Indonesian Natural Rubber: An Econometric Analysis Of Its Export Supply And Foreign Import Demand

This study is concerned with a quantitative examination of the Indonesian natural rubber. The main objective of the study is to analyze the nature of the supply of and demand for Indonesian natural rubber. To meet the above objective a simultaneous equation model was developed consisting of fifteen behavioral equations and six definitional identities which are hypothesized to describe the annual structure of the Indonesian natural rubber and its place in the world market for the period 1970 through 1990. The Micro-TSP computer software package was used to carry out the analysis in this study. The data used were primarily taken from several sources. The study found that production and export supply of Indonesian natural rubber, demand for rubber both in the U.S. and outside the U.S. markets, and foreign import demand for Indonesian natural rubber were perfectly price inelastic. Moreover, level of production -- which depends mainly on the extent of the mature tree area and yield -primarily determines for the export supply, and yield is influenced by the price of natural rubber in both the world and domestic market price. Furthermore, demand for natural rubber is influenced mainly by the automobile industry. The major policy implication of the above findings is that dependence on one commodity as a source of export earning is subject to risk. In other words, diversification of export crop promotion must be continued.