Structural Transformation and the Oil Price
AbstractWhat part of the high oil price can be explained by structural transformation in the developing world? Will continued structural transformation in these countries result in a permanently higher oil price? To address these issues I identify an inverted-U shaped relationship in the data between aggregate oil intensity and the extent of structural transformation: countries in the middle stages of transition spend the highest fraction of their income on oil. I construct and calibrate a multi-sector, multi-country, general equilibrium growth model that accounts for this fact by generating an endogenously falling aggregate elasticity of substitution between oil and non-oil inputs. The model is used to measure and isolate the impact of changing sectoral composition in the developing world on global oil demand and the oil price in the OECD. I find that structural transformation in non-OECD countries accounts for up to 53% of the oil price increase in the OECD between 1970 and 2010. However, the impact of structural transformation is temporary. Continued structural transformation induces falling oil intensity and an easing of the upward pressure on the oil price. Since a standard one-sector growth model misses this non-linearity, to understand the impact of growth on the oil price, it is necessary to take a more disaggregated view than is standard in macroeconomics (Copyright: Elsevier)
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- University of Minnesota & Radoslaw Stefanski, 2009. "Structural Transformation and the Oil Price," 2009 Meeting Papers 1050, Society for Economic Dynamics.
- Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.
- Radoslaw Stefanski, 2013. "Code and data files for "Structural Transformation and the Oil Price"," Computer Codes 12-45, Review of Economic Dynamics.
- Radoslaw Stefanski, 2010. "Structural Transformation and the Oil Price," OxCarre Working Papers 048, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- F1 - International Economics - - Trade
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
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