Abstract
Reliazing the pass-through effects of global commodity prices on domestic prices, this study develops a vector error correction model (VECM) to test for the determinants and direction of causality between global prices and crude palm oil (CPO) price in Thailand. Malaysian crude palm oil, world soybean oil and world crude oil prices were investigated as factors affecting the Thai CPO price. Using the Johansen cointegration test, the result unveils a presence of long-run relationship among the determinants. This long-run relationship, proposes that CPO price flows in Thailand are positively influenced by the Malaysian CPO price and the error correction term suggests that approximately 35 percent of total disequilibrium in Thai CPO price was corrected in the following month. Moreover, the findings show Granger causality from each of the Malaysian CPO price and the world soybean oil price for the Thai CPO price. Information flow regarding the price movements of the Malaysian CPO and soybean oil affect the Thai CPO price and vice-versa. Whereas, the evidence for a causal relationship that runs from the world crude oil price to the Thai CPO price is found, but not in reverse.
Highlights
Palm oil is an essential product that is regularly consumed in households and is used as a raw material in industrial production for numerous products
The key determinants of the Thai crude palm oil (CPO) price that was focusing in this paper are Malaysian CPO price, world soybean oil price, and world crude oil price
The finding for the dynamic relation reveals that approximately 34.92% of total disequilibrium in the long-run relation between Thai CPO price and its determinants is corrected each month
Summary
Palm oil is an essential product that is regularly consumed in households and is used as a raw material in industrial production for numerous products. When there is a rise in global prices, it eventually affects the domestic product prices in one way or another [5]. In the case of Thailand, the production volumes of Thailand may be small compared to that of leading countries, Indonesia and Malaysia. It can sufficiently produce and supply palm oil for the domestic market and export the surplus to its neighbouring countries [7]. Its demand increased because the palm oil price is affordable compared to other edible oils and is used as an input to other industries and biodiesel production. To create a stable and sustainable industry for the long-run, the effects of global price changes on palm oil price are essential to study. An excellent understanding of the price mechanism and its determinants will encourage and support the productive production [9]
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
