Dynamic Connectedness of Corn, Plastic and Energy Markets

Abstract

The connectedness of commodity markets presents a challenge in designing policy interventions to support the competitiveness of bioplastics. Bio-based and petrol-based plastics are linked to agriculture and energy markets, making the net effect on the competitiveness of bioplastics less clear. Firstly, oil has traditionally formed an important input into agriculture, but the surge of biofuel production has strengthened the link between energy and agricultural commodities. The result of the increasing connectedness of these markets distorts the relationships between these factors and renders the prediction of effective policies interventions challenging. While the dynamic interactions relating to biofuels have been covered to some degree in the literature, the inclusion of bioplastics remains understudied. This study assesses the connectedness across commodity markets and provides policy and market insights to support the competitiveness of bioplastics in the US. We identified an average connectedness across plastic prices, oil prices, corn prices, manufacturing demand and plastic innovations of 35%. We also find evidence that oil prices dominate in influencing bioplastic competitiveness. Technological innovations and manufacturing demand have negligible influence on bioplastic competitiveness. The implications of these time-varying correlations can influence whether policy interventions produce positive or adverse effects. Accordingly, we provide policy recommendations considering the directional volatility spillovers and time-varying relationships assessed.