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Effects of Oil Price Shocks on the Economic Sectors in Malaysia

  • Mohd Shahidan Shaari

    (School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia)

  • Tan Lee Pei

    (School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia)

  • Hafizah Abdul Rahim

    (School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia)

Registered author(s):

    This paper aims to examine the effects of oil price shocks on economic sectors in Malaysia. A unit root test was conducted, in which data were shown to be non-stationary in all levels, and stationary in the first difference for all variables. The co-integration model was applied, and the results indicated that one co-integrating equation exists, suggesting the long-term effects of oil prices on the agriculture, construction, manufacturing, and transportation sectors. Finally, Grange causality test was performed, and the results implied that in Malaysia, oil price shocks can affect agriculture, similar to Hanson et al. (2010). Oil price instability also influences the performance of the agriculture sector, contrary to the results of Alper and Torul (2009). In addition, the construction sector was found to be dependent on oil prices. Therefore, the current study has an important implication for the Malaysian government in formulating policies on oil prices. The Malaysian government needs to control the price to ensure that unstable price will not harm the agriculture, manufacturing, and construction sectors.

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    Article provided by Econjournals in its journal International Journal of Energy Economics and Policy.

    Volume (Year): 3 (2013)
    Issue (Month): 4 ()
    Pages: 360 - 366

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    Handle: RePEc:eco:journ2:2013-04-21
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    1. Jiménez-Rodríguez, Rebeca & Sánchez, Marcelo, 2004. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Working Paper Series 0362, European Central Bank.
    2. Girijasankar Mallik & Anis Chowdhury, 2011. "Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia," Journal of Economic Studies, Emerald Group Publishing, vol. 38(4), pages 414-429, September.
    3. Torul Orhan & Alper C. Emre, 2010. "Asymmetric Effects of Oil Prices on the Manufacturing Sector in Turkey," Review of Middle East Economics and Finance, De Gruyter, vol. 6(1), pages 90-105, July.
    4. D'Ann M. Petersen & Keith R. Phillips & Mine K. Yücel, 1994. "The Texas construction sector: the tail that wagged the dog," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 23-33.
    5. Jacques Delsalle, 2002. "The effects of fuel price changes on the transport sector and its emissions - simulations with TREMOVE," European Economy - Economic Papers 172, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Hanson, Kenneth & Robinson, Sherman & Schluter, Gerald E., 1993. "Sectoral Effects Of A World Oil Price Shock: Economywide Linkages To The Agricultural Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
    7. Amaira Bouzid, 2012. "The Relationship of Oil Prices and Economic Growthin Tunisia: A Vector Error Correction Model Analysis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(43), pages 3-22, March.
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