Trade and Environment: External Shocks and Vulnerability - A Computable Generable Approach to the Malaysian Economy
25 Pages Posted: 1 Apr 2008
Date Written: March 30, 2008
Malaysia is now an open and export-oriented economy. The export and manufacturing sectors are contributing significantly to economic growth and its share on GDP contributing significantly. It has increasingly diversified its exports in terms of products and markets, the result of which has been large changes in the composition of exports. As an open economy the impacts of external price shocks (i.e. a rise of import prices causes depreciates the real exchange rate) are very sensitive in the economy. Our simulation results illustrate that import price shocks by 15 percent decreases a large in domestic production of building and construction by 25.87 percent, hotels restaurants and entertainment by 12.04 percent, industry by 12.02 percent, agriculture by 11.01 percent, and electricity and gas sector by 9.55 percent. On the import side, the simulations confirm the trade theory and illustrate that imports decreases in all service sectors significantly. Among the scenarios, as a result of the import price shocks by 15 percent the largest negative impacts goes on industry sectors by 29.67 percent followed by building and construction by 22.42 percent, hotels restaurants and entertainments by 19.45 percent, electricity and gas by 13.56 percent, agriculture by 12.63 percent and other service sectors by 11.17 percent. It also causes the household income, household savings and household consumption down. In contrast the import price shocks increase real GDP, nominal GDP and government revenue, however significant negative impact goes to the investment and fixed capital investment.
Keywords: Trade, External shocks, Applied General Equilibrium, Malaysian Economy
JEL Classification: F0, F1, C68
Suggested Citation: Suggested Citation