Impact of High Oil Prices on the Malaysian Economy Update 1

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Impact of higher crude oil price on Malaysian GDP growth1

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One Response to “Impact of High Oil Prices on the Malaysian Economy Update 1”
  1. hishamh says:

    James,

    A nice analysis. I especially like your breakdown of household expenditure and its relation to subsidies.

    A couple of comments:

    1) On pg 9, you show data from BNM’s 2007 annual report pg68 on the direction of trade, with the US trade share at over 20%. I’ve looked, and pg68 is on the money supply. There’s a direction of trade table on pg 34 (preliminary 2008 data), but the US trade share stated there works out to just 12.5%.

    2) On pg 20-21 you explain the impact of price controls on demand and supply. This is technically correct, but doesn’t apply in Malaysia’s case because while petrol prices are controlled, the government compensates oil producers for the difference between market and pump prices. There is then no supply implication. The impact will mainly be through over consumption, and reduction of investment in alternative transport modes.

    Also a minor detail: although Malaysia is a net oil exporter, most oil consumed domestically is in fact imported. Malaysia’s locally produced oil is low in sulfur and commands higher market prices, so is mainly exported. That doesn’t change your analysis though.

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