The impact of increase in domestic petroleum prices on costs of production

The paper examines the impact of an increase in domestic petroleum price on costs of production in the malaysian manufacturing sector. The paper has identified three component costs of production which comprise domestic materials, imported input and labour. By using the input-output model, the paper simulated different scenarious of the effect of petroleum price changes on sectoral costs of production. The simulation results indicate that aside from the petroleum products sectors, the glass product, other manufacturing product, other chemical product, and also the oils and fats industries are the sectors most affected by an increase in domestic petroleum prices. These sectors are expected to experience huge impacts as a results of domestic petroleum price increase because these industries are heavy consumers of petroleum product as an intermediate input in their production process.

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