THE ROLE OF BIOFUEL ENERGY AND INSTITUTIONAL QUALITY ON MALAYSIAN PALM OIL EXPORTS TO THE BRICS ECONOMIES
Noorhalizam Mohamed Noor
DOI:
Keywords:
BRICS, biofuel energy, institutional quality, gravity model and PPML
Abstract
Over-reliance on traditional markets and discrimination against palm-based biofuel by the European Union have prompted the Government to take proactive measures to expand further Malaysian palm oil exports to the BRICS economies (Brazil, Russia, India, China, and South Africa). Therefore, this study examines the impacts of biofuel energy and institutional quality’s role on Malaysian palm oil exports to BRICS economies from 2000 to 2020 by adopting the gravity model and estimated by the Poisson Pseudo-Maximum Likelihood (PPML). The analysis shows that a larger economic size trade more; however, more distance between them will reduce export flows. Meanwhile, biofuel energy, regulatory quality, and voice and accountability are the significant factors that enhance palm oil exports to the BRICS economies. This study proposes that the BRICS economies be the primary destination for Malaysian palm oil exports through tariff reductions and accepting other trade barriers.
References
Ab Rahman, A.K., Abdullah, R., Balu, N. & Shariff, F.M. 2013. The impact of La Niña and El Niño events on crude palm oil prices: An econometric analysis. Oil Palm Industry Economic Journal 13(2): 38–51.
Abidin, I.S.Z., Haseeb, M. & Islam, R. 2016. Regional integration of the Association of Southeast Asian nations economic community: An analysis of Malaysia-Association of Southeast Asian nations exports. International Journal of Economics and Financial Issues 6(2): 646–652.
Amavilah, V.H. 2009. Globalisation, governance, and the economic performance of Sub-Saharan Africa.
Amiruddin, M., Abrahman, A. & Shariff, F. 2005. Market potential and challenges for the Malaysian Palm Oil Industry in facing competition from other vegetable oils. MPOB, Serdang, Selangor VOL. 5(1)/: 17–27.
Anderson, J.E. 1979. A theoretical foundation for the gravity equation. The American Economic Review 69(1): 106–116.
Anderson, J.E. & Van Wincoop, E. 2003. Gravity with gravitas: A solution to the border puzzle. American Economic Review 93(1): 170–192.
Anderson, J.E. & Van Wincoop, E. 2004. Trade costs. Journal of Economic Literature 42(3): 691–751.
Anto, S., Mukherjee, S.S., Muthappa, R., Mathimani, T., Deviram, G., Kumar, S.S., Verma, T.N. & Pugazhendhi, A. 2020. Algae as green energy reserve: Technological outlook on biofuel production. Chemosphere 242: 125079.
Azam, A.H.M., Sarmidi, T., Nor, A.H.S.M. & Zainuddin, M.R.K.V. 2020. Comovement among world vegetable oil prices: A wavelet-based analysis. International Journal of Business and Society 21(3): 1068–1086.
Baier, S.L. & Bergstrand, J.H. 2007. Do free trade agreements actually increase members’ international trade? Journal of International Economics 71(1): 72– 95.
Balu, N. & Ismail, N. 2011. Free trade agreement–the way forward for the Malaysian palm oil industry. Oil Palm Industry Economic Journal 2: 26–35.
Bergstrand, J.H. 1985. The gravity equation in international trade: some microeconomic foundations and empirical evidence. The Review of Economics and Statistics 474–481.
Bergstrand, J.H. 1989. The generalised gravity equation, monopolistic competition, and the factor-proportions theory in international trade. The Review of Economics and Statistics 143–153.
Bergstrand, J.H. 1990. The Heckscher-Ohlin-Samuelson model, the Linder hypothesis and the determinants of bilateral intra-industry trade. The Economic Journal 100(403): 1216–1229.
BP. 2020. Statistical review of world energy 2020. Report No. . Statistical Review of World Energy. https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review2020-full-report.pdf.
Burger, M., Van Oort, F. & Linders, G.-J. 2009. On the specification of the gravity model of trade: zeros, excess zeros and zero-inflated estimation. Spatial Economic Analysis 4(2): 167–190.
Chuangchid, K., Wiboonpongse, A., Sriboonchitta, S. & Chaiboonsri, C. 2012. Factors affecting palm oil price based on extremes value approach. International Journal of Marketing Studies 4(6): 54.
Cuervo-Cazurra, A. 2006. Who cares about corruption? Journal of International Business Studies 37(6): 807–822.
Deardorff, A. V. 1998. Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World? The regionalisation of the world economy: University of Chicago Press, Chicago.
Dollar, D. & Kraay, A. 2003. Institutions, trade, and growth. Journal of Monetary Economics 50(1): 133–162.
DOSM. 2021. Final external trade statistics. Report No. . Department of Statistics, Malaysia. Putrajaya https://newss.statistics.gov.my/newss-portalx/ep/epFreeDownloadContentSearch.seam?cid=1217772.
Egger, P. & Pfaffermayr, M. 2003. The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects. Empirical Economics 28(3): 571–580.
Egger, P.H. & Nigai, S. 2015. Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models. Journal of International Economics 97(1): 86–99.
Eichengreen, B. & Irwin, D.A. 1998. The role of history in bilateral trade flows. The Regionalisation of the World Economy 2008: 33–62.
Energy Commission. 2018. National energy. Report No. . Energy Commission. Putrajaya, Malaysia https://www.st.gov.my.
Frankel, J.A., Stein, E. & Wei, S.-J. 1997. Regional trading blocs in the world economic system. Peterson Institute.
Gan, P.Y. & Li, Z.D. 2014. Econometric study on Malaysia’s palm oil position in the world market to 2035. Renewable and Sustainable Energy Reviews 39: 740–747.
Gujarati, D.N., Porter, D.C. & Gunasekar, S. 2012. Basic econometrics. Tata McGraw-hill education.
Hailu, Z.A. 2010. Impact of foreign direct investment on the trade of African countries. International Journal of Economics and Finance 2(3): 122–133.
Helpman, E. & Krugman, P. 1987. Market structure and foreign trade: Increasing returns, imperfect competition, and the international economy. M.I.T. press.
Ismail, M.N. Food Oil Consumption in Emerging Countries & Biodiesel Demand Drives the Vegetable Oils Market Worldwide, According to New Report by Global Industry Analysts, Inc (Press Release). The Edge News -MPOB, 8 November: 1–2.
Jadhav, P. & Katti, V. 2012. Institutional and Political Determinants of Foreign Direct Investment: Evidence From BRICS Economies. Poverty & Public Policy 4(3): 49–57.
Kannan, P., Mansor, N.H., Rahman, N.K., PENG, T. & Mazlan, S.M. 2021. A review of the Malaysian sustainable palm oil certification process among independent oil palm smallholders. Journal of Oil Palm Research 33(1): 171–180.
Kapoor, N.R. 2014. Making a world of difference: how BRICS diaspora give. Londres: The Resource Alliance.
Kaufmann, D., Kraay, A. & Zoido-Lobaton, P. 1999. Aggregating governance indicators. Report No. 2195. The World Bank.
Kimura, F. & Lee, H.H. 2006. The gravity equation in services trade. Review of World Economics 142(1): 99–121.
Kurtz, M.J. & Schrank, A. 2007. Growth and governance: Models, measures, and mechanisms. The Journal of Politics 69(2): 538–554.
Leamer, E.E. & Levinsohn, J. 1995. International trade theory: the evidence. Handbook of International Economics 3: 1339–1394.
Lee, K. & Kim, B.-Y. 2009. Both institutions and policies matter but differently for different income groups of countries: Determinants of long-run economic growth revisited. World Development 37(3): 533–549.
Mátyás, L. 1997. Proper econometric specification of the gravity model. World Economy 20(3): 363–368.
Mielke, T. 2015. Global supply, demand and price outlook of oils and fats. In Presentation at 81st Annual Convention of NIOP.
MITI. 2020. Malaysia’s Free Trade Agreement.
MPOC. 2019. Putting on the Brakes.
MPOC. 2021. Challenges faced by Malaysian palm oil and the way forward.
Naidu, L. & Moorthy, R. 2021. A review of key sustainability issues in the Malaysian palm oil industry. Sustainability (Switzerland) 13(19).
Nambiappan, B. & Nazlin Ismail. 2011. Free Trade Agreement - The Way Forward for the Malaysian Palm Oil Industry. Oil Palm Industry Economic Journal 2(April): 1–3.
Neill, J.O.’. 2001. Building better global economic BRICs. Report No.
Newton, I. 1687. Philosophiae Naturalis Principia Mathematica. Vol. 1. types A. et JM Duncan.
Nistor, P. 2015. FDI Implications on BRICS Economy Growth. Procedia Economics and Finance 32(15): 981–985.
Owen, A.D., Chowdhury, K. & Garrido, J.R.R. 1997. Price interrelationships in the vegetable and tropical oils market. Applied Economics 29(1): 119–124.
Pathak, L. & Shah, K. 2019. Renewable energy resources, policies and gaps in BRICS countries and the global impact. Frontiers in Energy 13(3): 506–521.
Pöyhönen, P. 1963. A tentative model for the volume of trade between countries. Weltwirtschaftliches Archiv 93–100.
Pujiati, R., Firdaus, M., Adhi, A.K. & Brummer, B. 2014. The impact of regional trade agreements on the commodity trade flows (Case study: international palm oil trade). Forum Agribisnis 4(2): 193–206.
Purnomo, H., Okarda, B., Dermawan, A., Ilham, Q.P., Pacheco, P., Nurfatriani, F. & Suhendang, E. 2020. Reconciling oil palm economic development and environmental conservation in Indonesia: A value chain dynamic approach. Forest Policy and Economics 111(January 2019): 102089.
Ramli, A. & Mohd Basri, W. 2010. World palm oil supply, demand, price and prospects: Focus on Malaysian and Indonesian palm oil industry. Malaysian Palm Oil Board MPOB 1–30.
Rodrik, D. 1996. Understanding economic policy reform. Journal of Economic Literature 34(1): 9–41.
Santos, S. & Tenreyro, S. 2006. The log of gravity. The Review of Economics and Statistics 88(4): 641–658.
Sikdar, C. & Nag, B. 2011. Impact of India-ASEAN Free Trade Agreement: A cross-country analysis using applied general equilibrium modelling. Report No. . ARTNet Working Paper Series.
Silva, J.M.C.S. & Tenreyro, S. 2006. The log of gravity. The Review of Economics and Statistics 88(4): 641–658.
Silva, J.M.C.S. & Tenreyro, S. 2011. Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator. Economics Letters 112(2): 220–222.
Tinbergen, J. 1962. Shaping the world economy: Suggestions for an international economic policy.
Tridico, P. 2006. The Determinants of Economic Growth in Emerging Economies: a Comparative Analysis (December 2006).
Urata, S. & Okabe, M. 2010. Trade creation and diversion effects of regional trade agreements on commodity trade. Discussion Papers 10007.
Wang, J. 2016. Analysis and Comparison of the Factors Influencing Worldwide Four Kinds of Vegetable Oil Trade: Based on Gravity Model. Modern Economy 07(02): 173–182.
Williamson, J. 1990. What Washington means by policy reform. Latin American Adjustment: How Much Has Happened 1: 90–120.
Yotov, Y. V, Piermartini, R., Monteiro, J.-A. & Larch, M. 2016. An advanced guide to trade policy analysis: The structural gravity model. World Trade Organization Geneva.
Yusoff, M.H.M., Abdullah, A.Z., Sultana, S. & Ahmad, M. 2013. Prospects and current status of B5 biodiesel implementation in Malaysia. Energy Policy 62: 456–462.
Zulqarnain, Yusoff, M.H.M., Ayoub, M., Jusoh, N. & Abdullah, A.Z. 2020. The challenges of a biodiesel implementation program in Malaysia. Processes 8(10): 1–18.
