Estimating Supply Response of Oilseeds Crop in Bangladesh by Using Cointegration Analysis and Vector Error Correction Model

Oilseeds supply response is very important for policy decision regarding oilseeds production as well as mitigation of the high demand of oilseeds in Bangladesh. Previous studies based on Nerlovian model resulted in spurious regression problem which can be overcome by using cointegration analysis and vector error correction model (VECM). This study attempts to investigate the influence of price and non-price factors on supply response of oilseeds in Bangladesh by using VECM. The results show that long-run elasticities are higher than short-run elasticities. Also own price elasticity of oilseeds and cross price elasticities are high in the long-run because of their commercial nature. Irrigation area has a positive impact on acreage of oilseeds as it is winter crop, so production could be decreased without irrigation. The results imply that government of Bangladesh should focus on the factors that affect the price elasticity and formulate the policies that ensure the profitable price to the producers.