The Oil Price and Economic Growth: The Case of Malaysia Essay

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The Oil Price and Economic Growth: The Case of Malaysia
Chapter 1

INTRODUCTION
Economic growth can defined as increase in the market value of the goods and services produced by an economy over time. Usually, it is measured as the percentage rate of increase in real gross domestic product (GDP). Gross Domestic Product (GDP) defined as market value for final goods and service in a country for a year. Besides, it can be defined as country’s standard living. To calculate GDP, it can include all private and public consumption, government outlays, investment and import and export. The continuous raising of oil price is worrying each people. Based on Prasada et. al., (2007), they said that when oil price increasing, there will be exists a
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However, the most significant channel by which the effects of the shock are transmitted is the government’s spending.

1.1 The background of study
Since few years, the world oil price changes have showed the volatility. Further, Malaysia also affected by this fluctuation. According to the Malaysian Ministry of Finance (2009), as much as MYR 6.19 billion (USS$1.98 billion) was spent on fosil fuel subsidies. Figure 1: Oil Price in Malaysia, 2003-2010
Sources: World Bank

Figure 1 show that the trend of oil price in Malaysia from 2003 to 2010. In 2003, the oil price rate is 5.781 % and has increasing to 7.090 % in 2004.The volatility of oil price in Malaysia shows increasing from period of 2005 with 8.502 %, 2006 with 8.639 %.However, the oil price decreasing again with 7.903 % in 2007.In 2008, the graph shows that oil rent is increasing again with 9.160 % which is recorded as the highest record for the year stated. In the last two years, the oil prices have declined with 5.866 % in 2009 and 6.192 % in 2010.

GDP is known as measurement to calculate economic well-being of citizens. Since the last decade, Malaysia economic growth has showed a slow momentum which is contributed to low private investment and caused average about 25 % of GDP is fell down. Figure 2: Gross Domestic Product in Malaysia, 2003-2010
Sources: Index Mundi
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