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The impact of oil price increase on the global economy

The impact of oil price increase on the global economy. Hyunjoon Chang. The third oil shock?. 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

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The impact of oil price increase on the global economy

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  1. The impact of oil price increase on the global economy Hyunjoon Chang Korea Energy Economics Institute

  2. The third oil shock? Korea Energy Economics Institute

  3. 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 non-OPEC output Korea Energy Economics Institute

  4. Economic Boom USA Korea Energy Economics Institute

  5. Commercial stock in OECD Korea Energy Economics Institute

  6. Investment expenditure Korea Energy Economics Institute

  7. Different impact • Impact on Industrial countries <Table> Permanent $5 barrel increase in the price of oil Source: IMF Korea Energy Economics Institute

  8. Different impact • Impact on Emerging markets <Table> Estimated effects after 1 year a $5 oil price hike Source: IMF Korea Energy Economics Institute

  9. Why different? • Energy Intensity Source: OECD, Economic Outlook, no 68, Dec 2000 Korea Energy Economics Institute

  10. 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) Energy consumption per dollar of GDP fell by 4% (1997~1998) Korea Energy Economics Institute

  11. Why different? • Competition • Rotemburg and Woodford(1996) Price Normal times cost margin Under perfect Competition Less higher Price Oil price hike cost margin Under imperfect Competition Higher Price cost margin Korea Energy Economics Institute

  12. Why different? • Oil to natural gas Source: The World Bank(2000) Korea Energy Economics Institute

  13. 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 Korea Energy Economics Institute

  14. Concluding remarks • Oil to gas • regional integration in energy network Korea Energy Economics Institute

  15. Thank you Hyunjoon Chang hjchang@keei.re.kr Korea Energy Economics Institute

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