An econometric model of the world palm oil market and policy implications for the United States

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Virginia Tech

This study is concerned with developing a dynamic commodity market model for the international palm oil market. Policy implications for the United States and the rest of the world under alternative trade restrictions and policy instruments are assessed,

The first objective of this analysis is related to specifying, developing, and obtaining estimates of the structural parameters of the import demand and producer-export supply relationships for the international palm oil market. The short-run import demand price elasticities reported for the United States, the EEC and Canada, and Japan are -3.04, -1.13, and -.418, respectively. The value of the short-run export supply price elasticity is .138.

The second objective of the analysis involved evaluating short-run price and quantity impacts associated with imposing a specific import tax on United States palm oil imports. Results of multiplier analysis suggest reduced United States palm oil imports, increased EEC and Canada, and Japanese palm oil imports, reduced world producer-exports of palm oil, and lower world palm oil prices.

The final policy objective focuses upon evaluating short-run price and quantity impacts resulting from increased levels of World Bank funding of palm oil projects in the major producer-exporter countries. Interim and total multipliers suggest increased levels of palm oil imports and exports and reduced world palm oil price levels.

economic development