World rubber market structure and stabilisation : an econometric study

This study examines some problems in the market for natural rubber, one of the ten core commodities proposed for stabilisation by a Common Fund to be established under the Integrated Programme for Commodities. The first part of this study is concerned with the specification, estimation and validation of an econometric model of the world natural and synthetic rubbers market. The highly disaggregated annual model for 1956-1978 consists of two submodels, one for each rubber and reflecting their different industrial organisations. Other salient features of the model are the long lagged structures and the interaction between the submodels through relative rubber prices in the demand equations. The model validation shows that the secular decline in natural rubber price up to 1973 was due primarily to the substitution of natural rubber by the cheaper synthetic rubbers and the falling natural rubber share. The second part of this study concerns the application of the model to forecast natural rubber price and to analyse the implications of natural rubber stabilisation along the lines of the International Natural Rubber Agreement. The impact of national government interventions in world commodity markets was also illustrated by an examination of the impact of changing Malaysian export taxes. Ex post and ex ante simulations of buffer stock stabilisation all showed the importance of the manner in which the buffer stock is operated. The results also show that stabilisation will have different effects for the producing and consuming countries and thus raise the question of funding of the buffer stocks