Intraregional Trade Flows and Trade Efficiency in Palm Oil and Palm-Based Products: Southeast Asia and Latin America Regions Compared

Abstract

Arguably, leveraging on the intraregional market is important for a commodity like palm oil that has been constantly facing challenges to sustain global demand in extra-regional markets. The paper therefore compares intraregional export potentials for palm oil in two regions that are at the frontier for palm oil expansion, Southeast Asia and Latin America. The paper employs a stochastic frontier gravity model to estimate intraregional export performance against the maximum possible level of potential export over the 1990 to 2016 period. Though intraregional exports of palm oil and palm-based products are more intensive in Latin America relative to Southeast Asia, the results indicate large untapped export potentials in both regions due to non-tariff measures and ‘behind the border’ factors. The evidence further suggests that this export potential limiting factors have increased over time. An intraregional focus for this commodity is therefore justified on grounds that there is tremendous scope for export expansion. However, to facilitate intraregional exports, the regulations should be streamlined within the regions.