Economic and Social Impacts of Energy Shocks: A General Equilibrium Analysis for Chile

Oil price increases and the restrictions to natural gas imports from Argentina generate multiple effects which ripple throughout the Chilean economy. The magnitude of the aggregate, sectoral and distributive impacts associated with these changes in the energy sector is debated. In this paper, using a static general equilibrium framework, we analyze quantitatively the direct and indirect effects of these international shocks. The results show that the increase in international prices of oil and fuels generates a slightly negative impact on GDP, which is explained by the recessionary effect on consumption. The sectors most adversely affected are the fuel sector, other sectors strongly linked to the energy sectors such as transport and electricity and those geared to the provision of goods and services for final consumption. The main effect on the productive structure is a strengthening of Chile’s traditional comparative advantages based on primary sectors and natural resources. Within the energy sector, coal gains participation in the energy matrix. The impacts on the income of the poorest and its distribution are clearly negative: contractionary and regressive. The former results are magnified when both natural gas supply restrictions and high hydrocarbon prices are considered together.