

Faizah Shariff; Ayat K Ab Rahman and Mohd Nasir Amiruddin
Received:    Accepted:    Available Online:


The price elasticity of export demand is expected to receive considerable attention due to the current economic climate of volatile export markets and prices. The export demand elasticity is used to predict the change in demand for an export for a unit change in its price and to model the behaviour of foreign buyers. This project estimated the elasticity of foreign demand for Malaysian palm oil for the major importing countries – China P R, India, Pakistan, Egypt and South Korea. The error correction mechanism (ECM) method was used for the estimation considering its usefulness in quantifying the short-run and long-run effects of explanatory variables on the dependent variables using timeseries data. It was found that the price of palm oil plays a very significant role in its export; thus, the price needs to be stable and competitive with those of its substitutes, especially soyabean oil. From panel data research, the effect of a unit change in the soyabean oil price is greater on the exports of crude palm oil than the effect of the same change in the palm oil price. This means that both oils are highly substitutable.

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