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Structural Transformation and the Oil Price

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  • Radoslaw Stefanski

    (University Laval)

Abstract

What 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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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 17 (2014)
Issue (Month): 3 (July)
Pages: 484-504

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Handle: RePEc:red:issued:12-45

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Keywords: Structural transformation; Industrialization; International trade; Multi-sector models; Commodity prices; Oil price;

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References

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Cited by:
  1. Murat Üngör, 2009. "De-industrialization of the Riches and the Rise of China," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c014_040, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Zhou, Xiaoyan & Zhang, Jie & Li, Junpeng, 2013. "Industrial structural transformation and carbon dioxide emissions in China," Energy Policy, Elsevier, Elsevier, vol. 57(C), pages 43-51.
  3. David M. Arseneau, 2011. "Explaining the energy consumption portfolio in a cross-section of countries: are the BRICs different?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1015, Board of Governors of the Federal Reserve System (U.S.).
  4. Luca Guerrieri & Martin Bodenstein, 2012. "Oil Efficiency, Demand, and Prices: a Tale of Ups and Downs," 2012 Meeting Papers, Society for Economic Dynamics 25, Society for Economic Dynamics.
  5. Robert Dekle, 2013. "Real Exchange Rates in a Model of Structural Change: Applications to the Real Yen-Dollar and Chinese RMB-Dollar Exchange Rates," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 13-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  6. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 60(6), pages 667-682.
  7. Baran Doda, 2012. "Evidence on CO2 emissions and business cycles," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 78, Grantham Research Institute on Climate Change and the Environment.
  8. Ercio Muñoz & Miguel Ricaurte & Mariel Siravegna, 2012. "Combinación de Proyecciones para el Precio del Petróleo: Aplicación y Evaluación de Metodologías," Working Papers Central Bank of Chile, Central Bank of Chile 660, Central Bank of Chile.

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