The Co-Movement Between Commodity Prices and the Economic Growth of Malaysia
Abstract
Research Originality: This research is an initial attempt to unveil the structure of the dynamic relationship between commodity prices and the economic growth of Malaysia at various frequencies and moments in time.
Research Objectives: This paper investigates the co-movement and lead-lag relationship between commodity prices and the economic growth of Malaysia at different frequencies and moments in time.
Research Methods: The relationship between the variables is studied based on monthly data from 2015 to 2022 using the time-frequency analysis of Continuous Wavelet Transformation model. This method analyses the direction and lead-lag relationship between two time series to determine which variables are leading and the direction of their co-movement.
Empirical Result: The relationships between commodity prices and economic growth are varied depending on frequency and moments in time. In the short run, most commodity prices exhibit an inverse relationship led by economic growth. Meanwhile, a positive co-movement with economic growth is indicated for most commodity prices in the medium run. These variables mostly move in unison, except for rubber and palm oil, which led the relationship. Nevertheless, the co-movement of commodity prices and economic growth showed a diminishing magnitude in the long run.
Implications: Malaysia's policy frameworks should consider the economic dynamic responses towards commodity prices in facilitating its economic growth. In addition, efforts should be made to diversify economic activities, reducing the level of dependence on commodities in the country’s trade basket.
JEL Classification: Q32, O44, O11
How to Cite:
Pinjaman, S., Taasim, S.I., Yun, W.S., & Yassin, J. (202x). The Co-Movement Between Commodity Prices and the Economic Growth of Malaysia. Etikonomi, 23(1), 11 – 26. https://doi.org/10.15408/etk.v23i1.34368.
Keywords
References
Anyanwu, J. C. (2014). Factors Affecting Economic Growth in Africa: Are There any Lessons from China? African Development Review, 26(3), 468–493.
Arango, L. E., Arias, F., & Flórez, A. (2012). Determinants of Commodity Prices. Applied Economics, 44(2), 135–145. https://doi.org/10.1080/00036846.2010.500273.
Arbatli, E. C., & Vasishtha, G. (2012). Growth in Emerging Market Economies and the Commodity Boom of 2003-2008: Evidence from Growth Forecast Revisions. Bank of Canada Working Paper No. 2012–8.
Baffes, J., Kabundi, A., Nagle, P., & Ohnsorge, F. (2018). The Role of Major Emerging Markets in Global Commodity Demand. Policy Research Working Paper No. 8495.
Banaś, J., & Utnik-Banaś, K. (2021). Evaluating a Seasonal Autoregressive Moving Average Model with an Exogenous Variable for Short-term Timber Price Forecasting. Forest Policy and Economics, 131, 102564.
Bank Negara Malaysia. (2013). Annual Report 2013: Economic Developments in 2013. Kuala Lumpur: Bank Negara Malaysia.
Bond, M. E. (1987). An Econometric Study of Primary Commodity Exports from Developing Country Regions to the World. Staff Papers (International Monetary Fund), 34(2).
Caravaggio, N. (2022). Economic Growth and Forest Transition in Latin America. Forest Policy and Economics, 135, 102667.
Cavalcanti, T. V. D. V., Mohaddes, K., & Raissi, M. (2014). Commodity Price Volatility and the Source of Growth. Journal of Applied Econometrics, 30(6), 857-873. https://doi.org/10.1002/jae.2407.
Chaudhuri, K. (2001). Long-run Prices of Primary Commodities and Oil Prices. Applied Economics, 33(4), 531–538. https://doi.org/10.1080/00036840122106.
Chen, Y. C., & Rogoff, K. (2003). Commodity Currencies. Journal of International Economics, 60(1), 133–160. https://doi.org/10.1016/S0022-1996(02)00072-7.
Cheung, C., & Morin, S. (2007). The Impact of Emerging Asia on Commodity Prices. Working Paper Bank of Canada, No. 2007–55.
Chuah, K.-P., Chong, E., & Tan, J.-S. (2013). The Impact of Global Commodity Prices on Inflation in Malaysia. Proceedings 59th ISI World Statistics Congress, 2771–2776.
Collier, P., & Goderis, B. (2012). Commodity Prices and Growth: An Empirical Investigation. European Economic Review, 56(6), 1241–1260.
Connor, J., & Rossiter, R. (2005). Wavelet Transforms and Commodity Prices. Studies in Nonlinear Dynamics & Econometrics, 9(1), 1–22.
Davidson, R., Labys, W. C., & Lesourd, J.-B. (1998). Wavelet Analysis of Commodity Price Behavior ? Computational Economics, 11, 103–128.
Dehn, J. (2000). Commodity Price Uncertainty and Shocks: Implications for Economic Growth. CSAE Working Paper Series 2000-10. Centre for the Study of African Economies, University of Oxford..
Department of Statistics Malaysia. (2021). Supply and Utilization Accounts Selected Agricultural Commodities, Malaysia 2016-2020. Kuala Lumpur: Department of Statistics Malaysia.
Ezeaku, H. C., Asongu, S. A., & Nnanna, J. (2021). Volatility of International Commodity Prices in Times of COVID-19: Effects of Oil Supply and Global Demand Shocks. The Extractive Industries and Society, 8(1), 257-270.
Ge, Y., & Tang, K. (2020). Commodity Prices and GDP Growth. International Review of Financial Analysis, 71, 1–10. https://doi.org/10.1016/j.irfa.2020.101512.
Gharleghi, B., & Chan, B. Y. F. (2013). The Economic Importance of Crude Palm Oil in Nigeria. International Journal of Management Sciences and Business Research, 2(1), 81-86.
Ghoshray, A., & Pundit, M. (2021). Economic growth in China and Its Impact on International Commodity Prices. International Journal of Finance and Economics, 26(2), 2776–2789. https://doi.org/10.1002/ijfe.1933.
Goestjahjanti, F. S., Pasaribu, S. B., Novitasari, D., Azz, I. K. H., & Winanti, W. (2023). The Role of Export in Boosting Indonesia’s GDP During Crisis: Macroeconomic Conditions. Etikonomi, 22(2), 369-388. https://doi.org/10.15408/etk.v22.i2.32381.
Gohar, R., Chang, B. H., Uche, E., Memon, P. A., & Bhatty, K. (2023). The Asymmetric Effect of Exchange Rate on the Household Consumption Expenditures. Etikonomi, 22(1), 31-44. https://doi.org/10.15408/etk.v22i1.23428.
Harvey, D. I., Kellard, N. M., Madsen, J. B., & Wohar, M. E. (2017). Long-Run Commodity Prices, Economic Growth, and Interest Rates: 17th Century to the Present Day. World Development, 89, 57–70. https://doi.org/10.1016/j.worlddev.2016.07.012.
Iscan, E. (2015). The Relationship Between Commodity Prices and Stock Prices: Evidence from Turkey. International Journal of Economics and Finance Studies, 7(2), 17–26.
Jacks, D. S., O’rourke, K. H., & Williamson, J. G. (2011). Commodity Price Volatility and World Market Integration Since 1700. The Review of Economics and Statistics, 93(3), 800–813.
Jiang, B., Qin, Y., & Zhao, Y. (2022). The Commodity Price Fluctuations Triggered by Political Issues. Proceedings of the 2022 7th International Conference of Financial Innovation and Economic Development (ICFIED 2022), 558–562.
Ma, Q., Zhang, M., Ali, S., Kirikkaleli, D., & Khan, Z. (2021). Natural Resources Commodity Prices Volatility and Economic Performance: Evidence from China Pre and Post COVID-19. Resources Policy, 74, 102338. https://doi.org/10.1016/j.resourpol.2021.102338.
Moghaddam, M. B. (2023). The Relationship Between Oil Price Changes and Economic Growth in Canadian Provinces: Evidence from a Quantile-on-Quantile Approach. Energy Economics, 125, 106789.
Nicod, T., Bathfield, B., Bosc, P. M., Promkhambut, A., Duangta, K., & Chambon, B. (2020). Households' Livelihood Strategies Facing Market Uncertainties: How Did Thai Farmers Adapt to a Rubber Price Drop?. Agricultural Systems, 182, 102846.
Nordin, N., Nordin, S., & Ismail, R. (2014). The Impact of Commodity Prices, Interest Rate and Exchange Rate on Stock Market Performance: An Empirical Analysis from Malaysia. Malaysian Management Journal, 18, 39–52.
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, 102089.
Prasetyani, D., Abidin, A. Z., Purusa, N. A., & Sandra, F. A. (2020). The Prospects and The Competitiveness of Textile Commodities and Indonesian Textile Product in the Global Market. Etikonomi, 19(1), 1-18. https://doi.org/10.15408/etk.v19i1.12886.
Ramakrishnan, S., Butt, S., Chohan, M. A., & Ahmad, H. (2017). Forecasting Malaysian Exchange Rate using Machine Learning Techniques based on Commodity Prices. 2017 International Conference on Research and Innovation in Information Systems (ICRIIS), 1–15.
Rieber, M. (1985). International Commodity Agreements: The Role of Consuming Nations. Resources Policy, 11(2), 87-98. https://doi.org/10.1016/0301-4207(85)90002-9.
Sokhanvar, A., & Bouri, E. (2023). Commodity Price Shocks Related to the War in Ukraine and Exchange Rates of Commodity Exporters and Importers. Borsa Istanbul Review, 23(1), 44-54. https://doi.org/10.1016/j.bir.2022.09.001.
Tahar, M. Ben, Slimane, S. Ben, & Ali Houfi, M. (2021). Commodity Prices and Economic Growth in Commodity-Dependent Countries: New Evidence from Nonlinear and Asymmetric Analysis. Resources Policy, 72, 102043. https://doi.org/10.1016/j.resourpol.2021.102043.
Tiwari, A. K., Albulescu, C. T., & Gupta, R. (2016). Time–Frequency Relationship between US Output with Commodity and Asset Prices. Applied Economics, 48(3), 227–242. https://doi.org/10.1080/00036846.2015.1076154.
Torrence, C., & Compo, G. P. (1998). A Practical Guide to Wavelet Analysis. Bulletin of the American Meteorological Society, 79(1), 61–78.
Torrence, C., & Webster, P. J. (1999). Interdecadal Changes in the ENSO-Monsoon System. Journal of Climate, 12(8), 2679–2690.
Uliha, G., & János, V. (2018). Exchange Rates and Prices: a Continuous Wavelet Perspective. IEHAS Discussion Papers No. MT-DP 2018/33..
Wright, B. D., & Williams, J. C. (1982). The Economic Role of Commodity Storage. The Economic Journal, 92(367), 596-614. https://doi.org/10.2307/2232552.
Xiuzhen, X., Zheng, W., & Umair, M. (2022). Testing the Fluctuations of Oil Resource Price Volatility: a Hurdle for Economic Recovery. Resources Policy, 79, 102982. https://doi.org/10.1016/j.resourpol.2022.102982.
DOI: 10.15408/etk.v23i1.34368
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Saizal Pinjaman, Shairil Izwan Taasim, Wong Sing Yun, Jain Yassin
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
