Effect of Price Changes on the Supply Response of Rubber in Nigeria (1980-2010)

Abstract

The study on the effect of price changes on rubber supply in Nigeria was carried out through the application of the Nerlovian partial adjustment model. Time series data covering a period of 30 years were obtained from the National Bureau of Statistics, Central Bank of Nigeria (CBN) Annual Agricultural Survey and the Central Bank of Nigeria Statistical Bulletin. The Nerlovian model was specified on the basis of the functional relationship between rubber supply and the lagged endogenous variables of rubber supply as well as the export price of rubber for the period under review. The findings revealed that previous year's output used as a lagged endogenous variable had a positive magnitude of 0.768 and was significant at 1%. The positive sign and the proof of significance is consistent with economic theory which posits that output has a direct relationship with the previous production level. The magnitude of the export price co-efficient of 0.0012 was low and not significant. Though the sign is in line with theoretical expectation, the low value may be attributable to the spurious nature of the estimates of time series due to trending effect. The coefficient of determination (R 2) of 76.4% indicates the proportion of the variation in natural rubber supply that was explained by the specified model. Also the Durbin Watson statistic value of 2.24 showed the presence of low autocorrelation. It is therefore recommended that an appropriate mechanism for price stabilization be instituted by governments as means of enhancing high export trade volume, since price is found to be a major determinant of rubber export trade in Nigeria.