ASYMMETRIC EFFECT OF CRUDE OIL AND PALM OIL PRICES ON ECONOMIC GROWTH: EVIDENCE FROM INDONESIA
This paper empirically examines the impact of the price of crude oil petrol and palm oil on Indonesia's economic growth. Using quarterly data from 2000 to 2019 and linear, and non-linear autoregressive distributed lag (ARDL) model to cointegration, the study finds 1) A significant non-linear effect of oil prices on country's output. 2) The palm oil price changes have a higher effect on the country's output as compared to petroleum prices. 3) A decline in palm price in the international market leads to a higher adverse effect on the country's economic growth as compared to petroleum prices.
Aloui, C., Hkiri, B., Hammoudeh, S., & Shahbaz, M. (2018). A Multiple and Partial Wavelet Analysis of the Oil Price, Inflation, Exchange Rate, and Economic Growth Nexus in Saudi Arabia. Emerging Markets Finance and Trade, 54, 935- 956.
Apergis, E., & Apergis, N. (2020). Can the COVID-19 Pandemic and Oil Prices Drive the US Partisan Conflict Index?. Energy Research Letters, 1, 13144. https://doi.org/10.46557/001c.13144.
Aprina, H. (2014). The Impact of Crude Palm Oil Price on Rupiah’s Rate. Bulletin of Monetary Economics and Banking, 16, 295-314.
Brock, W. A., Hsieh, D. A., LeBaron, B. D., & Brock, W. E. (1991). Nonlinear Dynamics, Chaos, and Instability: Statistical Theory and Economic Evidence. MIT press.
Brock, W. A., Scheinkman, J. A., Dechert, W. D., & LeBaron, B. (1987). A Test for Independence Based on the Correlation Dimension. Mimeo.
Brock, W. A., Scheinkman, J. A., Dechert, W. D., & LeBaron, B. (1996). A Test for Independence Based on the Correlation Dimension. Econometric Reviews, 15,197-235.
De Oliveira, E. M., Cyrino Oliveira, F. L., Klötzle, M. C., & Pinto, A. C. F. (2019). Dynamic Associations between GDP and Crude Oil Prices in Brazil: Structural Shifts and Nonlinear Causality. Emerging Markets Finance and Trade, 1-25.
Delavari, M., Bakhsh, S. S., & Bozorgi, Z. D. (2008). The Examination of the Oil Price Effect on the Economic Growth by Using Asymmetric Cointegration. Quarterly Energy Economics Review, 5, 65-80.
Devpura, N., and Narayan, P.K., (2020) Hourly Oil Price Volatility: The Role of COVID-19, Energy Research Letters, 1, 13683. https://doi.org/10.46557/001c.13683
Ebrahimi, S. (2011). Effects of Oil Price Shocks and Exchange Rate Volatility and Uncertainty on Economic Growth in Selective Oil Countries. Iranian Journal of Trade Studies Quarterly, 59, 83-105.
Eltony, M. N., & Al‐Awadi, M. (2001). Oil Price Fluctuations and Their Impact on the Macroeconomic Variables of Kuwait: a Case Study Using a VAR Model. International Journal of Energy Research, 25, 939-959.
Ftiti, Z., Guesmi, K., Teulon, F., & Chouachi, S. (2016). Relationship between Crude Oil Prices and Economic Growth in Selected OPEC Countries. Journal of Applied Business Research (JABR), 32, 11-22.
Fu, M., & Shen, H. (2020). COVID-19 and Corporate Performance in the Energy Industry. Energy Research Letters, 1, 12967. https://doi.org/10.46557/001c.12967
Garg, B., & Prabheesh, K. P. (2017). Drivers of India’s Current Account Deficits, with Implications for Ameliorating Them. Journal of Asian Economics, 51, 23-32.
Garg, B., & Prabheesh, K. P. (2018). External Shocks, Consumption-Smoothing and Capital Mobility in India: Evidence from an Intertemporal Optimization Approach. Applied Economics, 50, 4814-4829.
Garg, B., & Prabheesh, K. P. (2020). Testing the Intertemporal Sustainability of Current Account in the Presence of Endogenous Structural Breaks: Evidence from the Top Deficit Countries. Economic Modelling.
Gil-Alana, L. A., & Monge, M. (2020). Crude Oil Prices and COVID-19: Persistence of the Shock. Energy Research Letters, 1, 13200. https://doi.org/10.46557/001c.13200.
Hamilton, J. D. (1983). Oil and the Macroeconomy Since World War II. Journal of Political Economy, 91, 228-248.
Hamilton, J.D. (2003). What is an Oil Shock? Journal of Econometrics, 113 , 363–398.
Hamilton, J.D. (2008). Understanding Crude Oil Prices. National Bureau of Economic Research Working Paper Series No. 14492.
Huang, W., and Zheng, Y. (2020). COVID-19: Structural Changes in the Relationship between Investor Sentiment and Crude Oil Futures Price, Energy Research Letters, 1, 13685. https://doi.org/10.46557/001c.13685.
Ismaya, B. I., & Anugrah, D. F. (2018). Determinant of Food Inflation. Bulletin of Monetary Economics and Banking, 21, 81-94.
Iyke, B. N. (2019). Real Output and Oil Price Uncertainty in an Oil Producing Country. Bulletin of Monetary Economics and Banking, 22, 163-176.
Iyke, B. (2020). COVID-19: The Reaction of US Oil and Gas Producers to the Pandemic, Energy Research Letters, 1, 13912. https://doi.org/10.46557/001c.13912.
Kataryniuk, I., & Martínez-Martín, J. (2019). TFP Growth and Commodity Prices in Emerging Economies. Emerging Markets Finance and Trade, 55, 2211-2229.
Kilian, L. (2008). Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy? Review of Economics and Statistics, 90, 216–240.
Kilian, L. (2009). Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market. American Economic Review, 99, 1053-69.
Kilian, L., Vigfusson, R.J. (2011a). Are the Responses of the US Economy Asymmetric in Energy Price Increases and Decreases? Quantitative Economics 2, 419–453.
Kilian, L., Vigfusson, R.J. (2011b). Nonlinearities in the Oil Price–Output Relationship. Macroeconomic Dynamics, 15, 337–363.
Kisswani, K. M. (2019). The Dynamic Links between Oil Prices and Economic Growth: Recent Evidence from Nonlinear Cointegration Analysis for the ASEAN-5 Countries. Emerging Markets Finance and Trade, 1-14.
Liu, L., Wang, E. Z., & Lee, C. C. (2020). Impact of the COVID-19 Pandemic on the Crude Oil and Stock Markets in the US: A Time-Varying Analysis. Energy Research Letters, 1, 13154. https://doi.org/10.46557/001c.13154.
MacKinnon, J. G. (1994). Approximate Asymptotic Distribution Functions for Unitroot and Cointegration Tests. Journal of Business and Economic Statistics, 12, 167-176.
MacKinnon, J. G. (1996). Numerical Distribution Functions for Unit Root and Cointegration Tests. Journal of Applied Econometrics, 11, 601-618.
Narayan, P. K. (2020). Oil Price News and COVID-19—Is There Any Connection?. Energy Research Letters, 1, 13176. https://doi.org/10.46557/001c.13176
Narayan, P. K., & Popp, S. (2010). A New Unit Root Test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37, 1425-1438.
Narayan, P. K., & Popp, S. (2013). Size and Power Properties of Structural Break Unit Root Tests. Applied Economics, 45, 721-728.
Narayan, P. K., Sharma, S., Poon, W. C., & Westerlund, J. (2014). Do Oil Prices Predict Economic Growth? New Global Evidence. Energy Economics, 41, 137-146.
Narayan, S. W., Falianty, T., & Tobing, L. (2019). The Influence of Oil Prices on Indonesia’s Exchange Rate. Bulletin of Monetary Economics and Banking, 21, 303-322.
OECD. (2019). Agricultural Outlook 2019-2028. Organisation for Economic Cooperation and Development.
OPEC. (2019). Monthly Bulletin. Organization of the Petroleum Exporting Countries. January
Oriakhi, D. E., & Osaze, I. D. (2013). Oil Price Volatility and Its Consequences on the Growth of the Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3, 683.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326.
Pesaran, M.H., & Shin, Y. (1999). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Econometrics and Economic Theory in the 20th Century: The Ragner Frisch Centennial Symposium, Cambridge University Press.
Pirker, J., Mosnier, A., Kraxner, F., Havlík, P., & Obersteiner, M. (2016). What are the limits to oil palm expansion? Global Environmental Change, 40, 73-81.
Polbin, A., Skrobotov, A., & Zubarev, A. (2019). How the Oil Price and Other Factorsc of Real Exchange Rate Dynamics Affect Real GDP in Russia? Emerging Markets Finance and Trade, 1-14.
Prabheesh, K. P., & Rahman, R. E. (2019). Monetary Policy Transmission and Credit Cards: Evidence from Indonesia. Buletin Ekonomi Moneter dan Perbankan, 22, 137-162.
Prabheesh, K. P., Anglingkusumo, R., & Juhro, S. M. (2020). The Dynamics of Global Financial Cycle and Domestic Economic Cycles: Evidence from India and Indonesia. Economic Modelling.
Prabheesh, K.P., Padhan, R., and Garg, B. (2020) COVID-19 and the Oil Price— Stock Market Nexus: Evidence from Net Oil-Importing Countries, Energy Research Letters, 1, 13745. https://doi.org/10.46557/001c.13745
Purnomo, H., Okarda, B., Dermawan, A., Ilham, Q. P., Pacheco, P., Nurfatriani, F., & Suhendang, E. (2020). Reconciling Oil Palm Economic Development and Environmental Conservation in Indonesia: A Value Chain Dynamic Approach. Forest Policy and Economics, 111, 102089.
PWC (2010). Oil and Gas in Indonesia Investment and Taxation Guide, September 2019, 10th Edition, Price Waterhouse and Coopers & Lybrand. Retrievedfrom https://www.pwc.com/id/en/pwc-publications/industries-publications/energy--utilities---mining-publications/oil-gas-guide-2019.html.
Qin, M., Zhang, Y.-C., & Su, C.-W. (2020). The Essential Role of Pandemics: A Fresh Insight into the Oil Market. Energy Research Letters. 1, 13166. https://doi.org/10.46557/001c.13166
Saleh, Shoﬁa, Bagja, Bukti, Suhada, Thontowi A., Widyapratami, Hermawati (2018). Intensification by smallholder farmers is key to achieving Indonesia’s palm oil targets. Retrieved from https://www.wri.org/blog/2018/04/intensiﬁcationsmallholder-farmers-key-achieving-indonesia-s-palm-oil-targets.
Salisu, A., & Adediran, I. (2020). Uncertainty due to Infectious Diseases and Energy Market Volatility. Energy Research Letters, 1, 14185. https://doi.org/10.46557/001c.14185
Sharma, S. S., Phan, D. H. B., & Iyke, B. (2019). Do Oil Prices Predict Indonesian Macroeconomy? Economic Modelling, 82, 2-12.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In Festschrift in honor of Peter Schmidt, 281-314. Springer, New York, NY.
Villafuerte, M., & Lopez-Murphy, P. (2009). Fiscal Policy Responses of Oil Producing Countries to the Recent Oil Price Cycle. In IMF Working Paper No. 10/28. International Monetary Fund Washington DC, USA.
Copyright (c) 2020 Buletin Ekonomi Moneter dan Perbankan
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.