Asymmetric modeling of fuel consumption in Malaysia

Abstract

This study aims to examine the relationship between economic growth, energy price, technological innovation, financial development and fuel consumption in Malaysia, within a Non-linear Autoregressive Distributed Lag (NARDL) framework. The annual data set covers the period of 1970–2016. This study disaggregated fuel consumption into those of coal, natural gas, oil, and hydroelectricity. By decomposing a time series into its positive and negative partial sums, the findings demonstrate that hydroelectricity consumption and its determinants do not co-move either symmetrically or asymmetrically in the long run. Therefore, the variables cannot be considered to determine the variations in hydroelectricity consumption in Malaysia. Coal, natural gas and oil consumption, on the other hand, reacted asymmetrically to the changes in the respective variable, in both the short and the long run. More specifically, the study revealed that: (1) gas consumption was insensitive to price rise; (2) the effect of negative shock in technological innovation towards coal consumption was greater than that of positive shock; and (3) although technology reduced coal consumption, financial deepening caused the offset of efficiency gain. In addition, changes in the variables were found to Granger-cause fuel consumption in the short run.