An Economic Analysis Of The Impact Of Oil Prices On Urban Structure

Author : Sofyan Syahnur
Publisher : Cuvillier Verlag
ISBN 13 : 373693095X
Total Pages : 214 pages
Book Rating : 4.7/5 (369 download)

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Download or read book The Impact of Price Changes on the Poor in Nanggroe Aceh Darussalam Province, Indonesia: A Case Study on Oil Prices written by Sofyan Syahnur and published by Cuvillier Verlag. This book was released on 2009-08-28 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: The phenomenon of oil prices increase due to oil subsidy reduction is a crucial and dilemmatic issue for developing countries such as Indonesia. This is because the magnitude of the resulting effects of rising oil prices is not merely related to the shrinkage of the government expenditure burden in the future, but also triggers off a set of negative consequences on all aspects of economic sectors. Moreover, it also directly or indirectly engenders a tricky situation on socio-economic households in term of welfarereducing both in rural and urban regions. Most of the theoretical viewpoints are tightly highlighted that an increase in oil prices will induce elevated living cost for certain household groups in the society (the living standards of both poor and vulnerable household groups mostly at middle income households fall down). It implies that the impact of oil prices increase will concurrently push the inflation rate to a higher and higher level (spiral inflation), the purchasing power of households as indicated by the rate of households’ real income worsens in the near future below a certain threshold (poverty line). At long last those with little income will be trapped into the poverty circle (vicious circle of oil prices increase). The households are openly vulnerable to be trapped into poverty and the poor who are already in the poverty trap will be the poorest (chronic poverty). There is an unambiguous relationship between oil prices increase as one of the urgent government policies and the households’ real income decline. This study attempts to investigate the impact of oil prices increase on the poor at regional level in particular in Nanggroe Aceh Darussalam (NAD) province. To get an in-depth understanding of this issue, the study utilizes three approaches to capture the micro and macro impact of oil prices increase on the poor: the Descriptive Analysis Approach (DAA) supported by the primary data from field research, the Social Accounting Matrix (SAM) approach as well as the Computable General Equilibrium (CGE) model by comparing two periods of SAM data (2002 and 2005). It is also important to underline that the oil prices will be more focused on this study is solely three types of oil prices: gasoline, diesel, and kerosene prices. Four specific conclusions of the study are as follows: (1) The main socio-economic characteristics of the poor being vulnerable to the oil prices increase are greater household size, profession as a farmer, lower education, and unskilled labor (2) Government’s action to reduce subsidy on oil will generate oil stock scarcity which picks up the pace of the oil prices in the community exceeding the government oil price declaration throughout the scarcity; (3) The oil prices increase highly leads to inequality in income distribution across institutions as indicated by the different accounting multiplier and the real income alteration of institution, particularly rural and urban households which is caused by larger indirect effect than direct effect. (4) In general, the depressing shock of the oil prices increase highly affects real income of all household groups in urban areas, but at the end of the impact process it will be negatively experienced by the households in rural areas through higher inflation rate, especially the poorest and poor households. Afterwards, they are openly trapped into chronic poverty. In addition, rural middle-income households are more vulnerable to poverty than those in urban areas. Therefore, these are key reasons why the poverty rate in Aceh still remains at high level every year.