Why Different?

1
The impact of oil price increase on the global
economy
Hyunjoon Chang
2
The third oil shock?
3
Previous oil shocks features

• Common features
• 1. When the world economy was expanding at a
  rapid rate
• 2. When the worlds 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

4
Economic Boom
USA
5
Commercial stock in OECD
6
Investment expenditure
7
Different impact

• Impact on Industrial countries

ltTablegt Permanent 5 barrel increase in the price
of oil
Source IMF
8
Different impact

• Impact on Emerging markets

ltTablegt Estimated effects after 1 year a 5 oil
price hike
Source IMF
9
Why different?

• Energy Intensity

Source OECD, Economic Outlook, no 68, Dec 2000
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 (19951999)
Energy consumption per dollar of GDP fell by
4 (19971998)
11
Why different?

• Competition
• Rotemburg and Woodford(1996)

Price
Normal times
cost
margin
Less higher Price
Under perfect Competition
Oil price hike
cost
margin
Under imperfect Competition
Higher Price
cost
margin
12
Why different?

• Oil to natural gas

Source The World Bank(2000)
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

14
Concluding remarks

• Oil to gas
• regional integration in energy network

15
Thank you

• Hyunjoon Chang
• hjchang_at_keei.re.kr