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Impacts of energy subsidy reform on the Malaysian economy and transportation sector

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  • Solaymani, Saeed
  • Kari, Fatimah

Abstract

Malaysia is paying a high level of subsidies on the consumption of energy (about 5% of its GDP). Therefore, reforming the energy subsidies, as planned by the government, will have a significant impact on household welfare and energy-intensive sectors, such as the transport sector. This study employs a computable general equilibrium (CGE) model to highlight the transmission channels through which the removal of energy subsidies affects the domestic economy. The findings show that the shock increases real GDP and real investment, while decreasing Malaysian total exports and imports. The removal of energy subsidies also decreases the aggregate energy demand, and, consequently, decreases the level of carbon emissions in the Malaysian economy. In addition, households experience significant falls in their consumption and welfare. The transport sector is significantly influenced through an increase in production costs due to an increase in the prices of intermediate inputs. The total output and total exports of the whole transport sector decrease while its imports increase. In addition, the use of all kinds of transport by households decreases significantly. The Malaysian energy subsidy reform, leads to an initial decrease in CO2 emissions and demand for electricity, gas, and petroleum products in the entire transport sector.

Suggested Citation

  • Solaymani, Saeed & Kari, Fatimah, 2014. "Impacts of energy subsidy reform on the Malaysian economy and transportation sector," Energy Policy, Elsevier, vol. 70(C), pages 115-125.
  • Handle: RePEc:eee:enepol:v:70:y:2014:i:c:p:115-125
    DOI: 10.1016/j.enpol.2014.03.035
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    References listed on IDEAS

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    Cited by:

    1. Deendarlianto, & Widyaparaga, Adhika & Sopha, Bertha Maya & Budiman, Arief & Muthohar, Imam & Setiawan, Indra Chandra & Lindasista, Alia & Soemardjito, Joewono & Oka, Kazutaka, 2017. "Scenarios analysis of energy mix for road transportation sector in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 13-23.
    2. repec:oup:renvpo:v:11:y:2017:i:1:p:138-155. is not listed on IDEAS
    3. repec:eee:eneeco:v:67:y:2017:i:c:p:242-254 is not listed on IDEAS
    4. repec:eee:energy:v:141:y:2017:i:c:p:1998-2012 is not listed on IDEAS
    5. Al-Riffai, Perrihan & Breisinger, Clemens & Mondal, Md. Hossain Alam & Ringler, Claudia & Wiebelt, Manfred & Zhu, Tingju, 2017. "Linking the economics of water, energy, and food: A nexus modeling approach:," MENA working papers 4, International Food Policy Research Institute (IFPRI).
    6. Saeed Solaymani, 2016. "Impacts of energy subsidy reform on poverty and income inequality in Malaysia," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2707-2723, November.
    7. repec:eee:enepol:v:110:y:2017:i:c:p:51-61 is not listed on IDEAS
    8. Jun E Rentschler & Nobuhiro Hosoe, 2017. "Illicit dealings: Fossil fuel subsidy reforms and the role of tax evasion and smuggling," GRIPS Discussion Papers 17-05, National Graduate Institute for Policy Studies.
    9. Dennis, Allen, 2016. "Household welfare implications of fossil fuel subsidy reforms in developing countries," Energy Policy, Elsevier, vol. 96(C), pages 597-606.
    10. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.
    11. Coxhead, Ian & Grainger, Corbett, 2018. "Fossil Fuel Subsidy Reform in the Developing World: Who Wins, Who Loses, and Why?," Staff Paper Series 589, University of Wisconsin, Agricultural and Applied Economics.
    12. repec:era:chaptr:2015-rpr-23-2 is not listed on IDEAS

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