Abstract— The objective of this study is to identify the important factors that affecting natural rubber industry in Malaysia. Therefore, the Malaysian natural rubber market model where built. It consists of six behavioral equation and two closing identities. The six behavioral equations are production, import, domestic consumption, export, domestic price and world price equations and the closing identities are domestic and world stock. By using the annual data from year 1980 to 2012, the market model been examined using unit root test, cointegration test and simultaneous equation estimation. Method two stages least squares (2SLS) will be used in determining the factors that affecting natural rubber market. Results revealed that time trend, hectare natural rubber and production with lagged 1 year are important in production natural rubber equation. While,import depends on world price and exchange rate. Only synthetic rubber price isn’t important in determining Malaysia’s natural rubber consumption. All the factors in domestic price are significance except price with lagged 1 year while lastly crude oil price and lagged world price of rubber are the two variables that important in the world price equation compare to exchange rate and world price of synthetic rubber.
Keywords— Econometric analysis, Malaysian natural rubber market, unit root test, cointegration test, two stages least squares (2SLS)
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