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

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.

A dynamic relationship between crude oil price and Indian equity market: an empirical study with special reference to Indian benchmark index Sensex

“…For each drop of a dollar in crude oil price, India's import bill deteriorates by almost Rs 3,000 crore (Shukla, 2020). A sustained and tantamount affinity is also found to be replicated in the case of the Malaysian economy due the crude oil prices wane (Solaymani, 2018). There is also a firm testimony toward the contagion effect of the oil shocks on the Gulf Cooperation Council (GCC) countries and BRICS (Brazil, Russia, India, China and South Africa) countries (Ghorbel and Boujelbene, 2013;Ghorbel et al, 2014).…”

“…There is also a firm testimony toward the contagion effect of the oil shocks on the Gulf Cooperation Council (GCC) countries and BRICS (Brazil, Russia, India, China and South Africa) countries (Ghorbel and Boujelbene, 2013;Ghorbel et al, 2014). Scanty crude oil prices lead to frivolous transport costs and agricultural inputs (pesticides and fertilizers) further emerge in cheaper agricultural commodities in international markets (Solaymani, 2018). Lower input cost enhances profit margin of firms, which gives a positive sentiment to investor of equity market.…”

Global Energy Price Volatility and Agricultural Commodity Prices in Malaysia

“…Global oil prices influence economic sectors in different ways through direct and indirect channels. This sector could also benefit from lower global crude oil prices (Solaymani 2019 ). On the other hand, agricultural commodities may affect crude oil prices by producing bioenergy (Su et al 2019 ).…”

Energy subsidy reform evaluation research – reviews in Iran

“…Moreover, the volatility of the global oil price and its direct impact on the budget of Iran's government, as the government budget depends highly on oil revenues, leads to an increase in budget deficits and a financial burden for the payment of energy subsidies. Other oil‐exporting countries, such as Malaysia, have also experienced this situation 22,23 …”