IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Economic Impacts of Subsidy Rationalization Malaysia

  • Khalid Abdul Hamid
  • Zakariah Abdul Rashid
Registered author(s):

    Subsidy rationalization efforts by governments remain constrained as many policy plans have been delayed based on argument that subsidy policies have objectives that go beyond economic rationale. This paper examines Malaysia’s energy subsidy experience, in terms of the direct and indirect effects of subsidy distribution and reallocation, and considers whether the rationale for subsidy policy in the case of energy has been justified. Subsidy removal impacts how efficient an economy performs in terms: of energy product prices; cost of production; transportation services; government budget; household consumption: and general level of prices. As a subsidy row is non-existence in the 2005 published Malaysian input-output (I-O) table which would inform current policy, we create a subsidy row in the form of total fuel subsidy which has been constructed to assess the expected impacts of phasing out fuel subsidies in the short, medium and long run. This study employs Leontief’s and a computable general equilibrium (CGE) model based on national and social accounts of the Malaysian economy, disaggregating and constructing a hybrid energy I-O matrix and partitioning the I-O table into energy and non-energy blocks. An explicit representation of the impacts of energy products; especially those which have received greater amounts of subsidy is embedded in this modelling. The modelling informs energy pricing, the domains of government intervention in energy markets, and the international experience in mitigating the negative impact of energy pricing reform. Features of the petroleum sector in the Malaysian economy and its interactions with the main economic variables are considered. I-O analysis is used to set a reallocation scheme using changes in wage levels and value added impacted by total fuel subsidy particularly on autonomous spending by households and growth. Finally, the CGE analysis, which is superior in substitution effects compared with I-O analysis, will explain the overall macroeconomic impacts of phasing out subsidies and the impacts of reallocation into related sectors using government expenditure. In conclusion, policy options reliant on cheap energy inputs and delays in subsidy rationalization pose a significant threat for Malaysia’s continuing economic competitiveness in the region.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.eria.org/Chapter%209-Economic%20Impacts%20of%20Subsidy%20Rationalization%20in%20Malaysia.pdf
    Download Restriction: no

    as
    in new window

    This chapter was published in:
  • Yanrui Wu & Xunpeng Shi & Fukunari Kimura & Yu Sheng & Youngho Chang & Yanfei Li & Sun Xuegong & Guo Liyan & Zeng Zheng & Daisy Shen & Qing Yang & Kongchheng Poch & Savong Tuy & Sekar Utami Setiastuti, . "Energy Market Integration in East Asia: Theories, Electricity Sector and Subsidies," Books, Economic Research Institute for ASEAN and East Asia (ERIA), number 2011-rpr-17 edited by Yanrui Wu & Xunpeng Shi & Fukunari Kimura.
  • This item is provided by Economic Research Institute for ASEAN and East Asia (ERIA) in its series Chapters with number 2011-rpr-17-09.
    Handle: RePEc:era:chaptr:2011-rpr-17-09
    Contact details of provider: Postal: The ASEAN Secretariat Mezzanine Floor, 70A Jl.Sisingamangaraja, Jakarta 12110
    Phone: +62-21-5797-4460
    Fax: +62-21-5797-4463
    Web page: http://www.eria.org/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Abbas Valadkhani & William F. Mitchell, 2002. "Assessing the Impact of Changes in Petroleum Prices on Inflation and Household Expenditures in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(2), pages 122-132.
    2. Davood Manzoor & Asghar Shahmoradi & Iman Haqiqi, 2012. "An analysis of energy price reform: a CGE approach," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 36(1), pages 35-54, 03.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:era:chaptr:2011-rpr-17-09. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hiroshi Okasaki)

    The email address of this maintainer does not seem to be valid anymore. Please ask Hiroshi Okasaki to update the entry or send us the correct address

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.