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The Economic Effects of Oil Prices Shocks on the UK Manufacturing and Services Sectors

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  • Francesco Guidi

Abstract

: This paper investigates the relationship between changes in oil prices and the UK s manufacturing and services sectors performances. Only a few studies have been conducted at the sector level; the goal of this paper is to contribute in that direction. In a more detailed analysis, three sets of Vector Autoregressive (VAR) models are employed using linear and nonlinear oil price specifications among several key macroeconomic variables. From the linear oil price specification VAR model, the impulse response function reveals that oil price movement causes positive effects in both the output of manufacturing and services sectors. The variance decomposition shows that oil prices are quite important as a cause of the variance of the UK services sector output, while they do not have such a large role in the variance of the UK s manufacturing output. From the asymmetric specification, it has been found that positive oil price changes determine a consistent contraction in manufacturing output, while the services sector does not seem to be affected by the increases. Alternatively, negative oil price changes show that manufacturing output does not increase much despite a decrease in oil prices. The services sector is much more affected by oil prices decreases than increases. Finally, considering the Net Oil Price Increase (NOPI) specification, it has been found that the manufacturing sector is much more affected by oil price changes than the services sector.

Suggested Citation

  • Francesco Guidi, 2010. "The Economic Effects of Oil Prices Shocks on the UK Manufacturing and Services Sectors," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 5-34, October.
  • Handle: RePEc:icf:icfjae:v:09:y:2010:i:4:p:5-34
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    References listed on IDEAS

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    Cited by:

    1. Knop, Stephen J. & Vespignani, Joaquin L., 2014. "The sectorial impact of commodity price shocks in Australia," Economic Modelling, Elsevier, vol. 42(C), pages 257-271.
    2. repec:asi:ajemod:2017:p:194-207 is not listed on IDEAS
    3. Nagmi M. Moftah Aimer, 2016. "The Effects of Oil Price Volatility on the Economic Sectors of Libya," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(12), pages 13-24, December.
    4. Rachel Ann Mulhall & John R. Bryson, 2013. "The Energy Hot Potato and Governance of Value Chains: Power, Risk, and Organizational Adjustment in Intermediate Manufacturing Firms," Economic Geography, Clark University, vol. 89(4), pages 395-419, October.
    5. Elsiddig Rahma & Noel Perera & Kian Tan, 2016. "Impact of Oil Price Shocks on Sudan’s Government Budget," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 243-248.
    6. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.
    7. Yýlmaz BAYAR & Cuneyt KILIC, 2014. "Effects of Oil and Natural Gas Prices on Industrial Production in the Eurozone Member Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 4(2), pages 238-247.
    8. Maria-Dolores, Ramon & José Rodolfo, Morales, 2012. "The Natural Resource Curse: An Analysis of the Dutch Case based on Sectoral Economies of Scale," UMUFAE Economics Working Papers 26673, DIGITUM. Universidad de Murcia.
    9. repec:eee:touman:v:45:y:2014:i:c:p:115-123 is not listed on IDEAS

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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