A CGE Model for Assessing the Economy-Wide Effects of Removing the Cooking Oil Subsidy in Malaysia
DOI:
https://doi.org/10.31436/ijema.v25i3.467Abstract
The Malaysian government eliminated the subsidy on cooking oil from January 2017 in its efforts to improve market efficiency and curb the smuggling of the product into neighboring countries. Implementing this policy will impact the economy through changes in relative prices and improvements in resource allocation. This article simulates the economy-wide effects of this policy reform using a computable general equilibrium model based on the country’s latest input-output tables (2015) under short and long-run scenarios. The simulation results show that the subsidy removal substantially increases the price of cooking oil which in turn affects the prices of other food and agricultural products and causes a mild contraction in the overall economy. The results also show that in addition to the impact on the cooking oil sector, the oil palm sector is also somewhat affected by this policy as upstream linkages are taken into account in both the model and database. The Hicksian welfare criterion shows that household welfare decreases marginally as a result of the subsidy removal.
References
Armington, Paul S. “A Theory of Demand for Products Distinguished by Place of Production.†Staff Papers (International Monetary Fund) 16, no. 1 (1969): 159-78.
Codsi, George, and K.R. Pearson. “Gempack: General-Purpose Software for Applied General Equilibrium and Other Economic Modellers.†Computer Science in Economics and Management 1, no. 3 (1988): 189-207.
Department of Statistics, Malaysia. “Input-Output Tables for Malaysia for 2010.†Putrajaya: Department of Statistics, 2015.
Department of Statistics, Malaysia. “Online Statistics and Data.†Putrajaya: The Office of Chief Statistician, Department of Statistics, 2016.
Economic Planning Unit. “Eleventh Malaysia Plan 2016-2020.†Malaysia: Economic Planning Unit, Malaysia (2016).
Haris, Richard. “Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition.†American Economic Review 74, no. 5 (1984): 1016-32.
Harrison, G.W., T.F. Rutherford, and D.G. Tarr. “Quantifying the Uruguay Round.†The Economic Journal 107, no. 444 (1997): 1405-30.
Hicks, John R. “The Four Consumer’s Surpluses.†The Review of Economic Studies 11, no. 1 (1943): 31-41.
Horridge, Mark. “Percent Change Forms for the Equivalent and Compensating Variations with the Les.†Centre of Policy Studies and Impact Project, Monash University, Australia (2005).
Horridge, Mark. “ORANI-G: A Generic Single-Country Computable General Equilibrium Model.†Centre of Policy Studies and Impact Project, Monash University, Australia (2006).
Ministry of Finance Malaysia. “Federal Government Administrative Centre.†Putrajaya, Malaysia (2016).
Narayanan, Badri, Angel Aguiar and Robert McDougall. Global Trade, Assistance, and Production: The GTAP 8 Data Base. Center for Global Trade Analysis, Purdue University, 2015.
Othman, Jamal, and Yaghoob Jafari. “Effects of Cooking Oil Subsidy Removals on Related Markets in Malaysia: A Comparative Static, Multi-Commodity, Multi Stage Production Approach.†International Journal of Management Studies 18, no. 2 (2011): 121-44.
Solaymani, Saeed, and Fatimah Kari. “Impacts of Energy Subsidy Reform on the Malaysian Economy and Transportation Sector.†Energy Policy 70 (2014): 115-25.
Yahoo, Masoud, and Jamal Othman. “Carbon and Energy Taxation for CO2 Mitigation: A CGE Model of the Malaysia.†Environment, Development and Sustainability 19, no. 1 (2017a): 239-62.
Yahoo, Masoud, and Jamal Othman. “Employing a CGE Model in Analysing the Environmental and Economy-Wide Impacts of CO2 Emission Abatement Policies in Malaysia.†Science of The Total Environment 584-585 (2017b): 234-43.
Downloads
Published
How to Cite
Issue
Section
