Investigating the Asymmetric Effect of Oil Price on the Economic Growth in Malaysia: Applying Augmented ARDL and Nonlinear ARDL Techniques

Abstract

This paper attempts to investigate if the effect of oil price on growth is asymmetrical for Malaysia, a small-open-dynamic oil-exporting country, over a period from 1981 to 2017. The empirical method employed in this study is the augmented autoregressive distributed lag model (ARDL) bound test approach and the recent innovative nonlinear autoregressive distributed lag (NARDL) model. Results suggest that neglecting nonlinearities can lead to misleading results. More precisely, the result reveals that adjustments in the price of oil influence Malaysia’s economic growth asymmetrically. An increase and decrease in the price of oil strengthen the economic growth of Malaysia, demonstrating Malaysia’s ability to be both an oil-producing country and a trading nation. These results strongly imply that Malaysia is able to take advantage of changes in the oil price efficiently.

Does Oil Price Affect the Economic Growth in Somalia Asymmetrically?

“…In contrast, Prabheesh and Laila, (2020) have produced positive shocks in crude and palm oil prices to enhance economic growth in Indonesia, whereas a negative shock in these oil prices retards economic growth. Several others have concluded that a negative shock in oil price hampers economic growth in oil-exporting countries and a positive shock in oil price enhances economic growth in these countries (Berument et al, 2010;Kriskkumar et al, 2022;Kriskkumar and Naseem, 2019), hence, these studies are contrary to the findings of our study that a negative shock in oil price enhances the economic growth in Somalia.…”

“…If the country is a net oil importer such as Somalia, a positive shock in oil price will harm economic growth. If the country is a net oil exporter, a positive shock in oil price will have a positive impact on economic growth (Kriskkumar et al, 2022). Regarding the longrun results of the study, it is observed that a positive shock in oil price is inconsequential in the long run; whereas a negative shock in oil price has a constructive role in enhancing economic growth in the long run.…”

“…The final adopted model of the study of the NARDL model is formulated as follows - (Kriskkumar et al, 2022;Babuga and Naseem, 2022):…”

“…They also found out that oil price affects economic growth at a specific threshold; after the threshold, the effect turns negative. Recently, Kriskkumar et al (2022) examined the impact of oil price on economic growth in Malaysia using both linear and nonlinear ARDL Cointegration methods. The empirical results did not detect any relationship between oil price and economic growth in linear ARDL results.…”

Landscape Discussion of Oil Rents and Primary Government Expenditure Budget

“…Therefore, formulating PGEB poses a certain degree of risk to its reliance on aggregate revenue collection. Within the oil revenue sector, both direct and indirect effects could be channelled via government budget expenditure (Kriskkumar, Naseem & Azman-Saini, 2022;Shangle & Solaymani, 2020).…”