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An Analysis of the Impact of Oil Price Fluctuation with Focus on Indonesian Economy

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The purpose of this research is to investigate how oil price fluctuation affects Indonesia's state budget, oil subsidies, inflation rate, GDP growth, and electricity pricing. As we have seen in the past, economic indicators and electricity pricing have been severely affected due to the increase and volatility of crude oil price. Electricity pricing has been known to be affected by oil price fluctuation. This study intends to substantiate these impacts.nnThe methodology of this research focuses upon examining the impact of oil price fluctuation on Indonesia's economy, and electricity price. The focus is on a more narrow (but important) scope in relation to economic indicators, and covers the years 2000 to the first-half of 2006. The testing was done through some quantitative approaches such as (1) simple regression, (2) significance test, and (3) correlation testing. In addition, a policy analysis being the qualitative analysis is also adopted in this study. As there has been major global oil price hikes between 2004 and present day, it is therefore significant to test how this affects the Indonesian economy.nnThe findings were as follows: when the correlation tests were conducted, the strongest correlation between oil price fluctuations and a key economic indicator was GDP growth, and the weakest correlation was budget deficits.nnThe simple regression tests revealed that oil showed the highest extent of influence against GDP growth and electricity pricing, whereas the weakest extent of influence was on the state budget.nnThe results of the significance tests concluded that oil prices had a significant influence on every variable - state budget, GDP growth, oil subsidies, inflation and electricity price.nnThis research also recommends that oil needs to be taxed heavily to fund research into alternative energy sources for Indonesia. In addition, the country needs to further develop their existing oil fields, and in addition research into new fields. The government also needs to be prepared in the event that oil prices reach an unbearable level. In addition, the government needs to continue to keep subsidies low, so more money can be allocated into other sectors of the economy.

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M00102

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Series Title

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Call Number

102

Publisher

: Swiss German University., 2006

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Language

English

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Subject(s)

MBA

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