Impact of Oil Palm and Rubber Price Shocks on Gdp Growth of Malaysia

Abstract

The research examines the relationship of price shocks of oil palm and rubber and GDP growth rate of Malaysia, in both short term and long term. Augmented Dickey-Fuller (ADF) unit root test is used to determine whether the variables are stationary. Error Correction Model is also used to examine the short run relationship of price shocks of oil palm and rubber towards GDP growth rate of Malaysia. The result of ADF test showed that all the variables: GDP growth, price shock of oil palm and rubber are stationary in all levels for further analysis of ARDL test.  There is the significant effect of price shocks on GDP both in the long run and short run. Price shocks of oil palm showed negative affect on the GDP both in long run and short run while that of rubber affect the GDP growth positively in the long run and insignificant positive effect in the short run. The results could be used by policy makers to improve the existing economic policy to put more effort on expanding the wellspring of income of the country and could be used as a reference about price shocks effect to the country’s economy.