The Role of Natural Gas Price on Manufacturing Sector in Malaysia

Authors

  • Nur Surayya Mohd Saudi, Mohd Haizam Mohd Saudi

Abstract

This study focused on how the price of natural gas influences the Gross Domestic Product (GDP) in manufacturing sectors and subsectors as the relationship remains ambiguous given the influence of heterogeneity across diverse sectors. This study investigates the key subsectors in economic that are highly contribute to Malaysia’s GDP. Specifically, this study employed ARDL estimates on yearly time series data between 1987 and 2019. The empirical findings concluded that there is a inversed relationship between natural gas price with manufacturing’s output. The empirical results revealed a negative long-run and short-run relationship between prices of natural gas on all manufacturing subsectors and the magnitude of respond depended on the level of energy intensity across subsectors. Policy recommendation highlighted the need to replace both oil and gas as production inputs with renewable energy sources of large scale, such as biodiesel, solar, hydroelectric, and nuclear for the manufacturing sector in Malaysia to circumvent the adverse effects of fluctuating global oil and gas prices on the country’s economy. Adding to that, it is also recommended to diversify the economic sectors from energy-intensive sector to lower energy-intensive sector like services sector.

Published

2020-11-01

Issue

Section

Articles