How sensitive are industrial demand and supply to energy price shocks

Humera Iram () and Abdul Rahim Ridzuan ()
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Humera Iram: Air University
Abdul Rahim Ridzuan: Universiti Teknologi MARA

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2025, vol. 52, issue 1, No 9, 239 pages

Abstract: Abstract This paper presents a case study to address the sensitivity of industrial demand and supply to energy price shocks by examining these responses for selected eleven large-scale manufacturing industries in Pakistan. The study employed the Structural Vector Autoregressive (SVAR) approach to investigate the sensitivity, using monthly data from July 2008 to June 2020. Due to the heterogeneous nature of these industries, a sophisticated strategy was adopted, with specialized models developed for each industry. The analysis results provide a novel finding about the dynamic of industrial demand and supply resulting from energy price shocks. The pattern of industries' response to energy price shocks has a positive and dominating impact on industrial supply. The consumer's demand decision had a dominant effect on industries like textile, petroleum, and food. For these industries, energy price shocks mainly reduce demand by delaying the decision to purchase the goods. The study shed light on the economies' resilience and vulnerability to energy price shocks associated with economic agents' decisions. It reveals that energy price shocks have a dominant impact on the supply side for energy-intensive industries and the demand side in other sectors.

Keywords: Energy prices; Demand; Supply; Industries; SVAR (search for similar items in EconPapers)
JEL-codes: E30 Q43 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40812-024-00326-z

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