An empirical analysis of price behavior of natural rubber latex: A case of central rubber market Hat Yai, Songkhla, Thailand

Abstract

Hat Yai City in Songkhla Province, Thailand has three unique advantages: its Central Rubber Market lies in the largest rubber growing region in the world, it can easily access the new (2004) deep-sea port in Songkhla, and it lies directly on the improved transport infrastructure of the Asia Highway and the North-South Economic Corridor linking it to other growing areas in Southeast Asia and Thailand. Despite these advantages, the rubber industry has always been susceptible to the price volatility of rubber latex, which destabilizes the benefits of rubber production to the local economy, particularly to small-holder producers. Since volatility may theoretically either decrease in the future with the integration of more numerous supplying regions or increase with the intensified co-dependence of supplying and demanding countries, careful modeling of rubber price volatility on the Hat Yai market could both inform development policy today and serve as a baseline for future studies. This paper therefore attempts to identify the best econometric model to capture price volatility of latex type RSS3 in Thailand for the period 2004-2011. The daily price of latex type RSS3 was modeled by adopting and comparing conditional volatility models, GARCH, GARCH-GJR and EGARCH. The price volatility of natural rubber latex type RSS3 is strongly persistent, and the estimated results are statistically valid. If implemented, the findings of this paper with respect to economic, environmental, and transportation policy could lead to benefits to small holders and to price stabilization mechanisms on national and export. © 2013 Springer-Verlag Berlin Heidelberg.