The Impact of Increase in Energy Prices on Sectoral Costs of Production of the Malaysian Economy

Abstract

This paper examines the impact of an increase in the petroleum price on the sectoral costs of production. Three components of costs of production, which comprise domestic materials, imported input, and labour have been identified. By using the input-output model, different scenarios of the petroleum price changes on sectoral costs of production were stimulated. The simulation results indicated that the fishing, forestry, and logging product, electricity and gas, cement, lime and plaster, and transport sectors are mostly affected by the increase in petroleum price. These sectors are expected to show large impact on costs of production as a result of petroleum price increase because these industries highly consume petroleum products as an intermediate input in their production process.