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How sensitive are industrial demand and supply to energy price shocks

Author

Listed:
  • Humera Iram

    (Air University)

  • Abdul Rahim Ridzuan

    (Universiti Teknologi MARA
    Universiti Teknologi MARA
    Universiti Malaysia Sabah
    Universiti Teknologi MARA)

Abstract

This paper presents a case study to address the sensitivity of industrial demand and supply to energy price shocks by examining these responses for selected eleven large-scale manufacturing industries in Pakistan. The study employed the Structural Vector Autoregressive (SVAR) approach to investigate the sensitivity, using monthly data from July 2008 to June 2020. Due to the heterogeneous nature of these industries, a sophisticated strategy was adopted, with specialized models developed for each industry. The analysis results provide a novel finding about the dynamic of industrial demand and supply resulting from energy price shocks. The pattern of industries' response to energy price shocks has a positive and dominating impact on industrial supply. The consumer's demand decision had a dominant effect on industries like textile, petroleum, and food. For these industries, energy price shocks mainly reduce demand by delaying the decision to purchase the goods. The study shed light on the economies' resilience and vulnerability to energy price shocks associated with economic agents' decisions. It reveals that energy price shocks have a dominant impact on the supply side for energy-intensive industries and the demand side in other sectors.

Suggested Citation

  • Humera Iram & Abdul Rahim Ridzuan, 2025. "How sensitive are industrial demand and supply to energy price shocks," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 52(1), pages 221-239, March.
    • Handle: RePEc:spr:epolin:v:52:y:2025:i:1:d:10.1007_s40812-024-00326-z
    DOI: 10.1007/s40812-024-00326-z
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    More about this item

    Keywords

    Energy prices; Demand; Supply; Industries; SVAR;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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