Abstract
This paper reviews the determinants of global palm oil trade using the gravity model. This model helps to explain how the shift in demand for palm oil has affected trade flows among trading partners. We decompose the effects of growth in the regional markets, location, and the reduction in the palm oil price relative to other edible oils, on palm oil exports. We find that standard variables suggested by the gravity literature, such as the growth of GDP, GDP per capita, and location, are indeed important determinants of palm oil trade. Given the preceding results, we simulate whether the economic growth of Indonesia’s trading partners can explain the growth in palm oil export demand from Indonesia. The simulation results for top ten Indonesia’s trading partners suggest that the growth of palm oil imports is a great deal higher than the growth of income for all countries.
Highlights
Palm oil (PO) is a type of vegetable oil derived from oil palm (Elaeis guineensis Jacq.) fresh fruit bunch (FFB).Oil palm cultivation is found in tropical areas of Africa, South America, and South East (SE) Asia
Our findings prove that the bilateral distances between trading partners are negatively correlated in PO trade
We employ gravity equations to observe the trade in palm oil market with only Indonesia and Malaysia as exporters and all other countries as their importers
Summary
Palm oil (PO) is a type of vegetable oil derived from oil palm (Elaeis guineensis Jacq.) fresh fruit bunch (FFB). Oil palm cultivation is found in tropical areas of Africa, South America, and South East (SE) Asia. The history of oil palm cultivation and trade began in Africa and was associated with the slave trade in the 16th century. The modern development of the PO industry in Africa has lacked behind SE Asia, . Indonesia and Malaysia, the two largest PO producers globally. The vast growth in global PO demand is undeniable. PO is one of the fastest growing perennial crops in the world (Koh & Wilcove, 2008). The industrialisation of PO was only prominent after the
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