How sensitive are industrial demand and supply to energy price shocks

• Published in: Journal of Industrial and Business Economics
• Main Author: Iram H.; Ridzuan A.R.
• Format: Article
• Language: English
• Published: Springer Nature 2024
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85201381328&doi=10.1007%2fs40812-024-00326-z&partnerID=40&md5=a90b1323db4d36a421822a7d6eeb09b2

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. © The Author(s) under exclusive licence to Associazione Amici di Economia e Politica Industriale 2024.