The Effect of Global Crude Oil Prices on Malaysia’s GDP and Trade

By Kah Heng Lua, University of Manchester

This study employs a time-series approach to determine the effects of changes in the global West Texas Intermediate and Dubai Fateh crude oil price benchmarks on Malaysia’s GDP and trade. The results indicate that effects from developments in global crude oil prices exist only in the short-run. Using a VAR model, I found that both crude oil prices lagged 1 quarter backwards have a positive relationship with Malaysia’s GDP and trade variables. My models also suggest that the West Texas Intermediate (WTI) price benchmark has a substantially higher effect on Malaysia’s GDP compared to the Dubai Fateh (DF) price benchmark. The results of the impulse response functions also show that Malaysia’s GDP and most trade variables respond positively to innovations in oil price changes within 1 quarter.

Read the full paper here.

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