Thailand's Energy Security: Strategic Petroleum Reserve and its Economic Impacts Open Access
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This dissertation studies Thailand's energy security from three related perspectives, the role of oil on the Thai macroeconomy, the sectoral demand for oil in Thailand, and the Strategic Petroleum Reserve (SPR) policy for the Thai economy. The first part of my dissertation estimates an error correction model of aggregate production function for Thailand. Thai economic growth is modeled as a function of labor, capital, and oil consumption. Unlike previous studies that focus on testing the causal relationship between energy consumption and economic growth, I focus on measuring the elasticity of economic growth with respect to oil consumption and oil prices. I find a cointegration relationship between GDP, capital, labor, and oil consumption. The results suggest that there exists a constant-return-to-scale characteristic in Thailand's aggregate production function with the contribution of labor, oil, and capital to output around 68, 19, and 13 percent respectively. The long-run and short-run contribution of oil consumption to the economy appears to be fairly close, suggesting that oil has a critical role in the Thai economy. In the short run, oil shortages have a much more severe impact on Thai economy than the effects of an oil price shock. For example, a 10 percent shortfall in oil consumption might cause economic growth to shrink by 2 percent within the same year while a sharp10 percent rise in oil prices can lead output growth to a fall by about 0.5 percent. The response of output to increases and decreases in oil prices is found to be asymmetric in the short run. The second part of my dissertation examines the short-run and long-run determinants of final oil consumption in seven major economic sectors in Thailand. Two different approaches are compared. The first approach uses dynamic panel data estimation techniques taking into account oil consumption of the whole economy in an aggregate manner. The second approach employs the Autoregressive Distributed Lag (ADL) error correction framework to model oil demand in each economic sector separately. The results show that the dynamic panel data approach appears to give estimates consistent with the economic theory. The signs on the coefficients are correct and the magnitude of long-run responses is larger than that of the short-run responses. The single sector model approach yields similar but richer results. Since constant slopes are not imposed across sectors the characteristics and dynamics and responses can differ across sectors. The third part of my dissertation develops a simple Dynamic Stochastic General Equilibrium (DSGE) model to investigate the economic consequences of the SPR for a "small oil-importing economy." This economy is subject to the risk of oil shocks. Government policy-makers attempt to mitigate the macroeconomic impacts of the shocks by establishing a SPR. The assigned values of the parameters in the model aim to reflect the basic characteristics of the Thai economy. The simulation results show that the impulse responses of key economic variables for different degrees of oil shocks follow the same pattern. When the degree of the shock increases, the magnitude of the stock drawdown increases, which helps lower the negative impact on economic welfare. I examine the welfare effects from alternative sizes of the SPR and the opportunity cost for the economy that result when it has to sacrifice additional resources to maintain and operate the SPR. This lowers the level of resources available for production and consumption in the long run. There exists a trade- off relationship between the sacrificed welfare in the long run and the less volatile welfare in the short run.