IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v46y2024i6p1228-1242.html
   My bibliography  Save this article

The economy-wide impact of cooking oil subsidy reforms and compensation to the oil palm industry

Author

Listed:
  • Liu, Jing Jing
  • Salleh, Norlida Hanim Mohd
  • Nor, Nor Ghani Md

Abstract

This study analyses the economy-wide impact of cooking oil subsidy reforms using two simulations: complete subsidy removal and compensation for the oil palm industry. The study focuses on macroeconomic variables, industrial output, and employment. A Computable General Equilibrium model is used for analysis. The study found that complete subsidy removal leads to negative impacts on the macroeconomy, causing a slight decrease in economic growth. It also results in negative impacts on industrial output and employment. On the other hand, reallocating the revenue to the oil palm industry investment could mitigate these adverse effects, and further leads to an increase in economic growth. The reallocation improves the output of the oil palm industry and reduces its labour demand. The impacts on other industries' output and employment vary. Removing cooking oil subsidy can be a viable option because of its marginal impacts. It's also recommended to compensate the oil palm industry, especially independent smallholders.

Suggested Citation

  • Liu, Jing Jing & Salleh, Norlida Hanim Mohd & Nor, Nor Ghani Md, 2024. "The economy-wide impact of cooking oil subsidy reforms and compensation to the oil palm industry," Journal of Policy Modeling, Elsevier, vol. 46(6), pages 1228-1242.
    • Handle: RePEc:eee:jpolmo:v:46:y:2024:i:6:p:1228-1242
    DOI: 10.1016/j.jpolmod.2024.05.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161893824000498
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpolmod.2024.05.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fahman Fathurrahman & Bora Kat & Uğur Soytaṣ, 2017. "Simulating Indonesian fuel subsidy reform: a social accounting matrix analysis," Annals of Operations Research, Springer, vol. 255(1), pages 591-615, August.
    2. Jonasson, Erik & Filipski, Mateusz & Brooks, Jonathan & Taylor, J. Edward, 2014. "Modeling the welfare impacts of agricultural policies in developing countries," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 63-82.
    3. Elshennawy, Abeer, 2014. "The implications of phasing out energy subsidies in Egypt," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 855-866.
    4. Sze Ying Loo & Mukaramah Harun, 2019. "Fuel Subsidy Abolition and Performance of the Sectors in Malaysia: A Computable General Equilibrium Approach," Malaysian Journal of Economic Studies, Faculty of Business and Economics, University of Malaya & Malaysian Economic Association, vol. 56(2), pages 303-326, December.
    5. Lin, Boqiang & Jiang, Zhujun, 2011. "Estimates of energy subsidies in China and impact of energy subsidy reform," Energy Economics, Elsevier, vol. 33(2), pages 273-283, March.
    6. Fuenmayor, Amadeo & Granell, Rafael & Savall, Teresa, 2024. "Labour supply responses to a negative income tax in Spain," Journal of Policy Modeling, Elsevier, vol. 46(6), pages 1274-1287.
    7. Caamal-Olvera, Cinthya G. & Huesca, Luis & Llamas, Linda, 2022. "Universal basic income: A feasible alternative to move people out of poverty in Mexico?," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 1077-1093.
    8. Hesham AlShehabi, Omar, 2012. "Energy and labour reform: Evidence from Iran," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 441-459.
    9. Ahmadi Murjani, 2020. "Assessing the Energy Subsidy Reform in Indonesia through Different Scenarios," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 122-134.
    10. Korrakot Phomsoda & Nattapong Puttanapong & Mongkut Piantanakulchai, 2021. "Assessing Economic Impacts of Thailand’s Fiscal Reallocation between Biofuel Subsidy and Transportation Investment: Application of Recursive Dynamic General Equilibrium Model," Energies, MDPI, vol. 14(14), pages 1-32, July.
    11. Noorasiah Sulaiman & Mukaramah Harun & Arief Anshory Yusuf, 2022. "Impacts of Fuel Subsidy Rationalization on Sectoral Output and Employment in Malaysia," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 39(01), pages 315-348, March.
    12. Iuliia Ogarenko & Klaus Hubacek, 2013. "Eliminating Indirect Energy Subsidies in Ukraine: Estimation of Environmental and Socioeconomic Effects Using Input–Output Modeling," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 2(1), pages 1-27, December.
    13. Aghabeygi, Mona & Louhichi, Kamel & Gomez y Paloma, Sergio, 2022. "Impacts of fertilizer subsidy reform options in Iran: an assessment using a Regional Crop Programming model," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 11(01), April.
    14. Anan Wattanakuljarus, 2021. "Diverse effects of fossil fuel subsidy reform on industrial competitiveness in Thailand," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 489-517, September.
    15. Ghoddusi, Hamed & Morovati, Mohammad & Rafizadeh, Nima, 2022. "Dynamics of fuel demand elasticity: Evidence from Iranian subsidy reforms," Energy Economics, Elsevier, vol. 110(C).
    16. Cecile Couharde & Sara Mouhoud, 2020. "Fossil Fuel Subsidies, Income Inequality, And Poverty: Evidence From Developing Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 34(5), pages 981-1006, December.
    17. Coady, David & Parry, Ian & Sears, Louis & Shang, Baoping, 2017. "How Large Are Global Fossil Fuel Subsidies?," World Development, Elsevier, vol. 91(C), pages 11-27.
    18. Ray D. Bollman & Shon M. Ferguson, 2019. "The Local Impacts of Agricultural Subsidies: Evidence from the Canadian Prairies," Journal of Agricultural Economics, Wiley Blackwell, vol. 70(2), pages 507-528, June.
    19. Zarepour, Zahra & Wagner, Natascha, 2022. "Cash instead of subsidy: Assessing the impact of the iranian energy subsidy reform on households," Energy Policy, Elsevier, vol. 168(C).
    20. Zarepour, Zahra & Wagner, Natascha, 2023. "How manufacturing firms respond to energy subsidy reforms? An impact assessment of the Iranian Energy Subsidy Reform," Energy Economics, Elsevier, vol. 124(C).
    21. Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," World Development, Elsevier, vol. 40(11), pages 2234-2248.
    22. Labeaga, José M. & Labandeira, Xavier & López-Otero, Xiral, 2021. "Energy taxation, subsidy removal and poverty in Mexico," Environment and Development Economics, Cambridge University Press, vol. 26(3), pages 239-260, June.
    23. Ansari, Nastaran & Seifi, Abbas, 2012. "A system dynamics analysis of energy consumption and corrective policies in Iranian iron and steel industry," Energy, Elsevier, vol. 43(1), pages 334-343.
    24. G.A. Meagher & P.D. Adams & J.M. Horridge, 2000. "Applied General Equilibrium Modelling and Labour Market Forecasting," Centre of Policy Studies/IMPACT Centre Working Papers ip-76, Victoria University, Centre of Policy Studies/IMPACT Centre.
    25. Timilsina, Govinda R. & Pargal, Sheoli, 2020. "Economics of energy subsidy reforms in Bangladesh," Energy Policy, Elsevier, vol. 142(C).
    26. Karami, Ayatollah & Esmaeili, Abdoulkarim & Najafi, Bahadin, 2012. "Assessing effects of alternative food subsidy reform in Iran," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 788-799.
    27. Badri Narayanan G. & Vasundhara Rungta, 2014. "Export Subsidy Reforms and Productivity Improvements: The Case of the Indian Textile and Clothing Sector," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(3), pages 327-352, August.
    28. Oecd, 2022. "Subsidies, Competition and Trade," OECD Roundtables on Competition Policy Papers 289, OECD Publishing.
    29. Roos, Elizabeth L. & Adams, Philip D., 2020. "The Economy-Wide Impact of Subsidy Reform: A CGE Analysis," World Trade Review, Cambridge University Press, vol. 19(S1), pages 18-38, July.
    30. Mundaca, Gabriela, 2017. "Energy subsidies, public investment and endogenous growth," Energy Policy, Elsevier, vol. 110(C), pages 693-709.
    31. Ying, Loo Sze & Harun, Mukaramah, 2019. "Responses of Firms and Households to Government Expenditure in Malaysia: Evidence for the Fuel Subsidy Withdrawal," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 29-39.
    32. Gharibnavaz, Mohammad Reza & Waschik, Robert, 2015. "Food and energy subsidy reforms in Iran: A general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 726-741.
    33. Zohreh Salimian & Marjan Kordbacheh & Mehdi Sadeghi Shahdani & Vahab Mokarizadeh, 2012. "Analyzing the Effects of the Iranian Energy Subsidy Reform Plan on Short-Run Marginal Generation Cost of Electricity Using Extended Input-Output Price Model," International Journal of Energy Economics and Policy, Econjournals, vol. 2(4), pages 250-262.
    34. 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.
    35. Eddy Prabowo & Harianto & Bambang Juanda & Dikky Indrawan, 2022. "The Economic Price of Liquid Petroleum Gas, Poverty and Subsidy Removal Compensation Scenario in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 169-177, September.
    36. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jing Jing Liu & Norlida Hanim Mohd Salleh & Hasimah Sapiri & Norazura Ahmad, 2025. "Causality Analysis of Cooking Oil Subsidy Reform in Malaysia: A Conceptual Framework from System Dynamic Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(2), pages 3844-3851, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jing Jing Liu & Norlida Hanim Mohd Salleh & Hasimah Sapiri & Norazura Ahmad, 2025. "Causality Analysis of Cooking Oil Subsidy Reform in Malaysia: A Conceptual Framework from System Dynamic Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(2), pages 3844-3851, February.
    2. Aiman Albatayneh & Adel Juaidi & Francisco Manzano-Agugliaro, 2023. "The Negative Impact of Electrical Energy Subsidies on the Energy Consumption—Case Study from Jordan," Energies, MDPI, vol. 16(2), pages 1-17, January.
    3. Li, Zhi & Zhao, Qing & Guo, Hong & Huang, Ruting, 2024. "Impact of fossil fuel subsidies on energy-saving technological change in China," Energy, Elsevier, vol. 286(C).
    4. Saeed Solaymani, 2021. "Energy subsidy reform evaluation research – reviews in Iran," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 11(3), pages 520-538, June.
    5. Haqiqi, Iman & Yasharel, Sepideh, 2018. "Removing Fossil Fuel Subsidies to Help the Poor," MPRA Paper 95907, University Library of Munich, Germany.
    6. Ginn, William, 2024. "The paradox of fossil fuel subsidies," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 333-358.
    7. Timilsina, Govinda R. & Pargal, Sheoli, 2020. "Economics of energy subsidy reforms in Bangladesh," Energy Policy, Elsevier, vol. 142(C).
    8. Hosan, Shahadat & Rahman, Md Matiar & Karmaker, Shamal Chandra & Saha, Bidyut Baran, 2023. "Energy subsidies and energy technology innovation: Policies for polygeneration systems diffusion," Energy, Elsevier, vol. 267(C).
    9. 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.
    10. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    11. Husaini, Dzul Hadzwan & Puah, Chin-Hong & Lean, Hooi Hooi, 2019. "Energy subsidy and oil price fluctuation, and price behavior in Malaysia:A time series analysis," Energy, Elsevier, vol. 171(C), pages 1000-1008.
    12. Ilyas, Rubina & Hussain, Khadim & Ullah, Mehreen Zaid & Xue, Jianhong, 2022. "Distributional impact of phasing out residential electricity subsidies on household welfare," Energy Policy, Elsevier, vol. 163(C).
    13. Bah, Muhammad Maladoh & Saari, M. Yusof, 2020. "Quantifying the impacts of energy price reform on living expenses in Saudi Arabia," Energy Policy, Elsevier, vol. 139(C).
    14. Henseler, Martin & Maisonnave, Helene, 2018. "Low world oil prices: A chance to reform fuel subsidies and promote public transport? A case study for South Africa," Transportation Research Part A: Policy and Practice, Elsevier, vol. 108(C), pages 45-62.
    15. 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.
    16. Li, Aijun & Peng, Dan & Wang, Daoping & Yao, Xin, 2017. "Comparing regional effects of climate policies to promote non-fossil fuels in China," Energy, Elsevier, vol. 141(C), pages 1998-2012.
    17. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    18. Daneshzand, Farzaneh & Asali, Mehdi & Al-Sobhi, Saad A. & Diabat, Ali & Elkamel, Ali, 2022. "A simulation-based optimization scheme for phase-out of natural gas subsidies considering welfare and economic measures," Energy, Elsevier, vol. 259(C).
    19. Wang, Qunwei & Zhou, Bo & Zhang, Cheng & Zhou, Dequn, 2021. "Do energy subsidies reduce fiscal and household non-energy expenditures? A regional heterogeneity assessment on coal-to-gas program in China," Energy Policy, Elsevier, vol. 155(C).
    20. Ghosh, Probal P., 2022. "Impact of India's diesel subsidy reforms and pricing policy on growth and inflation," Energy Economics, Elsevier, vol. 113(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:46:y:2024:i:6:p:1228-1242. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.