A Study on Modeling the Price Trend of Black Pepper in Malaysia

Abstract

The pepper industry represents a significant economic sector in Malaysia. Despite the importance of the pepper industry to the Malaysian economy, the review of the literature indicates that the industry has not attracted much research emphasis. More specifically, the literature indicates that limited studies have attempted to investigate the factors that influence the price of black pepper in Malaysia. Furthermore, the factors that influence the pricing of black pepper can be identified by selecting the most suitable multivariate model. Hence, Multiple Linear Regression and VAR model are conducted and compared for determining on which of the factors are significant for the pricing values of black pepper. The secondary data on the economic variables of black pepper is obtained from the Malaysian Pepper Board which is located in Kuching, Sarawak. The analysis of the data can be divided into estimation and evaluation part. In the estimation part, both types of model are developed and Cochrane – Orcutt procedure is undertaken to diagnose the autocorrelation problem in Multiple Linear Regression model. In terms of multivariate approach it is found that VAR model is more reliable than Multiple Linear Regression since it has smaller readings in most of the criterions such as MSE and RMSE. Therefore, it can be identified that lagged one of economic variables such as amount of production, amount of export and pricing of black pepper are significant factors that affect the annual pricing of the agricultural product.