Analysis Of The Malaysian Tobacco Industry Economics Essay

By August 16, 2017 Economics

Chapter 1

The Malayan baccy industry is a voluminous industry which comprehends leaf production and hardening, merchandise fabrication to merchandise selling and distribution. Tobacco is the state ‘s most widely cultivated non-food harvest ( British American Tobacco Malaysia ) . Malaysia is non considered as a big baccy foliage manufacturer by universe criterions. Neither is a major subscriber to the Malayan economic system. However, baccy husbandmans are used politically by the baccy industry. Harmonizing to a survey conducted by Ernst and Young in June 2005 for the Confederation of Malaysian Tobacco Manufacturers, the industry contributes extensively to the state ‘s economic system with more than 190,000 people depending on it for employment in 2003. Tobacco production has increased due to a rise in the demand for baccy from coffin nail makers. ( See Table 1.0 )

Table 1.0 – Tobacco Production 1990 – 1999


Production Quota ( MT )

Actual Output ( MT )

Actual/Quota ( Percent +/- )


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+ 8.2




– 6.0




+ 1.4
















– 4.6













Beginning: FAS Attache Report 2000

1.1 Impact of Tobacco Use

Cigarette demand has long been a important issue and has become particularly outstanding in the aftermath of the recent colossal colonies between authorities and coffin nail companies ( Huang and Chin, 2006 ) . Harmonizing to the imperativeness statement by the Minister of Health, the Hon Dato ‘ Chua Jui Meng on Tobacco Control in Malaysia on 7th November 1996, coffin nail smoke is an evitable dependence which hold responsible for a monolithic 25 % of all deceases in Malaysia. Smoking is a lifelessly and expensive interest which is unsafe to both tobacco users and the 2nd manus tobacco users ( Costa and Mossialos,2006 ) . Surveies showed that 30 % of malignant neoplastic disease deceases and 90 % of chronic clogging pneumonic disease in Malaysia were associated to smoke ( The Star ) . Harmonizing to World Health Organization ( WHO ) , baccy is traveling to be the biggest cause of decease in the universe if current form of smoke continue, with no alterations in surcease rates or important diminutions in induction rates by 2020. There are more than one billion tobacco users in the universe and 5.4 million people were killed by baccy usage a twelvemonth.

Furthermore, smoking is non merely destructing the wellness of the tobacco user but it is besides an economic load. These include chiefly direct or indirect medical costs to the tobacco users and besides productiveness losingss. Indoor topographic points where smoke is allowed will incur a higher redevelopment and cleansing costs. The direction will hold to pay a batch to keep the cleanliness in the workplaces. Furthermore, it increased the hazard of fire and may get higher insurance premiums.

Since the first study on baccy by Surgeon General was released in 1964, awareness comparative to the negative effects of baccy usage has increased. Smoking coffin nails during gestation can do ad-lib abortion, scraggy babes and premature bringing. Most significantly, it will besides do sudden baby decease ( SID ) syndrome. At the same clip, it is besides really unsafe for the people who do non smoke but take a breathing in a smoke-filled room. Second-hand fume is a major beginning of indoor air pollution which can damage the wellness of both the kids and grownups. There are about half of the universe ‘s kids breathe second-hand fume today.

In recent times, the tobacco users are increasing from twenty-four hours to twenty-four hours ( See Table1.1 ) . Despite of all the negative effects, tobacco users do n’t look to be affected by the side effects. Teenage smoke is a terrible job in Malaysia and harmonizing to the World Tobacco Marketfile, the figure of young person tobacco users are increasing ( See Table 1.2 ) . The hazard of young person get downing baccy usage by socio-demographic, environmental and personal factors is increasing. Family with low socioeconomic position is an illustration of socio-demographic factor. There are more immature people who smoke presents because baccy merchandises are easy accessible and available everyplace. Young people who are deficiency of parental counsel will be easy influenced by equals. These are the illustrations of environmental hazards factor. While personal hazard factors include low self-esteem and the belief that baccy usage provides an advantage which can assist them to cut down emphasis. Peoples who get older should understand the danger of smoking better than the young person. They should be able to see the side effects if they have been smoking for rather some clip. Some people may non be cognizant of the specific wellness hazards of baccy usage as they are non exposed to the side effects. If the tobacco users are cognizant of the dangers of baccy, most want to discontinue.

Table 1.1 – National Health & A ; Morbidity Survey – 1986 & A ; 1996

National Health and Morbidity Survey 1986

National Health and Morbidity Survey 1996

Studied Population

Over 15 years

Over 18 years

Sample Size



Peninsula Malaysia


All Smokers

21.5 %

24.8 %

Male Smokers

41 %

49.2 %

Female Smokers

4 %

3.5 %

Beginning: National Health and Morbidity Survey 1986, 1996, Institute of Public Health, Ministry of Health Malaysia, 1997

Table 1.2 – Summary of Surveys of Smoking Prevalence among Malayan young person




Sample Size

Prevalence of smoke


Patrick E

University pupils


30.0 %


Vimala T

Form 4

Males = 2099

Females = 2007

Males = 17.3 %

Females = 1.9 %


Wong ML

Medical pupils

Males = 150

Females = 121

Males = 17.3 %

Females = 0.8 %


Vijaya Television

Form 4

Males = 25.1 %

Females = 0.6 %


Second National Health and Morbidity Survey

12 to 18 old ages

Males = 30.7

Females = 4.8 %


Naing NN

Form 4 male


Males = 4.2 %


Haris AM

Form 4 male


Males = 33.2 %

Beginning: Zulkifli Ahmad, Rogayah Jaafar, Razlan Musa, ‘Cigarette smoke among Malayan young person: jobs and chances ‘ , Proceedings of the Malayan Society of Health 21st Scientific Symposium, Kuala Lumpur 6-7th December, 1997.

1.2 Government ‘s Regulation towards Cigarette Demand

The Malayan authorities has done assorted attempts and enforced ordinances curtailing people to smoke. Government policy is divided into monetary value and revenue enhancement steps ; and besides non-price steps such as Protection from exposure to tobacco fume ; Regulation of contents of baccy merchandise ; Regulation of baccy merchandise disclosures ; Packaging and labelling of baccy merchandises ; Education, communicating, preparation and public consciousness ; Tobacco advertisement, publicity and sponsorship ; and Tobacco surcease ( Zain, 2007 ) .

National Tobacco Control Program is one of the schemes taken to cut down baccy usage. The general aim of this plan is to supply comprehensive support and aid to assist tobacco users discontinue smoke. The plans include legislative control ; wellness publicity and public protagonism ; tobacco revenue enhancement policy ; smoking surcease services ; research, monitoring and rating ; multi-sectoral coaction and capacity edifice.

In legislative control, under the subdivision on the Prohibition on Tobacco Product Advertisement of Control of Tobacco Product Regulations 2004 restricts printing, publication or distributing of any tobacco merchandise advertizement. It bans on coffin nail advertizement on telecasting and wireless. Health warning messages are placed on every coffin nail battalion to raise people ‘s consciousness. Furthermore, authorities has legislated smoke-free policy in Malaysia to control smoke. There is entire prohibition on smoking in authorities meetings. Topographic points like wellness and educational installations, governmental offices, public conveyance, shopping composite, film and topographic points of worship are smoke-free zone. Besides that, wellness publicity and protagonism screens campaigns such as ‘Tak Nak Campaign ‘ ; ‘Healthy Lifestyle Campaign ‘ ; ‘Kempen Nafas Baru Bermula Ramadhan ‘ ; ‘World No Tobacco Day ‘ and besides events by other bureaus. On top of that, authorities besides introduce excise responsibilities on imported coffin nail and farther addition in gross revenues and import revenue enhancement. Increase revenue enhancement will cut down the ingestion on coffin nails without negative impact on gross. At the same clip, National Smoking Cessation Program was introduced to supply comprehensive support and aid to assist tobacco users to discontinue smoke. Under this plan, it helps to inform and educate the tobacco users sing the advantages of discontinuing smoke.

Government has created a batch of awareness plan to assist people to discontinue smoke and the most effectual scheme to cut down smoke is raising the monetary value of the coffin nails. So as all these attempts and accretion of cognition are done, the demand for coffin nails and smoke should be cut downing.

1.3 Problem Statement

Tobacco usage in Malaysia has escalated over the past old ages in malice of the legion wellness warnings. Despite the assorted executions of mass anti-smoking runs by the authorities, smoke is still a popular activity among the people. In the yesteryear there is a batch of Domino consequence of smoking taking to wellness jobs yet it can look surprising that some people still take to smoke. Tobacco users still continue with it in pursuit of the hazards or the disbursal because smoke is a wont difficult to interrupt for the ground that it contains an habit-forming drug called nicotine. In add-on to that, the consequence will be amplified this clip around as the monetary value of coffin nails increase at the same time. Subsequently, the monetary value affects the center and lower income group of pay earner adversely because smoke is an expensive activity. The rise of coffin nail ‘s monetary value will do them to be overburdened by the lifting life cost.

Peoples start smoking for a assortment of different grounds. Although most of the people is cognizant that smoke is unsafe and harmful to the people around them but there are still 40-50 new tobacco users created mundane and the smoke popularity among the young person are increasing. There is about 9 out of 10 tobacco users start before the age of 18 old ages old ( See Table 1.2 ) . Most of the young person started to smoke as an act of rebellion and besides because of equal ‘s force per unit area. The adolescents may non be witting about the effects but it will go evident subsequently on in their life. Furthermore, study has shown that the tendency of immature female tobacco users is increasing at such an dismaying rate. Harmonizing to the statistics by Healthy Living, it shows that there are 22 % of tobacco user ages around 18 to 24 old ages old, 22.8 % of tobacco user ages around 25 to 44 old ages old, 21 % of tobacco user ages around 45 to 64 old ages old and 8 % of tobacco user ages above 65 old ages old.

1.4 Research Question

The inquiries arise in this survey is:

Will the people above the age of 65 old ages old decrease the ingestion of coffin nails?

Will the execution of the authorities policy towards the coffin nails cut down the figure of tobacco users in Malaya

1.5 Aims of the Study

The general aim of this survey is to find the demand for coffin nails.

More specific, this survey tends to

Determine the monetary value and income snap towards the demand for coffin nails.

Determine the impact of demand for coffin nails on aging population.

1.6 Significance of the Study

This research on the aging population is of import in the effort to cut down the overall demand for coffin nails in Malaysia. This survey will prove the degree of consciousness of population of Malaysia on the impact of smoking between different age groups. Most of the diseases caused by baccy usage will merely be noticeable when the users reach the ulterior phase in life. This survey will warrant why policy shapers should take into consideration people of all age groups when coming up with new policies sing baccy usage, alternatively of concentrating merely on the younger population.

Chapter 2


This chapter is to reexamine the bing literature on the demand for coffin nail. There is a big volume of published surveies depicting the monetary value and income snap on coffin nail ingestion. Furthermore, there is besides a big and turning organic structure of literature has investigated the effects of revenue enhancements and anti-smoking ordinances on the demand for coffin nails. So far, there are merely a few surveies sing the relationship between aging population and the ingestion of coffin nail.

2.1 Theoretical Surveies of Demand for Cigarettes

The jurisprudence of demand is an of import jurisprudence in microeconomic theory. In theoretical economic sciences, economic experts develop theoretical accounts to research economic activity and results. Reliable statements about economic behaviour enable the anticipation of likely effects of specific actions. The jurisprudence of demand is an economic jurisprudence that states that, all other factors being equal, as the monetary value of good additions, demand for the good will diminish. This jurisprudence summarizes the consequence monetary value alterations have on consumer behaviour. The negative relationship between monetary value and measure demanded is caused by two grounds. One of the grounds is the income and permutation effects. Income consequence means that for a lower monetary value merchandise, a consumer can purchase more than they could at the higher monetary value point. Other similar merchandises now seem more expensive compared to the lower priced merchandise is the permutation consequence. The 2nd ground is the decreasing fringy public-service corporation for the opposite relationship between monetary value and measure demanded. Consumers get less satisfaction from each extra unit of merchandise they consume over a specified period of clip. They will merely go on to purchase if the monetary value is reduced at each point.

By increasing the existent monetary value of baccy, a revenue enhancement addition has colossal possible to be an effectual policy lever to diminish baccy ingestion. The impact of revenue enhancements on baccy ingestion depends on the extent to which alterations in revenue enhancements are reflected in baccy monetary values and the reactivity of consumers to alterations in monetary values. Peoples tend to cut down their ingestion on baccy usage as the monetary value addition. The demand maps show that coffin nail ingestion is related to the monetary value of coffin nails, monetary values of related goods, income, and person ‘s gustatory sensations. A general decision from the cherished surveies is that baccy monetary values and the demand are reciprocally related. Marshall illustrated the jurisprudence of demand with both a tabular array and a demand curve by presuming that the period of clip is sufficiently short to warrant a ceteris paribus premise.

2.2 Empirical Surveies of Demand for Cigarettes

Several surveies conducted have reported that there is an reverse relationship between the monetary value and coffin nail ingestion and positive consequence of income. Franke ( 1994 ) reveals that Granger Causality is important from monetary value and income to cigarette ingestion in the United States. No important alteration is observed in the estimated demand snap which occurred during the period studied. In order to prove a theoretical account of the demand for coffin nails in the United States from the period of 1961 to 1990, he uses quarterly informations and multiple analyses. The result of the survey illustrates a positive consequence of income and negative effects on monetary value. Likewise, Zheng, Zhu and Li ( 2008 ) , in a separate survey besides finds that there is so a positive income snap but negative coffin nail monetary value snap based on the best fixed-effects spatial-temporal theoretical account. They construct a demand equation to analyze on the snap of per battalion coffin nail monetary value and per capita disposable income in 2008. This is done by sing the coffin nail demand in a spacial panel of 46 provinces of the United States over a period of 30 old ages which ranged from 1963 to 1992. They so propose a new spacial panel theoretical account and implement a to the full Bayesian attack for theoretical account parametric quantity illation and anticipation of coffin nail demand at future clip points utilizing the Markov concatenation Monte Carlo ( MCMC ) algorithms.

Chaloupka et Al. ( 2002 ) examines informations from paperss of the baccy industry to detect what baccy companies know of the impact that coffin nail monetary values has on smoke among young person, immature grownups and besides grownups. They assess on how this apprehension would impact their pricing and monetary value related selling programs. The baccy company paperss provides velar grounds on the effect of alteration in coffin nail monetary values on coffin nail smoke wonts, associating how revenue enhancement and other additions in monetary value led to important diminution in smoke, preponderantly among the younger people. They conclude that future attempts towards baccy control which targets to increase monetary values and bound monetary value related selling attempts are critical in accomplishing decreases in baccy usage and public wellness toll caused by baccy. This position is supported by Fernandez et Al. ( 2004 ) which shows that between the period of 1965 and 2000, there is so an reverse relation between the monetary values and ingestion of coffin nail in Spain, which indicates that engagement at the economic degree, for case existent additions in monetary value may hold an of import public wellness impact in control of baccy. Correspondingly, Gallus et Al. ( 2006 ) present a similar survey to find the influence that coffin nail monetary values has on baccy ingestion in Italy. A study is conducted on 3050 persons aged 15 and above which suggests that monetary values had an intermediate to high influence on coffin nail ingestion in the immature. Younger people every bit good as less educated tobacco users are more susceptible to an influence of monetary values. They conclude that coffin nail monetary values have significant influence on baccy ingestion in the younger people.

On the contrary, Raptou et Al ( 2005 ) argues that coffin nail demand is highly insensitive to alterations in monetary value. They employ informations collected via questionnaires which was administered by personal-in-home interviews and gauge a two portion theoretical account of coffin nail demand ( Cragg, J. G. B Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods, Econometrica, 39, 5, 1971, pp. 829Y44 ) . They conclude that coffin nail monetary value steps would non impact coffin nail demand. However, it is discovered that smoking limitations in workplace countries every bit good as educational constitutions, and besides most of the psychosocial variables will impact the demand of coffin nail.

Harmonizing to Huang and Yang ( 2006 ) , current estimations of the income snap to cigarette demand have shown a disturbing consequence which is about zero or sometimes negative income snap. They engage in a four-regime panel theoretical account ( dynamic fixed consequence ) which is usage to foretell the map of coffin nail demand within the United States with purposes to look into the nonlinearity embedded in the coffin nail demand construction. They apply a multi-regime theoretical account to 47 provinces utilizing informations from 1963 to 1997. They claim that there is a nonlinear relationship between personal income and coffin nail ingestion. Obviously, as income rises, coffin nail has become an inferior good. The consequences from the four-regime theoretical account suggest that income snap is negative when per capita income is greater than US $ 8,568 but become is positive though undistinguished when income is above US $ 18,196. In the income runing from US $ 8,568 and US $ 18,196, the income snap is significantly negative. There is a nonlinear relationship which prevailed for the monetary value snap.

Furthermore, Martinez, Mejia, and Estable ( 2008 ) claims that the demand for coffin nails in Argentina over the long term is influenced by the alterations in existent mean monetary value and existent income of the coffin nails in Argentina. They analyse the informations based on monthly time-series informations between the periods of 1994 to 2004. The consequences that they obtain show that when the monetary values are increased at 120 % , a upper limit of grosss from the coffin nails revenue enhancement can be attained and besides there is a large consequence on the decrease of the entire ingestion of coffin nails within the state. Similarly, Abedian ( 2000 ) besides states that there is an reverse relationship between the monetary value and ingestion of any good which include coffin nails.

This negative relationship is farther affected by other factors such as income degrees and the grade of dependence. He argues that increasing baccy ingestion is a job faced in a underdeveloped state and it could convey injury to the people. He besides argues that there are no inauspicious economic effects following such policy model.

In 2000, Joni Hersch in his surveies states that smoking behavior relates to the alterations in monetary value, which is non unlike many other economic trade goods. He finds that a higher monetary value would cut down demand for coffin nails in both work forces and adult females with respect to smoking engagement and coffin nail ingestion degrees, with snap runing from -0.40 to -0.60. In differentiation to other surveies, he finds that the monetary value snap is likewise for both work forces and adult females. Income besides has negative effects on smoking behaviour. He besides states that excise revenue enhancement policies can deter smoke, but their effects will be mostly restricted to the low income section of the population. This determination suggests that there might be constructive responses by tobacco users to informational attempts which warn about the dangers of smoke and besides the environmental baccy fume airss to others, particularly when it is a member of one ‘s family.

Further observations suggest that addition in revenue enhancements besides play an indispensable function in cut downing coffin nail ingestion. Following recent old ages, there has been a turning sum of literature on higher monetary values that result from increased revenue enhancement taking to important decreases in coffin nail smoke. A recent survey by Chaloupka et Al ( 2010 ) which performs to provide empirical grounds on the effect of the coffin nail excise revenue enhancement construction towards three results which are the authorities gross, coffin nail monetary values, and coffin nail ingestion. A cross-sectional time-series informations for 21 European Union ( EU ) states is composed from twelvemonth 1998 to 2007 out of assorted informations resources. The estimations suggest that the greater trust on the ad valorem excise revenue enhancement leads to take down mean coffin nail monetary values and larger monetary value spreads between premium and low-cost coffin nail trade names. In add-on, these impacts from the revenue enhancement construction are smaller in more concentrated or less competitory markets. They besides propose that a larger trust on a specific revenue enhancement will hold a greater impact on coffin nail smoke, but the impact lessens with the growing of makers ‘ market power.

In position of this, Peng and Ross ( 2009 ) estimates the Ukraine population in its sensitiveness to monetary values of coffin nails and the coffin nails affordability utilizing the macro degree informations with the purpose to calculate the efficiency of coffin nail revenue enhancement policy. They use a monthly time-series informations from 1997 to 2006 in Ukraine to gauge the generalised least square ( GLS ) theoretical account with an AR ( 1 ) procedure. The consequence shows that the coffin nail monetary value is non significantly associated with legal domestic sale of coffin nail. Higher household income and more active outdoor advertisement have positive and important impact on coffin nail gross revenues. There is besides a positive relationship between the affordability for coffin nail and legal domestic coffin nail gross revenues. Increasing the coffin nail excise revenue enhancement by 10 % would increase the monetary value of coffin nails by 3 % . This shows that coffin nail revenue enhancement policy can be used to modulate coffin nail monetary value in Ukraine. The people are found to be comparatively insensitive to cigarette monetary values and coffin nail revenue enhancements, even though of low magnitude, but the consequence of coffin nails affordability is important statistically. Similarly, Lee et Al. ( 2005 ) concludes that monetary value snap of coffin nails is approximated to be less than one, which implies that the revenue enhancement will hold some consequence in cut downing coffin nail ingestion, although it will besides bring forth farther revenue enhancement grosss.

Furthermore, Hidayat and Thabrany ( 2010 ) study the demand for coffin nails in Indonesia utilizing a myopic dependence theoretical account and uses it to analyze the monetary value snap of coffin nail demand. They use an aggregative panel informations structured from three moving ridges of the Indonesian Family Life Survey over the period of 1993 to 2000. They claim that the short tally and long tally monetary value snap of coffin nail demand are estimated to be at -0.28 and -0.73 correspondingly. Monetary value additions have a significantly negative impact on coffin nail ingestion. Increasing coffin nail monetary values via excise revenue enhancements can command baccy usage and therefore raise authorities gross. They so conclude that excise revenue enhancements are more likely an efficient baccy control instead than a cardinal beginning of authorities gross in the long tally.

Besides that, Lee ( 2008 ) behavior a survey which analyses the preparedness of current tobacco users to halt the smoke wont or cut down the ingestion of coffin nails when sing an addition in revenue enhancement of NT $ 22 per battalion, which is a attendant rise of 44 % . Lee uses cross-sectional survey on 483 valid questionnaires conducted during a telephone study from April to July 2004, aiming current tobacco users aging 15 old ages and supra, around the 23 major metropoliss in Taiwan. The methods that he uses to mensurate the snap in coffin nail demand are the Tobit arrested development theoretical account and besides the maximal likeliness method, and appraisal consequences shows a monetary value snap of -0.29 following the 44 % addition in the coffin nail monetary value. Interestingly, the most important response to the addition in monetary value was found among adult females, tobacco users with low wage, tobacco users who are merely reasonably addicted, and tobacco users who purchase low priced coffin nails. Lee concludes that the tobacco users are comparatively insensitive to a hiking in coffin nail pricing, since the monetary values of coffin nails are low in Taiwan. Thus, a fringy addition in cigarette revenue enhancement would accordingly cut down coffin nail ingestion and therefore besides increase the coffin nail revenue enhancement gross of the authorities and the income of coffin nail merchandisers efficaciously.

This consequence is consistent with the findings of old surveies by Townsend ( 1996 ) and Sissoko ( 2002 ) which reflects that the monetary value has a major consequence on coffin nail ingestion and accordingly diseases caused by smoke, particularly in low income groups. Progressive rise in coffin nail revenue enhancement rates offer a powerful part to policy for cut downing coffin nail ingestion and bring forthing excess authorities gross.

Consequently, when Ross and Al-Sadat ( 2007 ) measure income snap and the monetary value on coffin nail demand and besides the consequence of coffin nail revenue enhancements towards coffin nail demand and coffin nail revenue enhancement gross within Malaysia, they find that income is positively connected to cigarette ingestion. A 1 % rise in existent income encouragements cigarette ingestion by 1.46 % . They use clip series arrested development analysis for 1990 to 2004 using the error-correction theoretical account. The per-capita ingestion of domestic and imported coffin nails is calculated utilizing the excise revenue enhancement and import responsibilities collected by the Malayan authorities and the size of the grownup population which are aged above 15 old ages old. The theoretical account estimates that a rise in coffin nail excise revenue enhancement from RM 1.60 to RM 2 per battalion will efficaciously cut down coffin nail ingestion in Malaysia by 3.37 % . They conclude that revenue enhancement is an effective agency for cut downing coffin nail ingestion and deceases linked to tobacco while conveying up the gross for the Malayan authorities.

Harmonizing to Huang, Yang, and Hwang ( 2004 ) , future coffin nail ingestions will depend wholly on revenue enhancement portion, monetary value and income snap of staying heavy tobacco user. They use a panel unit root trial to cipher the demand for coffin nails over the period of 1961 to 2002 for 42 provinces including Washington D.C. The coffin nail informations in this survey is obtained from “ The Tax Burden on Tobacco published by the Tobacco Institute ” . They find that monetary value and income snap are about -0.41 and 0.06. Other than that, a lessening in revenue enhancement snap leads to diminish monetary value snap, and smaller revenue enhancement portions seems to be interconnected to worsening revenue enhancement snap. This survey shows an interesting deduction, whereby coffin nail ingestion is a normal good to reassign payment receivers and pay earners, which nevertheless is an inferior good to the aged population and stocks proprietors.

In 2002, Hu and Mao examine a policy quandary in China on public wellness against the baccy economic system through added coffin nail revenue enhancement. In order to analyze the impact of baccy ingestion and production towards authorities gross and besides to the full economic system, they use published informations from 1980 to 1997. Imposition of coffin nail revenue enhancement addition will hold a important impact in bring forthing excess cardinal authorities gross and cut downing coffin nail ingestion. Therefore, increasing extra revenue enhancement on coffin nails will be good to the Chinese authorities from both the fiscal and public wellness position.

Levy, Cummings, and Hyland ( 2000 ) use a simulation theoretical account to measure the effects of revenue enhancements on the smoke rate and smoke induced deceases. The method they use in their survey undertakings the figure of tobacco users and smoking attributable deceases from a baseline twelvemonth of 1993. They find that addition in revenue enhancements is to cut down the per centum of the entire population that fumes. Young person groups experiences greater effects. The effects of a revenue enhancement hiking tends to increase over clip as younger persons who are more antiphonal to monetary value addition grows older, but federal and province revenue enhancements on coffin nails are presently set at a fixed sum per unit. Furthermore, the monetary value of coffin nails falls comparative to the buying power of the population as rewards increase. These effects grow over clip and lead to a significant nest eggs in lives and wellness attention cost.

Lanoie and Leclair ( 1998 ) look into the comparative ability of two anti-smoking policies which are revenue enhancements and ordinances, in bring oning a diminution in coffin nail ingestion and in supplying inducements to discontinue smoke. Based on a Canadian information over the period of 1980 to 1995, the consequences show that coffin nail demand react to revenue enhancements with the snap of -0.28, non ordinance. This consequence implies that the policies are both moving in a corresponding manner to act upon the incidence of smoke.

In add-on to that, Galbraith and Kaiserman ( 1997 ) analyses Canadian coffin nail revenue enhancement and ingestion within the period of 1980 and 1994. During that period, there is a big monetary value rise and diminution, and a dramatic addition in the ingestion of the contraband baccy merchandises. In their survey, they examine the snap of legal coffin nail gross revenues and entire gross revenues which include contraband with regard to the monetary value of legal coffin nails and assorted other factors. They conclude that monetary value snap sing demand towards cigarettes tends to increase in absolute value over clip, doing revenue enhancement an increasing strong instrument with which to act upon smoking behaviour. In sing tax-exempt gross revenues every bit good, it becomes clear that the sensitiveness of entire coffin nail gross revenues to the revenue enhancement instrument is much lower than would otherwise look, and has fallen evidently.

Harmonizing to Meier and Licari ( 1997 ) , a rise in federal revenue enhancement is more successful than additions in province revenue enhancements in cut downing baccy usage. Cigarette ingestion beads when labels with wellness warnings were added. They use a pooled time-series analysis from the period of 1955 to 1994 with 50 provinces as units of the survey. The consequence of excise revenue enhancements on coffin nail ingestion for legion different theoretical accounts and econometric techniques is plus to analyze the utility of province and federal revenue enhancements in conveying down the ingestion of coffin nails and gauge the consequence of authorities wellness warnings. Their survey besides shows how warnings and revenue enhancements interact.

Tobacco control plans besides has some impact towards the ingestion of coffin nails as stated by Farrelly, Pechacek and Chaloupka ( 2003 ) that addition in tobacco control plan expenditures cut down coffin nail gross revenues. Additionally, in reexamining the grounds on the effectivity of comprehensive baccy control plans, the recent Surgeon General ‘s Report on Reducing Tobacco Use concludes that comprehensive baccy control plans work. Although these surveies systematically suggest that province baccy control plans decrease baccy usage, these surveies can easy be confounded by alterations in excise revenue enhancements, cross-border gross revenues, and other factors.

However, Leu ( 1984 ) reveals that anti smoking advertizements in Switzerland ‘s mass media has a important lasting consequence on coffin nail ingestion. It is a powerful instrument to cut down coffin nail ingestion. He claims that drawn-out promotion, following the 1964 US Surgeon General ‘s Report, attach toing assorted revenue enhancement additions which preceded by a public ballot on an advertisement prohibition for baccy merchandises, helps cut down ingestion for good by a sum of 11 % . It is besides supported by Keeler et Al ( 1993 ) who examine the impact of income, revenue enhancements, monetary values, and anti smoke policy on the ingestion of coffin nails in California. They use a monthly time-series informations throughout 1980 to 1990. He besides declares that the consequence of the addition in revenue enhancement in the long tally will be to diminish coffin nail ingestion. Anti-smoking ordinances decreases coffin nail ingestion, and therefore, it shows that consumers behave systematically with the theoretical account of rational dependence.

Chapter 3


This chapter is to depict on the methods used in this survey and the aggregation of informations. It besides explains the processs used in roll uping the information and the measuring of the variables. Therefore, it provides a sum-up of expected consequence of the survey.

3.1 Data types

A clip series informations is used for the empirical analysis in this survey. The information is collected yearly over the period of 1998 to 2008. The types of informations obtained are existent monetary value of coffin nail, existent income per capita, coffin nail ingestion, and besides the aging population.

3.2 Data Beginning

The secondary information is collected from the old surveies by other research workers. Chiefly, the beginnings of informations are from Department of Statistic Malaysia, Worldbank, Economic Planning Unit, and besides Statistic of Commodities.

3.3 Theoretical Model

The demand for coffin nail in the functional signifier is explained as below:

= degree Fahrenheit ( P, Y, AGE ) [ EQUATION 1 ]


= Annual ingestion of coffin nails ( over 18 old ages old ) per capita

P = Real coffin nail monetary value

Y = Real GDP per capita

AGE = Aging population above 65 old ages old

3.4 Definition of Variables

Variables used in this survey are monetary value of coffin nail, one-year ingestion of coffin nail, existent GDP per capita and besides aging population above 65 old ages old. The variables are divided into two parts which is dependent variable and besides independent variable.

3.4.1 Dependent Variables

Annual ingestion of coffin nail per capita, is the dependent variable used in this survey. The one-year ingestion of coffin nail per capita, is measured utilizing the entire coffin nails ingestion divided by the entire population over 18 old ages old.

3.4.2 Independent Variables

Monetary value of coffin nail, existent income per capita, and aging population above 65 old ages old are the independent variables in this survey.

Monetary value of Cigarette

The monetary value of coffin nail is measured by the existent monetary value of coffin nail.

Real Income Per Capita

The existent income per capita is measured by existent GDP per capita. It is the entire income divided by the entire population.

Aging Population

The aging population is measured by the population above 65 old ages old. The age of 65 is the chronological age that has been accepted by most developed states ( WHO ) to specify aging population. It is tantamount to retirement ages in most of the developed states.

3.5 Data Analysis

Ordinary Least Square ( OLS ) method will be used in this survey to mensurate the information collected. Simple additive arrested development theoretical account will be used to prove the analysis. To analyze the relationship in the regressed equation, trial statistic and F statistic will be used.

3.5.1 Data Analysis Technique

The simple additive arrested development is used to analyze the demand for coffin nail. Below is the demand for coffin nail in additive regressed theoretical account.



= Annual ingestion of coffin nail per capita

P = Real coffin nail monetary value

Y = Real GDP per capita

AGE = Aging Population above 65 old ages old

= mistake term

The most common demand of cigarette equation used is in the log-linear signifier. The OLS equation is in the log-linear signifier to avoid any erroneous informations. Besides, the log-linear signifier could assist us to avoid holding immense values of informations. Below is the estimated equation of coffin nail demand in the log additive signifier:

= [ EQUATION 3 ]

Where = are the arrested developments coefficient and P, Y, AGE are the additive in parametric quantities to gauge. The goodness of fit trial will be estimated to see how good the arrested development line fits the information from period of 1998 to 2008. The coefficient of finding, will sum up on how good the sample arrested development line fits the information. The bound of is between of 0 and 1. Hence, if the is 1 agencies, it is absolutely fit.

3.5.2 Hypothesis Testing

In the hypothesis testing, we will utilize the Test-statistic to analyze the degree of important of the arrested development of coefficient, . The arrested development of coefficient, will be test whether it is significantly relate to the dependant variable which is the one-year ingestion of the coffin nail, .

: 0

: 0

The t-test statistic is

T =


( one = 0, 1, 2, 3 ) step the part of each independent variable

is the standard mistake of coefficient

is the void hypothesis which shows that the arrested development coefficient has no dealingss with the dependant variable, . If the arrested development coefficient has dealingss with the dependant variable, we will reject which means it is statistically important.


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