A Cointegration Analysis of Rubber Price Transmission from World Price to Thai Farm Price

Abstract

This study investigates linkages between international rubber prices and local rubber prices. The objectives of this study are (1) to study the relationships and linkages of farm price, local price, central market price, F.O.B price and SICOM rubber price (2) to explore an adjustment of farm price to equilibrium price level after changes in international rubber prices and other local rubber prices. The study utilizes monthly data of natural rubber prices comprise Hat Yai center rubber market price of latex type RSS3, F.O.B and SICOM rubber price from 2001-2015. The rubber prices data series is estimated using Error Correction Mechanism (ECM) with co-integration method for residual error correction. The study performs Granger Causality test to examine the causation among rubber price variables. The result indicates that farm price, local price, central market price, F.O.B price and SICOM price have statistically significant long term relationship and co-integrated between above-mentioned prices. Farm price has a strong relationship with local rubber market price, central market price and SICOM market price respectively. The Granger Causality reveals that farm price variables have bidirectional causality relationship with all prices, except F.O.B. price.  In conclusion, this study concludes that central market price have played a crucial role in price determination process in Thai rubber markets.