Download Why Different?

The impact of oil price increase
on the global economy
Hyunjoon Chang
Korea Energy Economics Institute
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The third oil shock?
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Previous oil shocks’ features

Common features
1. When the world economy was expanding at a rapid rate
2. When the world’s crude oil capacity was being stretched to the
limit
3. When investment in oil and gas exploration had tapered off,
making it impossible to achieve a speedy increase in nonOPEC output
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Economic Boom
USA
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Commercial stock in OECD
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Investment expenditure
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Different impact

Impact on Industrial countries
<Table> Permanent $5 barrel increase in the price of oil
2000
2001
2002
2003
2004
Real GDP
-0.2
-0.3
-0.3
-0.2
-0.1
Real domestic demand
-0.2
-0.4
-0.4
-0.2
-0.1
Real GDP
-0.3
-0.4
-0.4
-0.2
-0.1
Real domestic demand
-0.3
0.5
-0.4
-0.3
0.2
Industrial countries
US
Source: IMF
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Different impact

Impact on Emerging markets
<Table> Estimated effects after 1 year a $5 oil price hike
Real GDP
Inflation
Current Account
(percent of GDP)
China
-0.4
0.4
0.3
India
-0.5
0.4
-0.6
Indonesia
0.1
1.0
0.6
Korea
-0.9
0.8
-1.0
Poland
-0.3
0.0
-0.4
Russia
0.7
0.0
1.8
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Source: IMF
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Why different?

Energy Intensity
Source: OECD, Economic Outlook, no 68, Dec 2000
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Why different?

“New” Economy
High
economic growth
Low growth
in energy use
New Economy
IT industries contributed 1/3
of real U.S. economic growth
(1995~1999)
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Energy consumption
per dollar of GDP
fell by 4%
(1997~1998)
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Why different?

Competition
– Rotemburg and Woodford(1996)
Price
Normal times
cost
Under perfect
Competition
Oil price
hike
Under imperfect
Competition
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margin
Less higher Price
cost
margin
Higher Price
cost
margin
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Why different?

Oil to natural gas
Oil
Gas
1980
1997
1980
1997
25.8
8.8
1.8
5.6
43.7
24.5
5.8
24.3
East Asia & Pacific
35.9
11.6
0.3
8.9
High Income
17.7
6.9
11.3
13.8
22.9
8.8
10.0
11.9
Low income
Excluding China & India
Europe EMU
Korea Energy Economics Institute
Source: The World Bank(2000)
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Concluding remarks

Developing countries’ limitation in impact mitigation
– Policy measures against oil price volatility
• Strategic oil stock
• Improve energy efficiency
– Developing countries’ constraint
• Difficulties in financial access
• Technological limitation

Need to cooperate with developed countries
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Concluding remarks

Oil to gas
– regional integration in energy network
Figure: (Possible) Gas Pipeline Routes in Northeast Asia
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Thank you
Hyunjoon Chang
[email protected]
Korea Energy Economics Institute
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