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Impact of Rising Fuel Prices on International Trade: Analysis for Germany

This paper analyzes the macroeconomic impact of rising fuel prices on international trade, with a focus on Germany. It examines the effects on GDP, trade channels, and industry sectors. The study concludes that energy-importing countries can benefit from higher energy prices through international trade. However, further research is needed to assess the impacts in a carbon-constrained world or under supply constraints (e.g., peak oil).

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Impact of Rising Fuel Prices on International Trade: Analysis for Germany

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  1. First Meeting of the Working Party on International Trade in Goods and Trade in Services Statistics (WPTGS), Paris, 22-24 September 2008 Rising fuel prices and trade. A macro-economic impact analysis for big traders with a focus on Germanyby Dr. Christian Lutz Institute of Economic Structures Research (GWS) Gesellschaft für Wirtschaftliche Strukturforschung mbHHeinrichstr. 30 ° D – 49080 Osnabrück, Germany Tel.: + 49 (541) 40933-12 ° Fax: + 49 (541) 40933-11Email: lutz @ gws-os.de ° Internet: www.gws-os.de

  2. 1. Introduction: Oil price and GDP • Shock analysis • Vector autoregressive models: • GDP of oil-importing countries is negatively hit by oil price shocks;Darby (1982), Hamilton (1983) • Effect is asymmetric; Mork (1989) • nonlinear estimations: better results Lee et al. (1995), Hamilton (1996), Jimenez-Rodriguez / Sanchez (2005) • Structural econometric models • GDP of oil importing countries is negatively hit by oil price shocks (IEA 2004, EIA 2006) • differences between countries can be explained by structural differences of their economies. • positive effects of rising GDP of oil exporting countries are not easy to analyze. Accumulation of surplus stocks. (EIA 2006), (Jimenez-Rodriguez/Sanchez 2005)

  3. Introduction: Oil price and GDP 6 transmission channels for oil importers (Lardic and Mignos 2008) • Reduction of potential output, • negative terms of trade effects, • increased money demand, • inflation including second round effects, • negative demand side impacts, • structural changes

  4. Introduction: Oil price and GDP • Contribution of the paper: • Effects of a permanent rise (surplus stocks neglected) of the energy prices on a net energy importing country (Germany) including the international trade effects Three channels for trade effects: • change of goods imports of energy exporters induce goods exports of energy importers • depending on the regional and the goods structure of the exports of the importer • change of trade shares • depending on the price impact for goods in all countries • change of goods imports of energy importers • consumption to investment

  5. 2. GINFORS: Data Sources and Coverage • Data sources

  6. GINFORS: Data Sources and Coverage • Country Coverage country models OPEC ex. Indonesia ROW

  7. 3. GINFORS: Model Structure • Wheel of GINFORS: General architecture

  8. GINFORS: Model Structure • Country Model

  9. GINFORS: Model Structure • General architecture input-output models - final demand - intermediate demand - primary inputs macro models - balance of payment - SNA totals - budget of the government & private sector - labour market export demand import prices import demand export prices Bilateral multisector trade model (25 sectors + services) Bilateral multisector trade model (25 sectors + services) energy-emission models - final consumption - transformation - primary energy supply - emissions material models land-use models

  10. GINFORS: Model Structure • Trade model: • Export of good i in country k explained by: • Share of country k in the imports of good i in all other countries • Imports of good i in all other countries • Import price of good i explained by: • Weighted average of the export for good i of all countries • Weights: Trade shares • Shares are automatically estimated for • price dependency • time trends • 1994 - 2004

  11. 4. Scenarios • Oil price 200 $/bbl (HEP) against 100 $/bbl in 2010 (baseline) • Coal and gas prices proportionally

  12. 5. The results • Impacts on real GDP in 2010: HEP against baseline

  13. The results • Macroeconomic impacts in Germany – HEP against baseline in %

  14. The results • Impacts on industries in Germany – HEP against baseline in %

  15. 6. Conclusions • Energy importing countries may profit from higher energy prices via international trade • The case of Germany: • Improved terms of trade • Shift from consumption to investment • Additional exports of investment goods • GDP reduction only in the short run negatively • Consumers pay the bill • Further research is necessary for other countries • Impacts in a world of carbon or supply (peak oil) constraints?

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