Oil, Fuel Prices And Their Effects On The Maltese Economy
This paper provides a thorough analysis of the intricate relationship between oil price fluctuations and the Maltese economy, examining various theories and hypotheses. It discusses the sectoral reallocation of labour, particularly in the tourism industry, in response to oil price changes and scrutinises the Obsolescence Thesis, which posits that rising energy costs render existing capital stock uneconomical, while noting lack of local data for validation. It also explores the concept of ‘Revenue Recycling,’ highlighting the impact on Malta’s terms of trade with oil-producing countries. The paper also examines the ‘Uncertainty Factor’, suggesting that firms may delay investments due to price volatility, while underscoring the challenges of timely policy formulation in Malta, given the delay in statistical reporting.
OPEC’s role in oil price determination is also examined, with an emphasis on its influence by global economic conditions and the USD exchange rate. The paper comes to the conclusion that the alleged link between oil price changes and macroeconomic performance may be overstated. It identifies sectors likely to be most affected by oil price volatility and calls for more timely statistical data for effective policy interventions. The paper ultimately underscores the complexity of the oil-economy nexus in Malta, highlighting the need for robust data and proactive policy measures.
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