Durham E-Theses The Macroeconomics of Energy Price Shocks and Electricity Market Reforms:The Case of Bangladesh AMIN, SAKIB,BIN How to cite: AMIN, SAKIB,BIN (2015) The Macroeconomics of Energy Price Shocks and Electricity Market Reforms:The Case of Bangladesh , Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/11241/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk 2 The Macroeconomics of Energy Price Shocks and Electricity Market Reforms: The Case of Bangladesh Sakib B. Amin A Thesis Submitted in Fulfilment of the Requirements for the Degree of Doctor of Philosophy in Economics at Durham University June 2015 Declaration I hereby confirm that the materials contained in this thesis have not been previously submitted for a degree in this or any other university. I further declare that this thesis is solely based on my own research. All sources are fully acknowledged and referenced. Sakib B. Amin Statement of Copyright The copyright of this thesis rests with the author. No quotation from it should be published without the author's prior written consent and information derived from it should be acknowledged. Sakib B. Amin ii Acknowledgements Undertaking a PhD programme has been my long cherished dream and I am very thankful to the ALMIGHTY ALLAH for giving me the opportunity and strength to begin the programme and help me to complete this PhD thesis. At the outset, I would like to express my sincere appreciation to my supervisors Dr. Laura Marsiliani and Dr. Thomas Renström for their creative ideas, valuable advice and suggestions in completing this thesis. This work would not have been accomplished without their extensive knowledge in the field of Dynamic Macroeconomics and Energy Economics that provided exceptional guidance and enabled me to overcome every obstacle at every stage till the completion of this PhD thesis. To me, they were a source of knowledge from whom I learned a great deal. They made me realise the importance of developing dynamic models for policy related analysis rather than aimlessly running regressions. I will be grateful to them always for being available anytime to discuss my research questions. I also extend my most sincere thanks to my respected supervisors for their persistent support, kindness and dedication all along. They are not only very seasoned academic supervisor but also very good kind hearted person. They will always be remembered with respect as my "role-models" in my academic and non-academic life for their outstanding directions, motivations, encouragement, patience, help and affection. I am indebted to them forever. Moreover, I am very grateful to Professor Peter Sinclair and Professor Tooraj Jamasb for their valuable advice and suggestions on my thesis. I would also like to express my gratitude to my loving parents Mr. S.M Aminur Rahman Amin and Mrs. Akhter Jahan Selima Aziz Arzoo for their unconditional and endless love, care, understanding and encouragement all through my life. They provide all kind of iii financial support I need during my PhD period. Every success in my life has been achieved because of the love and blessings of my parents. I will forever be indebted to them for their love and affection towards me. I thank my only sister Tanjila Amin Bintu for her persistent support on me. I appreciate my wife Sameena Shahzadi Mim’s effort to take care of our 3 years and 6 months old son Sabir Amin during my absence and for her tireless support during the last three years. I am also thankful to all my family members. Furthermore, I remember my late paternal and maternal grandparents and all my late relatives. I am still feeling blessed to spend some unforgettable memories with my maternal grandfather Late A.K.M Aziz Uddin and paternal grandmother Late Abeda Rashid. I also believe that the blessings of my late relatives were always with me which helped a lot to overcome all the hurdles at different stages of my life. Thanks also go to Late Dr. Shah Rahman and his family, Dr. Andrew Rahman and Dr. Adrian Rahman, Dr. Salam and his family, Mr. Abdul Latif Barabhuiya and his family and Mr. Mamun for their care during my staying in UK. The appreciations and conceptual contributions of Professor Guido Cozzi during the first year of my research are highly appreciated. I am also very thankful to Professor Parantap Basu for his useful comments during the 21 months review presentation and kindness all along. I gratefully acknowledge the valuable comments and feedback received at different stages from Professor Angus Chu, Dr. Leslie J Reinhorn, Dr. Ashar Aftab, Professor Abul Barkat, Professor Mustafizur Rahman, Professor Bazlul H. Khondker, Professor Nazma Begum, Professor Mohammed Farashuddin, Professor Ray Land, Professor Pual Levine and Professor Golam Mohammad. I would also like to express my sincere gratitude to Professor Tooraj Jamasb for his kind behaviour and valuable advice every time we met in UK and Turkey. Special gratitude is also due to Dr. Theresa McKinven for her persistent support to iv get me involved in Ustinov Intercultural Forum (UIF) and Professor A.F.M. Ataur Rahman to encourage me to initiate research in Energy Economics and his kind support all along. A great number of friends and colleagues here in Durham and Bangladesh that ultimately enriched my life academically and socially must be acknowledged. At first, I would like to thank Mr. Agnirup Sarkar for being such a good colleague and friend all along. I would also like to thank all my PhD colleagues especially Dr. Manzoor Ahmed, Dr. Sheshadri Banerjee, Dr. Eun Young OH, Dr. Peter Robejsek, Dr. Postrick Mushendami, Mr. Sigit Wibow, Mr. Jiunn Wang, Mr. Bledar Hoda, Mr. Yongdae Lee, Mrs. Hala Alqobali for the thoughtful discussions at different stages of my research. I am also very grateful to Dr. Hong Il Yoo, Dr. Manuel Llorca, Dr. Rosen Azad Chowdhury, Dr. Paola Bassino, Dr. Michele Filippo Fontefrancesco, Dr. Emilio G. Berrocal, Dr. Anna Caludia Morgavi, Dr. Dori Beeler, Mr. Yannis Soniglouth, Mrs. Nahid Rezwana, Mrs. Dilshad Jahan, Mr. Muhammad Jahedul Huq, Mr. Lee Jonathan, Miss. Mehrin Chowdhury, Miss. Yuexian Hong, Dr. George Gazis, Miss Aspasia Christodoulou, Stefan Renström, Alexander Renström, all my colleagues in Ustinov Intercultural Forum (UIF) and North South University (NSU), all my students in UK and Bangladesh, especially, Mr. Shahnawaz Ferdous, all the staffs of Ustinov College especially Glenn, Sarah, Rebecca, Lynsey, Brenda, Sheila, Jonathon, Maureen, Brian, all the Staffs of Park and Ride and Arriva Bus Companies, all my neighbours in Keenan House, Century State Apt. and Baily Square, all the staffs of Durham University Business School and Fusion Restaurant, all my musical band members and all my friends in Durham and Bangladesh for being so nice to me all the time. I am very grateful to Nui and Frankie for their support all along. Many thanks should also go to Md. Mizanur Rahman, Md. Anwarul Islam and Mr. Hridoy of Janata Bank Limited for their cooperation during my study. v I am extremely gratitude to North South University for granting me four years study leave to continue my research. I am also grateful for the financial assistance provided by Ustinov College (Durham University) for the year 2012-2015. The generous funding for the PhD researchers from the Durham University Business School is gratefully acknowledged. I am also grateful to Janata Bank Limited for the support and cooperation during my research. The conference funding from Summit Power Limited Company and Orion Group Bangladesh is also highly acknowledged. My thanks are also due to Thermax Group Bangladesh for their encouragement. Finally, I would like to acknowledge my only son Sabir Amin, who gives me inspirations all the time. All my tiredness and stress simply disappears when I see my son and parent’s face. vi Dedication To my Parents: Mr. S.M. Aminur Rahman and Mrs. A.J. Selima Aziz vii Abstract Electricity is a vital instrument for economic growth and human development. The measure of growth in developing countries like Bangladesh is synonymous with the level of electricity use. Energy (oil) price shocks are often identified as a source of macroeconomic fluctuations since they affect economic development as well as business cycle. Accordingly, it has been argued that electricity market reforms are a possible tool to improve economic performance, efficiency, welfare and overall economic development. The Bangladesh economy is vulnerable to energy (oil) price shocks and the government has adopted different electricity reform policies in the past few years. However, there is a real gap in the energy literature with regard to the qualitative and quantitative analysis of the consequences of energy (oil) price shocks and electricity market reforms towards the Bangladesh economy. This thesis is divided into two main parts. The first part contains two chapters titled, “A Survey of Literature” and “Energy Scenario in Bangladesh” which extensively review the related literature and underline the research gaps that this thesis intends to address.