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A Computable General Equilibrium (CGE) Analysis of the Impact of an Oil Price Increase in South Africa

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  • McDonald, Scott
  • van Schoor, Melt

Abstract

Following recent international oil price increases, there has been considerable interest in how this external factor can affect the South African economy. This paper reports results from a computable general equilibrium (CGE) analysis of an increase (up to 30 per cent) in international oil prices. Background information is provided, which puts the magnitude of the price variations in historical context. We describe the procedure used to adjust the social accounting matrix (SAM), which is used to calibrate the model, to account explicitly for crude oil. Then, the effects of the crude oil price increase are traced through the economy, from markets, industries through to factors, households and the government. Predictably, the shock hurts the economy: a 20 per cent increase results in a drop in GDP of 1 per cent. It is found that the major impact is to be found in the petroleum industry itself, whereas the effects on liquid fuel dependent industries such as transport is not as large as may be supposed. In agriculture, it is found that the depreciating currency has a positive effect, offsetting most of the negative effects of higher petroleum prices, particularly in export-oriented areas. In a long-term scenario, capital and skilled labour becomes mobile, and the results suggest that such reallocation may not be to the overall advantage of the economy.

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File URL: http://purl.umn.edu/15633
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Bibliographic Info

Paper provided by PROVIDE Project in its series Working Paper Series with number 15633.

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Date of creation: 2005
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Handle: RePEc:ags:provwp:15633

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Related research

Keywords: Resource /Energy Economics and Policy;

References

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  1. Robert Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," NBER Working Papers 10855, National Bureau of Economic Research, Inc.
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Cited by:
  1. Carolyn Chisadza & Janneke Dlamini & Rangan Gupta & Mampho P. Modise, 2013. "The Impact of Oil Shocks on the South African Economy," Working Papers 201311, University of Pretoria, Department of Economics.
  2. Sahlén, Linda, 2009. "Essays on Environmental and Development Economics - Public Policy, Resource Prices and Global Warming," UmeÃ¥ Economic Studies 762, Umeå University, Department of Economics.
  3. Kangni Kpodar, 2006. "Distributional Effects of Oil Price Changeson Household Expenditures," IMF Working Papers 06/91, International Monetary Fund.
  4. Delfin S. Go & John Page, 2008. "Africa at a Turning Point? : Growth, Aid, and External Shocks," World Bank Publications, The World Bank, number 6421, October.
  5. Kangni KPODAR, 2007. "Impact de l’accroissement du prix des produits pétroliers sur la distribution des revenus au Mali," Working Papers 200701, CERDI.
  6. Hélène Maisonnave & Bernard Decaluwé & Margaret Chitiga, 2009. "Does South African Affirmative Action Policy Reduce Poverty? a CGE Analysis," Cahiers de recherche 0936, CIRPEE.
  7. Sahlén, Linda, 2008. "The Impacts of Food- and Oil Price Shocks on the Namibian Economy: the Role of Water Scarcity," UmeÃ¥ Economic Studies 758, Umeå University, Department of Economics.
  8. Fofana, Ismaël, 2012. "Including women in the policy responses to high oil prices: a case study of South Africa," IFPRI discussion papers 1169, International Food Policy Research Institute (IFPRI).

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