Analyzing the Short Term Effects of Oil Price Changes on Income and Energy Demand Elasticity in Malaysia: Energy Policy Implications

Yusof, Nora Yusma Bt. Mohamed; Latif, Nurul Wahilah Bt. Abdul
January 2013
International Proceedings of Economics Development & Research;2013, Vol. 55, p149
Academic Journal
This paper investigates the short term effects of world oil price changes on income and energy demand elasticity in the Malaysian economy by using the bounds testing approach developed by Pesaran & Shin (1995) The results revealed that the growth rate of real GDP, employment and average world oil price have emerged as significant determinants of energy demand in Malaysia. However, the world oil prices would be exogenous variables which affect the total energy consumption in Malaysia, but the reverse does not hold in Malaysian context. There was a bidirectional causality effect between energy demand and GDP, which would have important implications to energy policy, where the energy policy may be implemented without conveying any harmful effects to both energy sector and economy performance. This study would suggest that policy planner should confer prompt response and choose the right mechanism of energy conservation and fiscal policy in order to keep cleans environmental with sound macroeconomic balances.


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