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DYNAMIC CAUSALITIES BETWEEN WORLD OIL PRICE AND INDONESIA’S COCOA MARKET: EVIDENCE FROM THE 2008 GLOBAL FINANCIAL CRISIS AND THE 2011 EUROPEAN DEBT CRISIS

Mukhlis MUKHLIS

PhD Scholar in Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Lecturer, Universitas Almuslim, Indonesia

mukhlis.umuslim@gmail.com

Raja MASBAR

Professor in Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia

raja.masbar53@gmail.com

Sofyan SYAHNUR

Senior Lecturer in Economics, Faculty of Economics Business, Universitas Syiah Kuala, Indonesia

kabari_sofyan@unsyiah.ac.id

M. Shabri Abd. MAJID

Senior Lecturer in Economics, Faculty of Economics Business, Universitas Syiah Kuala, Indonesia, Corresponding author

mshabri@unsyiah.ac.id

Abstract

This study examines and analyzes the short- and long-run dynamic causal relationship between the prices of Indonesian and world cocoa beans during the 2008 global financial crisis and the 2011 European debt crisis. Time series analysis consisting of cointegration, Vector Error Correction Model (VECM) and Granger causality are used to test long-run equilibrium, short- and long-run relationships, and dynamic causalities between the Indonesian cocoa and world cooa prices. The study found a long-run equilibrium between Indonesian cocoa price, world cocoa price, exchange rate, and world oil price. The Indonesian and world cocoa markets have a mutually influential relationship. However, an inefficient transmission of corrective adjustments in the Indonesian cocoa prices was documented over the study period. The exchange rate consistently affected Indonesian cocoa prices, while fluctuations in world oil prices were independent to domestic and world cocoa markets over the study period. Overall, the study documented a long-run equilibrium between Indonesian and global cocoa markets at the different level of speed of adjustment of the world cocoa price towards long-run equilibrium between the two economic crises. The Indonesian government needs to enhance international trade cooperation and pricing policy harmonization among cocoa producing- and importing-countries.

Keywords: Cocoa price, Exchange rate, Oil price, World cocoa market, Economic crisis

JEL classification: C01, C23, O13.

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