Oil consumption, pollutant emission, oil proce volatility and economic activities in selected Asian Developing Economies

It is now well established in the literature that oil consumption, oil price shocks, and oil price volatility may impact the economic activities negatively. Studies identifying the relationship between energy and/or oil consumption and output primarily take two different approaches. One approach includes energy or oil consumption in addition to output, labour, and capital. The other approach takes energy and/or oil, output and prices. Based on these two models most of the previous studies suggest energy conservation policies for different economies. However, none of the previous studies considered both of these models jointly to make policy implications and there are not many studies investigating oil consumption-output relationship in a multivariate model in the context of developing economies. Furthermore, one of the important variables in making any conservation policies, carbon emission, is omitted from the models.Similarly, there has been a large body of literature investigating the impact of oil price shocks in different economies. Nevertheless, studies analysing the impact of oil price volatility on economic activities are very limited. More importantly, studies analysing the impact of oil price volatility in developing economies are almost non-existent. In the light of increasing demand for oil from the developing nations, comprehensive studies on identifying the impact of oil consumption, oil prices, and oil price volatility on developing economies is warranted.Hence, in this thesis, the contribution of oil in economic development is investigated with the help of two different models. The first model, termed as supply-side approach, analyses the contribution of oil consumption in economic activities within the traditional production function framework. The second model, termed as demand-side approach, analyses the contribution of energy consumption in economic activities in two stages. In the first stage, oil consumption demand is analysed by a tri-variate model having oil prices as the third variable in addition to oil consumption and GDP. In the second stage, carbon emission output is determined in a tri-variate model with carbon emission as the third variable along with oil consumption and output. This thesis also performs a unique task of analysing the impact of volatility on world crude oil prices on the economic activities of six Asian developing economies.With respect to the oil consumption-output relationship, despite dissimilarities in results for causality relationships between oil consumption and output in three different models for different countries, one common result emerges. Except for the Philippines, all other countries are found to be oil dependent either from supply-side or from demand-side or from both of the sides. This implies that for all the considered developing economies, except for the Philippines, oil conservation policies seem to be harder to implement as that may retard their economic growth. In addition to that, one very important findings of the empirical analysis based on the equation regarding pollutant emission output is that for all the countries, except for Malaysia, output Granger causes pollutant emission (CO2) both in the short run and long run.With respect to the impact of oil price volatility on economies, this study finds that oil price volatility seems to impact all the economies in the short run. According to the results, oil price volatility affects GDP growth in China and Malaysia, GDP growth and inflation in India and Indonesia, while in the Philippines volatility in oil prices impacts inflation. However, in Thailand the impact channels are different for pre- and post-Asian financial crisis period. For Thailand, it can be inferred that oil price volatility impacts output growth for the whole period; however, after the Asian financial crisis the impact seems to disappear.Based on the comprehensive study within three different theoretical frameworks the policy implications regarding oil consumption-output relationship can be summarised as follows. For the Philippines, where uni-directional causality from income to oil consumption is found, she may contribute to the fight against global warming directly implementing energy conservation measures. The direction of causality indicates that the oil conservation policies can be initiated with little or no effect on economic growth. For rest of the oil dependent countries where either bidirectional causality or uni-directional causality from oil consumption to output is found in any of the models, since oil is a critical determinant of economic growth in these countries, limiting its use may retard economic growth. Nevertheless, all of these countries may initiate environmental policies aimed at decreasing energy intensity, increasing energy efficiency, and developing a market for emission trading. These countries can invest in research and development to innovate technology that makes alternative energy sources more feasible, thus mitigating pressure on the environment.According to the impact analysis of oil price volatility on economic activities, the policy implications are as follows. In Thailand, the results after the financial crisis show that adverse effect of oil price volatility has been mitigated to some extent. It seems that oil subsidization of the Thai government by introduction of the oil fund and the flexible exchange rate regime plays a significant role in improving economic performance by lessening the adverse effect of oil price volatility on macroeconomic indicators. For all other countries, the impact of oil price volatility is also of short term. Hence, the short-term impact of oil price volatility on the concerned economies may be exerted though the uncertainty born by the fluctuations in the crude oil price in the world market. As far as the impact on GDP growth is concerned, the short-run impact may also be transmitted through the investment uncertainties resulting from increased volatility in oil prices. However, from the Thai experience it can be inferred that flexible exchange rate regime insulate the economy in the short run from any adverse impact from oil price volatility on growth. Hence, it can be suggested that good subsidization policy with considerable knowledge on international currency market, both spot and future, may shield the economies from adverse consequences due to the fluctuation in oil prices in the short run. Nevertheless, this may affect other sectors of the economy like, inflation, interest rate, government budget deficit, etc

Projecting post-crisis house and equity prices since the 1870s:not all crises are alike

This paper projects house and equity prices following different types of macroeconomic shocks since the 1870s in 17 western economies. In doing so, we classify macroeconomic downturns into three distinct groups: normal recessions, financial recessions, and disasters. By combining three newly available historical data sets spanning 143 years and by employing local projection technique, this study finds that financial recessions have the most detrimental effect and cause substantial decreases in house prices, stock prices and construction costs. Post-crisis stock price declines are observed through the whole sample period, but both house prices and construction costs were the most vulnerable to crises after WWII. The study also finds that stock prices drop substantially immediately after financial crises and rebound within four to six years, while shocks to house prices are more persistent. This asymmetry of persistence and magnitude of shocks among housing and equity prices might have had a substantial impact on post-recession wealth re-distribution since WWII as lower and middle class families are more likely to have their wealth invested in a home rather than in other financial investments like stocks

Urbanization, energy consumption, and pollutant emission in Asian developing economies: An empirical analysis

This paper aims to investigate the effects of urbanization, renewable and non-renewable energy consumption, trade liberalization, and economic growth on pollutant emissions and energy intensity in selected Asian developing countries from 1980 to 2010. We use both linear and nonlinear panel data econometric techniques and employ the recently introduced mean group estimation methods, allowing for heterogeneity and cross-sectional dependence. However, to check robustness of our panel results, we also apply the autoregressive distributed lag bound testing approach to country-level data. In addition, the relationship between affluence and CO2 emissions is examined in the context of the Environmental Kuznets Curve (EKC) hypothesis. The estimation results identify population, affluence, and non-renewable energy consumption as the main factors in pollutant emissions in Asian countries. However, the results of the EKC hypothesis show that when countries achieve a certain level of economic growth, their emissions tend to decline. Whereas nonlinear results show that renewable energy, urbanization, and trade liberalization reduce emissions, linear estimations do not confirm such outcomes. Thus, substitution of non-renewable for renewable energy consumption, as well as cautious and planned urbanization programs, and more liberal trading regimes may be viable options for the sustainable growth of these emerging Asian economies

CAUSALITY AND DYNAMICS OF ENERGY CONSUMPTION AND OUTPUT: EVIDENCE FROM NON-OECD ASIAN COUNTRIES

This article examines the short-run and long-run causal relationship between energy consumption and output in six non-OECD Asian developing countries. Standard time series econometrics is used for this purpose. Based on cointegration and vector error correction modeling, the empirical result shows a bi-directional causality between energy consumption and income in Malaysia, while a unidirectional causality from output to energy consumption in China and Thailand and energy consumption to output in India and Pakistan. Bangladesh remains as an energy neutral economy confirming the fact that it is one of the lowest energy consuming countries in Asia. Both the generalized variance decompositions and the impulse response functions confirm the direction of causality in these countries. These findings have important policy implications for concerned countries. Countries like China and Thailand may contribute to the fight against global warming directly implementing energy conservation measures whereas India and Pakistan may focus on technological developments and mitigation policies. For Malaysia, a balanced combination of alternative policies seems to be appropriate.Energy Conservation, Cointegration, Error Correction Model, Generalized Variance Decompositions, Generalized Impulse Response Functions

The Impact of Forward Guidance and Large-scale Asset Purchase Programs on Commodity Markets

This paper investigates how different commodity prices are affected by unconventional monetary policies (UMP) implemented by the Federal Reserve of the United States as a response to the Global Financial Crisis. We analyze impulse responses using local projections proposed by Jorda (2005) and follow Swanson (2017)’s identification strategy for UMP shocks. We show that forward guidance (FG) and large-scale asset purchase (LSAP) shocks lead to distinct responses from commodity prices. We find that asset-like commodities, such as gold and silver, respond to these UMP shocks most aggressively. While an easing FG shock leads to increases in their prices, an easing LSAP shock has the opposite effect. This differential response suggests that these asset-like commodities are being used as inflation and exchange rate hedges. In contrast, production-like and agricultural commodities respond to UMP shocks in the same way as conventional monetary policy shocks. Consistent with previous literature, we find that easing LSAP shocks, to some extent, signal a negative economic outlook. Policymakers can exploit these different commodities when evaluating the effectiveness of monetary policy in different sectors of the economy

Energy, unemployment and trade

© 2018 Informa UK Limited, trading as Taylor & Francis Group. This article investigates the dynamic relationships among sectoral economic activities, macro expenditure patterns, renewable and non-renewable energy consumption and unemployment in 41 countries from 1980 to 2014. The state of the art econometric techniques, both linear and non-linear panel and time series estimation techniques are used. The results show that industrialization, services sector, government expenditure and trade openness play a positive role in reducing unemployment, while agriculture and renewable energy consumption increase unemployment. This might be, in part, due to recent technological advancements and large capital intensive investments in agriculture and renewable energy sectors. Therefore, dedicated social and labour market policies need to be adopted to complement greening economic policies

Oil consumption, pollutant emission, oil price volatility and economic activities in selected Asian developing economies (PhD Thesis, Curtin University of Technology)

It is now well established in the literature that oil consumption, oil price shocks, and oil price volatility may impact the economic activities negatively. Studies identifying the relationship between energy and/or oil consumption and output primarily take two different approaches. One approach includes energy or oil consumption in addition to output, labour, and capital and the other approach takes energy and/or oil, output and prices. Based on any of these two models most of the previous studies devised energy conservation policies for different economies. However, none of the previous studies considered both of these models jointly to make policy implications and there are not much studies investigating oil consumption-output relationship in a multivariate model in the context of developing economies. Furthermore, one of the important variables in making any conservation policies, carbon emission, kept out of their models. Similarly, there has been a large body of literature investigating the impact of oil price shocks in different economies. Nevertheless, studies analysing the impact of oil price volatility on economic activities are very limited. More importantly, studies analysing the impact of oil price volatility in developing economies are almost non-existent. In the light of increasing demand for oil from the developing nations, comprehensive studies on identifying the impact of oil consumption, oil prices, and oil price volatility on developing economies is warranted. Hence, in this thesis, the contribution of oil in economic development is investigated with the help of two different models. The first model, termed as production-side approach, analyses the contribution of oil consumption in economic activities within the traditional production function framework. The second model, termed as demand-side approach, analyses the contribution of energy consumption in economic activities in two stages. In the first stage, oil consumption demand is analysed by a tri-variate model having oil prices as the third variable in addition to oil consumption and GDP. In the second stage, carbon emission output is determined in a tri-variate model with carbon emission as the third variable along with oil consumption and output. Furthermore, this thesis performs a unique task of analysing the impact of volatility on world crude oil prices on the economic activities of six Asian developing economies. The countries selected for this purpose are, China, India, Indonesia, Malaysia, Philippines and Thailand. With respect to the oil consumption-output relationship, despite dissimilarities in results for causality relationships between oil consumption and output in three different models for different countries, one common premise has emerged. Except for the Philippines, all other countries are found to be oil dependent either from supply-side or from demand-side or from both of the sides. Which implies that for all the considered developing economies, except for the Philippines, oil conservation policies seems to be harder to implement as that may retard their economic growth. In addition to that, one very important findings of the empirical analysis based on the equation regarding pollutant emission output is that for all the countries, except for Malaysia, output Granger causes pollutant emission (CO2) both in the short run and long run. With respect to the impact of oil price volatility on economies, this study finds that oil price volatility seems to impact all the economies in the short run. According to the results, oil price volatility affect GDP growth in China and Malaysia, GDP growth and inflation in India and Indonesia, while in the Philippines volatility in oil prices impact inflation. However, in Thailand the impact channels are different for pre- and post-Asian financial crisis period. For Thailand, it can be inferred that oil price volatility impacts output growth for the whole period; however, after the Asian financial crisis the impact seems to disappear. Based on a comprehensive study within three different theoretical frameworks the policy implications regarding oil consumption-output relationship can be devised as follows. For the Philippines, where unidirectional causality from income to oil consumption is found, she may contribute to the fight against global warming directly implementing energy conservation measures. The direction of causality indicates that the oil conservation policies can be initiated with little or no effects on economic growth. For rest of the oil dependent countries where either bi-directional causality or unidirectional causality from oil consumption to output is found in any of the models, since oil is a critical determinant of economic growth in these countries, its shortage may retard economic growth. Nevertheless, all of these countries may initiate environmental policies aimed at decreasing energy intensity, increasing energy efficiency, and developing a market for emission trading. These countries can invest in research and development to innovate technology that makes alternative energy sources more feasible, thus mitigating pressure in environment. According to the impact analysis of oil price volatility on economic activities, the policy implications are as follows. In Thailand, the results after the financial crisis show that adverse effect of oil price volatility has been mitigated to some extent. It seems that oil subsidization of the Thai government by introduction of the oil fund and the flexible exchange rate regime plays a significant role in improving economic performance by lessening the adverse effect of oil price volatility on macroeconomic indicators. For all other countries, the impact of oil price volatility is also of short term. Hence, the short-term impact of oil price volatility on the concerned economies may be excreted though the uncertainty born by the fluctuations in the crude oil price in the world market. As far as the impact on GDP growth is concerned, the short-run impact may also be transmitted through the investment uncertainties resulted from increased volatility in oil prices. However, from the Thai experience it can be inferred that flexible exchange rate regime insulate the economy in the short run from any adverse impact from oil price volatility on growth. Hence, it can be suggested that good subsidization policy with considerable knowledge on international currency market, both spot and future, may shield the economies from adverse consequences due to the fluctuation in oil prices in the short run. Nevertheless, this may affect other sectors of the economy like, inflation, interest rate, government budget deficit, etc

Energy consumption and income in six Asian developing countries: a multivariate cointegration analysis

This article examines the short- and long-run causal relationship between energy consumption and GDP of six emerging economies of Asia. Based on cointegration and vector error correction modeling the empirical results show that there exists unidirectional short- and long-run causality running from energy consumption to GDP for China, uni-directional short-run causality from output to energy consumption for India, whilst bi-directional short-run causality for Thailand. Neutrality between energy consumption and income is found for Indonesia, Malaysia and Philippines. Both the generalized variance decompositions and impulse response functions confirm the direction of causality. These findings have important policy implications for the countries concerned. The results suggest that while India may directly initiate energy conservation measures, China and Thailand may opt for a balanced combination of alternative polices

Energy consumption and output: time series evidence from non-OECD Asian countries

This article examines the short- and long-run causal relationship between energy consumption and output in six non-OECD Asian developing countries. Standard time series econometrics is used for this purpose. Based on cointegration and vector error correction modeling, the empirical result shows a bi-directional causality between energy consumption and income in Malaysia, while a unidirectional causality from output to energy consumption in China and Thailand and energy consumption to output in India and Pakistan. Bangladesh remains as an energy neutral economy confirming the fact that it is one of the lowest energy consuming countries in Asia. Both the generalized variance decompositions and the impulse response functions confirm the direction of causality in these countries. These findings have important policy implications for concerned countries. Countries like China and Thailand may contribute to the fight against global warming directly implementing energy conservation measures whereas India and Pakistan may focus on technological developments and mitigation policies. For Malaysia, a balanced combination of alternative policies seems to be appropriate

The linkage between energy consumption and income in six emerging economies of Asia: an empirical analysis

This article examines the short- and long-run causal relationship between energy consumption and GDP of six emerging economies of Asia. Based on cointegration and vector error correction modeling the empirical results show that there exists unidirectional short- and long-run causality running from energy consumption to GDP for China, uni-directional short-run causality from output to energy consumption for India, whilst bi-directional short-run causality for Thailand. Neutrality between energy consumption and income is found for Indonesia, Malaysia and Philippines. Both the generalized variance decompositions and impulse response functions confirm the direction of causality. These findings have important policy implications for the countries concerned. The results suggest that while India may directly initiate energy conservation measures, China and Thailand may opt for a balanced combination of alternative polices