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Social and economic aspects of the recent fall in global oil prices

Saeed Solaymani (Department of Economics, Faculty of Humanities, Arak University, Arak, Islamic Republic of Iran)

International Journal of Energy Sector Management

ISSN: 1750-6220

Article publication date: 10 December 2018

Issue publication date: 15 May 2019

648

Abstract

Purpose

The global energy market has been facing lower prices of crude oil in recent years. Lower fuel price leads to lower transport cost and cheaper agricultural inputs (such as pesticides and chemical fertilizer), resulting in lower prices of agricultural commodities in the international markets. On the other hand, lower global oil price reduces the oil revenues of oil exporting countries, resulting in a decrease in government expenditures. Therefore, the purpose of this study is to examine the impacts of lower global oil and agricultural commodity prices and government expenditure on the entire economy and poverty level of Malaysia.

Design/methodology/approach

This study used a computable general equilibrium model (CGE) to investigate four simulation scenarios based on the latest Malaysia’s input-output table belonging to 2010. The first scenario is a 30 per cent fall in the export and import prices of agricultural commodity prices, while the second is a 50 per cent decline in the export and import prices of crude oil, and the third combines them. In the fourth scenario, government operating expenditure declines by 4 per cent because of the fall in government’s oil revenues as a result of the decline in global oil prices.

Findings

The simulation results suggest that lower international oil price decreases real gross domestic product (GDP) and investment in Malaysia and influences positively the output and employment of some agriculture sectors. However, lower agricultural commodity price increases real GDP and investment in the country and negatively influences the output, employment and exports of all agriculture sectors. The decline in government expenditures also increases the output and the employment in the economy, whereas it decreases household consumption. In conclusion, results show that the agriculture sector losses from the current decline in international agricultural commodity prices, while it benefits from lower oil and government expenditure.

Originality/value

The main contribution of this study is comparing the impacts of recent falls in global oil and agricultural prices on the entire economy and agriculture sector of Malaysia. Investigating the impacts of these issues on the poverty level of Malaysian households is another contribution to the study. Another contribution is analyzing the impact of a reduction in government expenditures because of the decline in global oil price on the economy and welfare of Malaysia. Therefore, this study makes a useful contribution to the small literature of the topic.

Keywords

Acknowledgements

The author would like to thank Professor Dr. Fatimah Kari from the Department of Economics, Faculty of Economics and Administration at the University of Malaya, Malaysia, for her supports on data and comments on the paper.

Citation

Solaymani, S. (2019), "Social and economic aspects of the recent fall in global oil prices", International Journal of Energy Sector Management, Vol. 13 No. 2, pp. 258-276. https://doi.org/10.1108/IJESM-06-2017-0006

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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